The Rewards of Accurate and Trustworthy Billing in SPLA and BYOL

The topic of today's conversation is "The Rewards of Accurate and Trustworthy Billing in SPLA". And before we dive into the details, let me tell you a story of how this topic came to life. It's a product of multiple years.

My name is Alexander Golev. I'm a Partner and the Head of Consulting and Services at a company called SAMexpert.

I bring over two decades of experience managing Microsoft licensing, cloud costs, and compliance. My journey in the service provider world began about ten years ago, in 2014-2015, with an SPLA audit. And since then, I've defended providers in over a hundred such audits and compliance reviews.

Although what we'll talk about today is not about audits, the initial recognition of the problem and the benefits of accurate billing was born from the audit experience.

The Real Reasons for Non-compliance

The majority of the audits find non-compliance. That's the goal of the audit, which is to find and rectify non-compliance. In SPLA, non-compliance means you didn't pay enough for the licenses you and your clients consumed.

Why does this happen? First of all, I must say that we have never seen SPLA non-compliance arising from a provider deliberately underreporting licenses. We have never seen "pirate" providers. Not a single time.

It's always the result of an error due to the lack of configuration quality, knowledge, misunderstanding of the licensing rules, unreliable internal processes, and the lack of visibility and control around the underlying data.

When client environments are co-managed by the provider and end clients, both parties are at risk of making such errors.

Negative Consequences of Non-compliance

Now, imagine a classic audit situation when non-compliance is discovered, either during the audit or much better at the audit preparation stage. What does that affect? What are the drawbacks? Before we speak about the benefits, let's talk about the drawbacks.

The immediate thought that comes to mind – it should – is that if an error cannot be reasonably rectified, someone has to pay. On the surface, it seems to be all about direct financial damage to the provider as a result of the audit.

But what if it's an error on the end customer's side? Or even more frequently, in our experience, what if the mistake is due to miscommunication and weak processes between the provider and the end client?

• Reliance on declared numbers of licenses, for example.

• The provider didn't explain the licensing rules to the end client.

• The provider forgot to account for changes in configuration.

We observed and tracked statistics on such situations, and here's what we noted. When told about the audit results, most end clients expressed their frustration that the provider did not inform them in time. "Why are you only telling it to us now? Why you didn't tell us before?"

And since there's a question of financial liability when it's established to be an end client's error, it results in three situations, almost evenly split.

1. In the most positive financial scenario, the end client accepts the liability and reimburses the service provider for all the penalties.

2. In the second scenario, the parties go into a lengthy dispute, sometimes months, and an investigation to establish what happened and whose fault it is, and there's sometimes a middle-ground resolution.

3. The last one, which is the most unpleasant, is when the end client goes into complete denial and blames the provider, "You didn't tell us!" And why not? Sometimes, they are right.

Regardless of how the situation is resolved, the end-client relationship is tarnished in every case. We saw end clients leaving. We saw end clients staying but getting unhappy. We have never seen an end client who would just dismiss it and forget it. So, here's the second drawback we learned about – the negative effect on the end client satisfaction. And even the loss of clients.

We also observed that all the end clients would be willing to collaborate on compliance, mitigate the configuration errors, and pay for the licenses they consumed if they were warned and informed in time.

There's another non-obvious observation. We work worldwide, so our clients are everywhere, not just in the UK and the United States, which are our main markets. We have dealt with hosting environments in cultures where non-compliance, I'll put it lightly, is not a big deal. So it came as a massive surprise, not just to us but also to the client relationship managers in the providers, that even in such cultures, we didn't find any resistance from the end clients in regards to understanding and trying to do the right thing about accurate licensing payments. Huge surprise. There was not a single loss of a client when it was communicated promptly, politely, and peacefully.

So here's the ultimate negative consequence of inaccurate billing. Of most providers we engaged with, 90 plus per cent were undercharging for their services.

Benefits of Accurate Billing

So now, let's take these drawbacks and turn them upside down, and you will see the apparent rewards of improving your billing practices.

The first one is improving the bottom line by eliminating undercharging. And this is the most important benefit because it's not about audits. It's about your business-as-usual income and your day-to-day operations.

The second benefit is improving customer satisfaction through accurate billing, proactive mitigation of configuration mistakes together with the end client, and overall better care of the client. Those providers who implemented proper tools and processes see an increase in customer satisfaction, easier negotiations, easier upsells, and less customer churn.

Audits still happen, but you may not get audited tomorrow. You may not ever get audited. But then again, accurate billing, full transparency, visibility, and timely management mitigate non-compliance penalty risks. It's obvious. I don't have to prove this point.

