How CFOs think about software spend

Today I want to talk about software and tooling spend from a non-technical perspective. But first, I’ve got to level with you - I don’t know what half the things we buy “do” (Stitch vs Fivetran anyone?)

What I can attest to is that there’s a business case behind why we need each tool, supported by an executive who is directly accountable for results. We trust leaders to make decisions on what tools they need to get the most out of their teams.

At the end of the day, software is about enabling people to build. And you can’t separate the people from the technology. If you change the people, you change the technology, and vice versa. The improvements come from improving one or both. But changing one or both will change the other as well. (Paraphrasing a knowledge bomb this product guru once dropped on me…)

“Get back to the numbers, Budget Boy”

But back to budgeting…I look at Finance, and FP&A specifically, not as software decision makers (in most cases), but as the brokers between the business unit, the company P&L, and the vendor trying to gain our biz.

It’s the finance department’s job to understand:

What type of tool it is - Critical infrastructure, productivity, communication, security, G&A
How we pay for it - Usage based, headcount based, license based, transaction based, hybrid
When we pay for it - Annually up-front, monthly in-arrears, quarterly up-front etc.
Unintended consequences - Do we have the bandwidth to implement this? Are there any other tools this takes the place of?

Types of Tools

I’ve taken a shot at bucketing these in relative order of importance. When someone brings a tool to me and asks for budget, I instantly think - Is this a vitamin or a painkiller? In other words, does our business cease to exist without this? Does this improve something we already are doing? Is this a nice to have?

The following is a general stack ranking of tools by “bucket”.

Tier 1: Keep the Lights On

Critical Infrastructure (AWS, Snowflake, GCP)
Security (Crowdstrike, Jfrog, DataDog)
Engineering (Gitlab, Docker, Postman)
Finance / Accounting (Quickbooks, NetSuite, Xero)
Money In, Money Out (ADP, Bill.com, Ramp)
Communication (Slack, Gsuite, Zoom)

Tier 2: Run the Business

Workforce Management (Workday, Bamboo HR, Gusto)
Sales (Salesforce, Docusign)
Customer Support (Ask Nicely, Zen Desk, Churnzero)
Marketing (Hubspot, Mailchimp, Marketo)
Finance (Carta, NetSuite, Ramp)
Recruiting (Greenhouse, Workable, Linkedin)
Databases (Tableau, Grafana, MongoDB)
Design (Figma, Fullstory, Adobe)

Tier 3: Run the Business Better

Project Management (Miro, Clickup, Asana)
Budgeting (DataRails, Adaptive Insights, Vena)
Expense Management (Expensify, Tripactions, TravelPerk)
Meeting Management (Calendly, Chilipiper, Vidyard)
Analytics and Nice Charts (Sigma, Looker, Chartio)
Sales Efficiency (Gong, Zoominfo, Linkedin Sales Navigator)
Research (Pitchbook, Crunchbase, CapIQ)
People Tools (Lattice, Culture Amp, WorkHuman)
Modern Marketing Tools (Jasper.ai, SproutSocial, Podium)
Treasury and Procurement (Kyriba, Coupa, Ivalua)

How do we pay for it?

In the words of Mac Miller - “CTC…Cut the check!”

This informs how we budget for it.

Generally speaking, the easiest tools to budget for are those linked to headcount. What can be tricky, though, is nailing down if the tool is exclusive to one department. For example, if everyone needs a Gitlab license in engineering, that’s a pretty finite group to forecast for. You just scale the spend with the department’s forecasted headcount each month.

But with cross-team collaboration tools like Miro, this can go haywire real fast. For example, someone in Biz Dev just sent me a real neato market landscape overview they spun up in Miro. I clicked to view their book report, only to find out later from the head of Product (who “owns” the tool) that I (a member of finance) am now chewing up one of our paid Miro licenses. License proliferation is a real thing.

But, I digress. Here are the three most common ways to pay for a tool:

Seat Based Subscription (Recurring): The tried and true. You pay, say, $8 bucks for each person who uses Slack per month.
Consumption (Usage Based): Now this can have different flavors. A lot of times you pre-pay for credits to get a better rate. Other times you just get billed based on a flat rate at the end of each month. AWS and Snowflake are the easiest examples.
Hybrid (Mix and Match): ZoomInfo is the king of this. They blend the two models above. They charge you a per seat subscription fee and then layer on a fee based on credits. It’s genius (for them).
Transaction Based (Take Rate): You pay a percent of whatever your transaction volume is. Stripe is the most common example. You get hit with ~3% per transaction. Quickbooks can also charge you a variable fee based on stuff you bill (in addition to the subscription).
Big Tony’s Enterprise All You Can Eat Tier: The company gets unlimited access to the same shared resources and just pays one big fee. This is typically reserved for, say, the Walmarts of the world who can buy tens of thousands of licenses. You gotta spend a lot to get this type of deal, and usually commit for multiple years.