1. Translation Services
Required: Your GL
Close needs a SaaS
Operating Model
Conversion
Tyler Sloat
CFO – Zuora
Charles Best
CFO – BlackLine Systems
1 © 2013 Proformative

2. BUY NOW Subscribe
The Past The Future
We call this shift the Subscription Economy™
2 © 2013 Proformative

3. What’s Driving the Subscription Economy ?
Technology Trends Demand Business Model Smart Money
Cloud Consumers want to It’s a better business
Mobile
subscribe to services model for growth
Social
Businesses want to
subscribe to services Wall St. and Sand Hill
Value Subscription-Based
Companies
Subscribe
3 © 2013 Proformative 3

4. Product Focused Relationship Focused
BUY NOW Subscribe
The Subscription Economy is about customer
relationships...
4 © 2013 Proformative

5. …Requiring a Completely Different Approach to
Building Businesses.
Product Economy Subscription Economy
Sell Units
Monetizing Customer Relationships
Why? Customer in the middle.
Pay-as-you-Go Pricing Plans
Price Per Unit
Why? Flexibility, Editions, Try before Buy.
One-Time Orders Multiple Orders Over a Lifetime
Why? Add-ons, Upgrades, Renewals.
Forced to Pick a Sell to Consumers & Businesses
Customer Segment
Why? Support B2C, B2B and B2Any.
Complex, Interrelated Bookings,
Simple Financial
Metrics Billings, & Revenue
Why? All metrics are connected.
5 © 2013 Proformative

6. But there’s a problem…
Businesses use GAAP to report results
but use Subscription Economy
Metrics to run their Companies
6 © 2013 Proformative

7. It begins with ARR…
ARRn – Churn + ACV = ARRn+1
you do a good
You then end
you start the job & you invest in
up at a new
period @ some minimize the growing ARR
ARR level,
recurring amount of by acquiring
kicking off the
revenue rate ARR that goes new ACV
next period
away
7 © 2013 Proformative

8. The Subscription Economy Income Statement
First,
you begin
w/ ARR…
Annual Recurring Revenue $100
you then
Churn (10) anticipate
churn…
Net ARR 90
giving you
COGS (20) an expected
recurring
G&A (10) income
R&D (20)
you spend
Recurring Profit 40 to service
the base
giving you
your
recurring
profit
margin
8 © 2013 Proformative

9. Optimizing for Margin vs Growth
Margin Growth
Annual Recurring Revenue $100 $100
Churn (10) (10)
Net ARR 90 90
COGS (20) (20)
G&A (10) (10)
R&D (20) (20)
Recurring Profit 40 40
You then
Growth (10) get to (40)
decide what
Net New ARR 10 to do with 40
your profit
Ending ARR $100 $130
9 © 2013 Proformative

10. So, Then Your 3 Metrics That Matter Are…
Annual Recurring Revenue $100
Retentio
Churn (10)
n Rate
Net ARR 90
COGS (20)
G&A (10)
Recurrin
R&D (20) g Profit
Margin
Recurring Profit 40
Recurring Profit Margin 40%
Growth (40) Growth
Net New ARR 40 Efficienc
y Index
Ending ARR $130
10 © 2013 Proformative

11. The 3 Metrics That Matter Tell Us Everything
Retention Recurring Profit Growth
Rate Margin Efficiency
How much of Entering ARR
How much
your ARR you less
does it costs to
keep every annualized
acquire $1 of
year Non-growth
ACV
spend
The metrics for Cloud computing is fairly different from
traditional enterprise software.
Top 10 Laws for Cloud Computing
- Top 10 Laws for Cloud Computing
11 © 2013 Proformative

12. Expanding the 3 Metrics
Annual Recurring Revenue
Retention Recurring Profit Growth
Rate Margin Efficiency
How much of Entering ARR
How much
your ARR you less
does it costs to
keep every annualized
acquire $1 of
year Non-growth
ACV
spend
Professional Services Cash
12 © 2013 Proformative