Data-driven Decision Making

Since billing accuracy cannot be achieved without improving the overall maturity of your processes and data quality, the results of such improvements will allow you to make better-informed decisions. It usually doesn't come immediately, but in time, the data accumulates.

It allows you to start thinking about cost optimisation, infrastructure optimisation, green data centres, and whatever else is on your list right now on your mind. More accurate data obviously leads to better decision-making.

You Only have 60 Days to Correct Your Reports

Let's go into the nitty gritty of what, how, and when. And let's start with the Billing Best Practices. First of all, your end client bills should align with the SPLA reporting requirements. You don't necessarily have to bill the end clients with the same frequency, the same monthly frequency that you report to Microsoft, but the numbers should somehow depend on what you're paying to Microsoft for its licenses.

In SPLA, if you don't know yet, you must report and pay for all the Microsoft licenses consumed in the calendar month by all your end clients, including your internal use. If you made a mistake, you only have 60 days to correct it. So you can't allow it to slip. It's not something that you can rectify a year later. You don't have the luxury of postponing the correction further.

If you don't pay for what you must, that becomes your risk and liability after 60 days. So, it's in your best interest to measure the most accurate numbers possible and avoid relying on declared numbers that you cannot technically verify.

Everyday License Metering is Key

However, here's something that may not be on your radar, and let me bring it to your attention. Just measuring the numbers at the end of the calendar month may not be enough.

What if someone introduces a configuration mistake mid-month? It happens more often than not, unfortunately. A system administrator, for all the good reasons, opens access to an application for all the users in the organisation. Only a hundred users require access to that application. It could be a financial accounting application. But the total headcount is 3,000.

Imagine you measure the numbers accurately at the end of the month and bill the end client without asking for the 3,000 users because that's what you have to report to Microsoft. That's how it works. And their account manager, your colleague, calls you on the internal phone or messages you on Teams and says, "Are you kidding me? We can't do that".

So what do you do then? You have to report the consumption now. You have to pay now. You have this stressful problem on your hands now. It's the end of the month, and there's very little window for decision-making.

When we work with our clients on process improvement, we recommend monitoring any significant changes in numbers on a constant basis. So, such errors may be caught and rectified immediately, and you can reduce the stress. If this happens mid-month, fix it mid-month.

And if the end client indeed needs 3,000 user licenses, then well, good for you. You've just sold them more licenses. You've just improved your bottom line. Why not? It's a win-win situation, then. If they want these 3,000 licenses, if they're happy to pay for it, there you go. But then, you don't bill them for a hundred, and you're not liable to report additional unpaid 2,900 licenses to Microsoft. That would be your loss.

Don't Rely on Declared Numbers

There are also other common billing and licensing errors. And I would start with the reliance on declared numbers. That is one of the probably most frequent problems—the reliance on declared numbers, either by the end client or by one of your departments.

There may be a department managing certain clients, and instead of providing you accurate data through a tool, they just tell you, we need 400 licenses, we need 300 licenses, we need 64 SQL Server cores this month.

These are often, and I would even claim, always underestimated. We have not seen overestimated numbers. There's always a bit of an understatement there. That means you will underreport if you rely on such numbers, and consequently, you will probably undercharge your end clients.

The other frequent billing error is when you rely on the accuracy of the planned and implemented initial configuration and then do not account for changes. We started seeing that when we started dealing with providers that host remote desktop solutions with specific applications.

An application is sold, for example, to a client with 20 users: huge, expensive applications, something like a CAD or an SAP interface. During the course of the service, the number of users increases to a hundred because somebody asks the admin or the account manager to increase the number of users to a hundred.

Nobody told the sales and billing department about that. The bills were not corrected, and the client continued to pay for 20 licenses. If you do not monitor the numbers, if your reporting relies on those declared initial numbers, then you're already underreporting to Microsoft and undercharging the client. So it's a lose-lose situation.

Disconnect Between Reporting and Billing

And imagine, suppose, that you're reporting correctly, but there is no link between the reported and billed numbers. So, you may be accurately reporting the license to Microsoft, but the sales and billing department is still unaware of this, and as a result, you charge less than you should be. That is a direct financial loss on a monthly basis.

Lack of Knowledge and Understanding of Terms

Inaccuracies often arise from also misunderstanding the licensing terms, which are, let me put it politely, quite extreme and very complicated. If you account for SPLA, CSP hosting, bring your own license, self-hosting, and all the other scenarios that service providers have to deal with, then, well, you may imagine, it's very complex. Service providers need to know quite a lot about licensing.

