This document discusses supporting the transition to subscription business models. It begins by outlining industry trends showing growing subscription revenue for software companies. It then discusses how subscription models require a shift in focus from products to customer relationships. The document provides best practices for subscription businesses, emphasizing the importance of fine-tuning pricing and packaging strategies, as well as monitoring key subscription metrics like retention rates, recurring profit margins, and growth efficiency.
2. Moderator Featured Guests:
Joe Andrews Brian Bell Amy Konary
Sr. Director, Product Marketing Chief Marketing Officer VP of Research
2
3. Table of Contents
1 Industry Trends
Expansion of the Subscription Economy
2 Subscription Business Model
Shift Focus from Products to Relationships
3 Best Practices
Pricing and Packaging Secrets, Key Metrics
3
5. Businesses Can Consumers Can
Subscribe To Anything Subscribe To Anything
ServCorp Google Apps Salesforce Test Tube Wonder Sitter Spotify
Virtual Office Apps CRM Beauty Samples Baby Sitting Music
Zendesk Amazon RingCentral Rent the Babbaco Mystery Tackle
Runway Box
Helpdesk Infrastructure Phone System Women’s Kids Fishing
Dresses Toys/Activities
Dollar Shave Bespoke Spice
Workday Intacct Concur Post
Club Guides
HR GL Travel/Expense Razors Luxury Items Date Idea
5 5
6. This is the
Subscription Economy
BUY NOW SUBSCRIBE
1999 Today
6 6
9. The Foundational Elements Necessary To
Support The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
9 9
10. But Your Existing Systems Don’t Support
The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
Simple E-Comm ERP Homegrown Systems
10 1
0
11. Relationship Business Management:
Built to Support The Subscription Business Model
Pricing Agility Subscription
Metrics
B2Any Subscription Order Back Office
Commerce Management Scalability
“Companies that are looking to move beyond spreadsheets, and position
their subscription businesses for future growth and flexibility, should
consider solutions such as those provided by Zuora”
Amy Konary, VP of Research, IDC
11 1
1
12. Best Practice:
Fine Tune your Pricing and
Packaging Strategies
12
19. Traditional Income Statements are One-
timed Focused (Product Sale) Focused
Traditional income statements do not differentiate
19 one-time from recurring revenue or expenses.
20. Subscription Economy
Income Statement
ARR $100
Churn (10) Retention Rate
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40 Recurring Profit Margin
Growth (40) Growth
Net New ARR 40 Efficiency Index
Ending ARR $130
20
21. When looking at a Subscription Economy
company, only these 3 metrics matter
Retention Recurring Growth
Rate Profit Margin Efficiency
How much of ARR less Churn How much does
your ARR you less Non-Growth it cost you to
keep every year. Spend acquire $1 of
ACV
The metrics for Cloud computing is fairly
different from traditional enterprise software.
Top 10 Laws for Cloud Computing
21
23. (1) Focus on sustaining high Retention Rates
1 Make Renewals Really Easy
Auto-Renewals, Early Bird Renewal Incentives
2 Enable Your CSRs to Renew Customers
Churn defense, ARR preservation
3 Prevent Churn with New Price Plans
Monthly vs. Annual, Discounted, Lower Tiers
“How much ARR you keep every year”
23
24. (2) Maximize your Recurring Profit Margins
1 Automate Quote-to-Cash-to-Renewals
Seamless, eliminate manual errors
Take Credit Card Payments
2 No touch, bring cash in the door immediately
3 Drive Multi-Year Commitments
Multi-Year Pricing Tiers, Term Discounts
“How do you cost effectively service the base”
24
25. (3) Optimize your business for Growth Efficiency
1 Tune Your Pricing Strategies Freemium,
Editions, Pay-as-you-Go, Tiers
2 Increase Total Customer Value
Upsells, Cross-Sells, Add-ons
3 Make Doing Business Simple
Self-Service, Promotions, Free Trials
“How much does it cost you to acquire a $ of ACV”
25
Give the audience a quick overview of what the webinar will entail.
Some key statistics on subscription. model. In larger software companies where subscription is relatively new, subscription tends to be a smaller part of the business, but a growth engine. As an example, Zuora is working with nine different business units within HP, helping them transition to a subscription
We made a bold prediction 6 years ago, that we were moving to a subscription economyBut you, in this room, are the leaders that made that happenYou are paving the wayYou are the ones telling us how this future is being shaped
Joe: Now we move onto the second part of the discussion, shifting to a subscription business model is more than just billing your customers monthly. It requires you to completely overhaul your primary focus, shifting from focusing from products to relationships.
In order to be successful in the subscription economy, companies need systems that enable the 5 key elements fundamental to the subscription business model:Subscription Order ManagementB2Any CommercePricing AgilityBack Office ScalabilitySubscription Metrics
You need to launch new services at cloud speed, but your systems constrain you. It takes 12-24 months for your systems to be ready to support the launch of a new service. Contrast that with Tata Communications, who with Zuora was able to launch a new service in 60 days in 32 international markets.
Z-Business is an integrated relationship management system with features that span commerce, billing and finance, and designed to help address the business challenges you are faced with today.
Because a lot of times pricing is an afterthought, and because missteps in pricing and licensing can be very expensive, I recognize that it is difficult to experiment with pricing. At the same time, in this new era of mobile, BYOD, freemium, usage, etc. you need to be able to try different things when it comes to pricing and packaging and come up with new ways of monetizing software. The science piece is where you can do very interesting things, and it’s also necessary for instrumentation.Having underlying systems that can support pricing experiments is important, as well as taking a scientific, well-thought out approach is a lot better than a “get in the van” approach.
Ning used to be free and leveraged advertising for revenue, then they decided to move to a multiple edition strategy. When they decided to go that route, they wanted to reduce the amount of churn since they used to offer a free product, so they implemented a very low cost plan ($2.95) with basic features.
Benefits: Help customers get up to speed in a full featured product, if it hits their needs, they will want/need your product. Promotional strategies giving you access you to everything gives you the full experience.
Description: Offer your product for free, to get started and they get see huge value from your product, then you upgrade to a paid version.Benefits: Get customers in the door, try before you buy, get them dependent on your productCreate a streamlined upsell path via usage, storage, seats, overageNo commitment, showcase your strengths/value, no barriers to entryDownsideit can be expensive to support, need simple product/price planyou need a large target marketSupport for freemium users can get expensive (free users are the loudest complainers, draining support bandwidth)
Brian Bell
Activity level- # of transactionsCommitment level- reward customers for long-term relationships, track average contract lengthAverage revenue per customer, average deal size
Invest in systems and a framework to produce a scalable and retention maximizing account mgt function Reliance on systems will allow you to scale your biz without scaling G&A Every incremental $ spent should be rationalized based on hot it makes you more cost effective next year