13. Now, the Subscription Economy
Operating Plan…
13 © 2013 Proformative

14. Operationalizing, Step by Step
Alignment
Educate & Goals
Report &
Measure
Accountability
14 © 2013 Proformative

15. Traditional Business Model
Educate
12/31/1 12/31/1 12/31/0
Consolidated Statement 1 0 9
Subscription Revenue
Revenue $ 73,022 $ 43,731 $ 29,322
Usage Revenue
Cost of revenue 21,285 14,280 8,676
Gross profit 51,737 29,451 20,646
Professional Services
Revenue
Operating expenses:
Cost of Subscription
Selling and marketing 45,773 28,134 18,886
Research and development 10,149 5,602 2,791
Cost of Professional
Services
General and administrative 15,122 8,555 4,329
Total operating expenses 71,044 42,291 26,006
Loss from operations (19,307) (12,840) (5,360)
15 © 2013 Proformative

16. Translating GAAP to…
The Subscription Income Statement
Educate
Subscription Income
GAAP 2011 2011
Statement
Revenue $ 73,022 ARR $60,000
Churn ($7,000)
Net ARR $53,000
Cost of Revenue 21,285 Cost of Subscription Revenue $11,985
Gross Profit 51,737 Research & Development $10,149
Operating Expenses: General & Administrative $15,122
Sales & Marketing 45,773 Recurring Expense $37,256
Research & Development 10,149 Recurring Profit $15,744
General & Administrative 15,122 Recurring Profit Margin 26%
Total Operating Expenses 71,044 Growth Expense $45,773
Loss from Operations -19,307 Net New ARR (GEI of 0.9) $50,859
Ending ARR 103,859
16 © 2013 Proformative

17. Educate Your Calculations
ARR
Entering ARR + New ACV - Churn = EXITING ARR
Growth Efficiency
Sales & Marketing Expense / New ACV
Recurring Profit Margin
(Entering ARR – COGS – G&A – R&D) / Entering ARR
17 © 2013 Proformative

18. Alignment
&
What Drives Your ARR?
Goals
300
250
200
150
100
50
ACV Accelerates ARR
0
2010 2011 2012 2013 2014 Churn Curbs ARR
(50% Growth Business / 10% Churn / 30% Growth in
Recurring Expense / 1.0 Growth Efficiency)
18 © 2013 Proformative

19. Alignment How are You Measuring Churn?
&
Goals
Successfactors S-1:
During 2005, 2006, 2007 and the three months ended March 31, 2008, our customer retention rate was greater than 90%, which rate
excludes our Manager’s Edition application which provides us with an insignificant amount of revenue. We calculate our customer
retention rate by subtracting our attrition rate from 100%. We calculate our attrition rate for a period by dividing the number of
customers lost during the period by the sum of the number of customers at the beginning of the period and the number of new
customers acquired during the period.
Cornerstone OnDemand S-1:
We define annual dollar retention rate as the implied monthly recurring revenue under client agreements at the end of a fiscal year,
divided by the implied monthly recurring revenue, for that same client base, at the end of the prior fiscal year. This ratio does not
reflect implied monthly recurring revenue for new clients added nor incremental sales to that same client base at the end of the prior fiscal
year during the current fiscal year. We define implied monthly recurring revenue as the total amount of minimum recurring revenue
contractually committed to, under each of our client agreements over the entire term of the agreement, but excluding non-recurring support,
consulting and maintenance fees, divided by the number of months in the term of the agreement. Implied monthly recurring revenue is
substantially comprised of subscriptions to our solution. We believe that our annual dollar retention rate is an important metric to measure
the long-term value of client agreements and our ability to retain our clients.
19 © 2013 Proformative

20. Alignment How are you calculating your GEI?
&
Goals
Sales
Mngmnt
Web
+
Visits Opps
Inbound
& SDRs
Outboun Events
d
AEs
BD
Marketing Sales
ACV
20 © 2013 Proformative

21. Alignment
&
What is the right GEI Goal
Goals
1.5 0.50
21 © 2013 Proformative

22. Alignment Retention
&
Goals
Close Go Increas
Deal Live e Usage
Churn Churn
© 2013 Proformative

23. Alignment Recurring Profit Margin
&
Goals Last Year Next Year
ARR $90 $135
Tech Ops 13% $12 11% $ 15
Acct Mgmt/Support 7% $ 6 7% $ 9
Total COGS 20% $18 18% $ 24
Eng/Qa 22% $20 18% $ 24
Product 8% $ 7 7% $ 9
Total R&D 30% $27 25% $ 34
Finance/Ops 14% $13 12% $ 16
HR 6% $ 5 5% $ 7
Total G&A 20% $18 17% $ 23
Recurring Expense 70% 60%
Recurring Profit Margin 30% 40%
© 2013 Proformative