Common mistakes are:

• The mistake of reporting and billing for Microsoft Office and forgetting to bill for Remote Desktop licenses. That happens. Just recently saw that.

• Reporting and billing for concurrent or active users, while the official rule is to pay for every authorised user. As a result, the numbers reported and paid for to Microsoft are lower than you need. The problem, accumulating monthly, stems from misunderstanding the rule or even from not knowing the rule.

• Sometimes, you may be overpaying and overcharging the clients. It may not necessarily be good for customer satisfaction if they suddenly realise or you realise that you've been overcharging them. The most frequent example in this case is reporting and billing for passive SQL Server instances.

How to Get Better at It

So how do you improve it? How do you improve this whole thing? It is very simple: two things: tools and processes.

Currently, there are about five known tools for SPLA License Management. However, out of those five, only two are alive: Octopus Cloud and SPLA Manager.

Not Flexera, USU, or God forbid ServiceNow, don't even consider them because they don't have SPLA functionality. They're good SAM tools but have no SPLA functionality and end-client billing facilities.

Speaking about the processes, of course, you must actively look after the tool. You can't just set it and forget it. It doesn't work this way. You must look after the tool's health, So you need an internal or an external resource to look after the tool.

You need to monitor for the changes. You need to monitor for false positives. Every tool is prone to false positives and errors. In the current complex environment, you must manage exceptions, like bringing your own license or out-of-scope machines and out-of-scope software, and incorrectly recognised software.

Other processes require improvements, too, and most importantly, change management. This is where we see the majority of billing discrepancies: shortcomings of the change management process.

Remember I just told you about a solution where a client was onboarded with 20 users accessing an application, and then the number was increased to 100 users, but then that change wasn't tracked by the sales department? If you have a tool, it will catch it. If you don't have a tool and still rely on internal reporting, you may start by improving your change management process and improving communications between the technical departments (and the data they use) and the sales and billing departments.

Crucially, ensure that when the tool is in place, those departments actually trust and use the data from the tool. So, billed numbers align with what's been reported to Microsoft. More often than we would like to, we see that there may be a tool, but the billing is still done the old way. And the bills don't align with what the tool tells. It's not in your interest when that happens.

If you remember what I mentioned a few minutes before, monitoring for sudden configuration changes is also an excellent idea. And if they result from human error, correct and mitigate them. ASAP. That's another process you need to implement as one of the first.

What Should Be in the Bill

One of the questions we are often asked in relation to billing is how we should bill our end clients and what line items should be included in the bill.

This is up to you. There are no strict recommendations, and Microsoft has no contractual requirements regarding your end-client billing. There are contractual requirements for Microsoft reporting, but there are no contractual requirements for what your end client bills should look like.

You absolutely may decide to hide the licensing details and bill for itemised services, for example, "20 users accessing an SAP application". It's very relatable for SaaS providers because when you host a SaaS solution, you bill for SaaS licenses. Whatever is inside that, the Microsoft licenses, it's not their concern. It's an unnecessary complication.

But when you host infrastructure-as-a-service (IaaS) solutions, many providers like informing the clients - itemised - what they bill them for. Nobody stops you from doing that. You may decide to include every license detail and make it as transparent as possible.

However, please remember that, contractually and legally, SPLA does not allow you to resell the licenses. You (the provider) are the licensee, so we recommend making it very clear in the bill that you are billing for the consumed licenses, but you're not reselling the licenses to the end client.

Strategic Decision-Making

And how does it all help strategic decision-making? The benefits of the accuracy and quality of your billing data can extend beyond just compliance and beyond customer satisfaction.

You can identify trends from the accurate data. You can see accurate trends – not guessed or estimated – in how your clients use licenses. It could tell you precisely, without guessing, which services are growing in demand, allowing you to proactively scale your infrastructure to ensure optimal performance and service delivery.

If certain services and licenses are becoming less popular, it may lead to a conversation about why it's happening. Do you need to improve your products, or is it just a general market trend – loss of interest of end clients in hosted Microsoft Exchange, for example? Maybe it's not a general loss of interest. Perhaps it's something you are not doing right.

You might discover that certain clients or services are more profitable than others. And that will guide your marketing and sales efforts. On the flip side, identifying areas of low profitability could prompt you to reassess, re-evaluate your pricing or explore cost-saving measures.

And finally, accurate billing data can be a powerful tool for measuring the impact of your strategic initiatives. So, let's say you implement a cost optimisation program and start tracking changes in your accurate billing data, comparing them to the associated costs. Then, you can quantify the financial benefits and see whether you're winning or losing.

Outro

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