24. Alignment Now, Operationalize it
&
Goals
CFO Webinar FY11 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13
Starting ARR 35,200 48,058 69,080 76,662 84,967 94,062 69,080
Bookings 15,864 25,977 9,139 10,052 11,058 12,163 42,412
PS Churn (350) (1,661) (520) (598) (688) (791) (2,598)
Live Churn/Ramp (2,656) (3,294) (1,036) (1,150) (1,274) (1,411) (4,872)
Net ARR Growth 12,858 21,023 7,582 8,304 9,095 9,961 34,943
Ending ARR 48,058 69,080 76,662 84,967 94,062 104,023 104,023
ARR Growth Rate 37% 44% 51%
S&M Spend 17,450 27,276 9,139 10,052 11,058 12,163 42,412
Non-S&M Spend 21,085 31,447 9,499 10,541 11,683 12,933 44,656
Pre S&M margin 40% 35% 45% 45% 45% 45% 35%
GEI 1.10 1.05 1.00 1.00 1.00 1.00 1.00
PS Churn (off prior bookings) 13% 10% 10% 10% 10% 10% 10%
Live Churn (Annualized) 8% 7% 6% 6% 6% 6% 7%
Cash In 41,348 57,528 18,218 20,204 22,379 24,761 85,561
Cash Out (38,535) (58,723) (18,637) (20,593) (22,741) (25,097) (87,068)
Net Cash 2,813 (1,195) (419) (390) (362) (336) (1,507)
Ending Cash 25,313 24,118 23,699 23,309 22,947 22,610 22,610
Stay at a macro level, making sure everyone understands the basic
fundamental driver. This also magnifies the three metrics and their impact.
© 2013 Proformative

25. Alignment
&
Detailed Modeling
Goals
NA ROW NA ROW NA EMEA APAC
L2 Growth Formula Emerging Emerging Commercial Commercial Enterprise Enterprise Enterprise Total / Avg
# AE's on Jan 31, 2013 10 8 12 10 12 8 4 64
Annual Quota $800k $800k $1,100k $1,100k $1,600k $1,600k $1,600k $1,203k
Quarterly Quota $200k $200k $275k $275k $400k $400k $400k $301k
# Deals / Quarter 4.0 4.0 2.8 2.8 2.0 2.0 2.0 2.8
ASP $50.0k $50.0k $100k $100k $200k $200k $200k $123.4k
Annual Base Salary $63k $63k $85k $85k $125k $125k $125k $94k
Annual OTE $125k $125k $170k $170k $250k $250k $250k $187k
AE:SE 5 5 3 3 2 3 3
AE:ZBR 1 1 2 2 2 2 2
AE:Mgr 7 7 6 6 6 6 6
Total Annual Sales Cost $4,247k $3,038k $5,246k $4,409k $7,496k $4,498k $2,549k $31,483k
Mktg % of Sales 75% 75% 75% 75% 75% 75% 75% 75%
Total Annual Mktg Costs $3,185 $2,278k $3,935k $3,307k $5,622k $3,373k $1,912k $23,612k
Total Growth Costs (Feb 1) $7,432k $5,316k $9,181k $7,716k $13,118k $7,871k $4,460k $55,094k
Total Corp Capacity $5,760k $4,608k $9,504k $7,920k $13,824k $9,216k $4,608k $55,440k
Implied GEI (Feb 1) 1.3 1.2 1.0 1.0 0.9 0.9 1.0 1.0
Expectation should be that these might shift based on maturity of region, type
of sale, maturity of market
© 2013 Proformative

26. Report PADRE - PPM
&
Measure
26 © 2013 Proformative

27. The Answer is the Whole Company
Accountability
$Millions
(P)ipeline
Starting Pipeline
+ New Pipe (S1) Marketing
- Closed Won
- Closed Lost
+/- Change in Pipe
Ending Pipeline
(A)cquire
Starting ARR Sales
+ New + Upsell Bookings
- Net Churn
Ending ARR
R&D/G&A
(D)eploy
Starting Backlog
+ New Bookings
+ Upsell Bookings
+/- Ramp/Downsell
Professional Services
PS Bookings
- Go-Lives
- PS Churn
Ending Backlog
(R)un
Starting Live
+ Upsell Bookings
+/- Ramp/Downsell
Account Management
+ Go-Lives
- Live Churn
Ending Live
27 © 2013 Proformative

28. BlackLine Systems
• Licensing model until 2008
• SaaS - late 2008
HEADQUARTERED IN LOS ANGELES
• Offices in London, Atlanta, Chicago,
New York and Sydney
• 500+ CLIENTS, 70,000+ USERS
• 50%+ Growth YOY last three years
28 © 2013 Proformative

29. BlackLine Systems
EFFICIENCY, SPEED, VISIBILITY &
ACCOUNTABILITY
REDUCED COSTS AND RISKS
CONTROLLED FINANCIAL CLOSE
29 © 2013 Proformative

30. 30 © 2013 Proformative

31. WE LOVE SAAS!!
• No software to maintain or install
• Quick implementation
• Always on – 100% uptime guaranteed
• Inclusive backup, disaster recovery and support
services
• Pay-as-you-grow
• Upgrades automatically performed
• World Class Security
• Lower Total Cost of Ownership
31 © 2013 Proformative

32. BLACKLINE’S APPROACH TO OPERATIONAL GROWTH
• ADAPT EFFICIENCY TOOLS
• TAKE THE BEST OF BREED APPROACH
• REDEFINE WHAT AN ACCOUNTANT IS
• MAKE YOUR TOOLS INTERACT TO EACH OTHER
• LET METRICS DRIVE YOUR SUCCESS
• MAKE RELATIONSHIPT THE MOST IMPORTANT PART OF OUR BUSINESS!!
32 © 2013 Proformative

33. What drives your ARR?
LOVE THIS SLIDE!!!
300
250
200
150
100
50
ACV Accelerates ARR
0
2010 2011 2012 2013 2014 Churn Curbs ARR
(50% Growth Business / 10% Churn / 30% Growth in
Recurring Expense / 1.0 Growth Efficiency)
33 © 2013 Proformative

34. RELATIONSHIPS DRIVE YOUR SAAS BUSINESS!
• CHURN IS ABOUT RELATIONSHIPS!
• ARR IS ABOUT LONG TERM VALUE!
• ACV IS ABOUT BEING A GOOD COMPANY!
34 © 2013 Proformative

35. HERE’S WHAT BLACKLINE GETS WITH SAAS:
TOOLS THAT ARE EFFICIENT AND VERY RELIABLE
TOOLA THAT ARE SCALABLE
ROBUST APPLICATIONS THAT DO MORE THAN JUST GATHER DATA
WORK FLOW PROCESSES
CROSS POLINATION OF INFORMATION BETWEEN TOOLS
DASHBOARD CAPABILITIES FOE EVERY APPLICATION
IN DEPTH REPORTING CAPABILITIES – STANDARD AND AD HOC
35 © 2013 Proformative

36. WE ALSO GET:
ACCOUNTABILITY
AUDITABILITY
PRODUCTIVITY
EASE OF USE
OPERATIONAL EFFICIENCIES
INCREASED PRODUCTIVITY
BALANCED APPROACH TO PROBLEM SOLVING
36 © 2013 Proformative

37. WE RUN OUR BUSINESS USING SAAS BASED TOOLS
• WE WANTED:
• COMPLETE SOLUTIONS FOR OUR BUSINESS PROCESSES
• THE BEST APPLICATIONS ON THE MARKET FOR EVERY BUSINESS NEED
• COMFORT KNOWING SECURITY IS NOT AN ISSUE
• EASY ACCESS ANYWHERE FOR OUR EMPLOYEES TO USE THE TOOLS
THEY NEED TO SUCCEED
• PRODUCTS THAT WERE SCALABLE WITH OUR BUSINESS
• IMPLEMENTATIONS THAT ARE EASY AND INEXPENSIVE
• INTEGRATIONS THAT WERE EFFICIENT AND ACCURATE
37 © 2013 Proformative

38. 38 © 2013 Proformative

39. &
39 © 2013 Proformative

40. Thank You For Attending
Translation Services
Required: Your GL
Close needs a SaaS
Operating Model
Conversion
Proformative.com
Ask, Share, Learn
40 © 2013 Proformative