the only 3 metrics that matter in the subscription economy
TRANSCRIPT
Slide 1 − Zuora Confidential, not for distribution beyond intended recipientSlide 1 − Zuora Confidential, not for distribution beyond intended recipient
Why ZuoraZuora Provides a BluePrint to Succeed in the
Subscription Economy!
The Only 3 Metrics That Matter
T i e n Tz u o , C o - F o u n d e r & C E O
in the Subscription Economy
ti e n @ z u o r a . c o m | @ ti e n t z u o
Confidential and Proprietary Information. Do not distribute beyond intended audience.
Five+ Years of Incredible Growth
Zuora foundedSeries A; First
product launchedSeries B, Zuora featured in WSJ
Series C; Zuora announces 1B in
contracted revenue
Series D, Trademarks Subscription
Economy; EMEA expansion
Zuora wins AlwaysOn Company of the Year Award; expands to Asia
The Leader in Commerce, Billing and Finance Solutions for the Subscription Economy
2
Zuora celebrates 50 product releases;
$15.5Bn contracted invoice volume
2013201220112010200920082007
Offices: Silicon Valley, London, Sydney, Beijing, Chicago, Atlanta
$82MFunding
500+ Customers
250+Employees
95%Customer Sat
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A World of Innovations…
… All Offered as a Service
QualcommPettracker Box HP CloudAmex
The Times of London Nest Kaplan AT&T Dollar Shave
Club
Swiss Car Club Xplornet Lowes IRISDriveCam
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We Call This Shift the Subscription Economy
The Past The Future
BUY NOW Subscribe
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BUY NOW SUBSCRIBE
Relationships(Long-term, adoption, loyalty)Growth Model Sell Units
Fixed, SKU Based
One-Time Transactions
Backwards Looking Metrics
Pricing ModelFlexible, Plan Based
(Editions, Bundles, Usage)
Commerce Model
Financial Model
This is a Completely Different Business Model
Recurring(upgrades, add-ons, renewals)
Forward Looking(ARR, MRR, Churn, Renewals)
Slide 6 − Zuora Confidential, not for distribution beyond intended recipient
You then end up at a new ARR
level, kicking off the next period
you invest in growing ARR by acquiring new
ACV
you do a good job & minimize the amount of ARR that goes
away
you start the period @ some
recurring revenue rate
The Subscription Economy Business Model
Slide 7 − Zuora Confidential, not for distribution beyond intended recipient
1494 A.D.
Luca Bartolomeo PacioliInventor of the system of
Double Entry Bookkeeping
Slide 8 − Zuora Confidential, not for distribution beyond intended recipient
A $100 is a $100 is a $100. The rules say it all goes in the same bucket.
You need to differentiate between one-time and recurring amounts.
The Problem:
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Slide 9 − Zuora Confidential, not for distribution beyond intended recipient
The rules don’t allow me to spread these amounts over time. Now you’re just being a rebel.
You want to spread revenue over time.
The Problem:
“ “
Slide 10 − Zuora Confidential, not for distribution beyond intended recipient
Your system doesn’t know what to do when subscriptions change.
The Problem:
I don’t have a rule for that. You’ve got yourself into quite a mess…
“ “
Slide 11 − Zuora Confidential, not for distribution beyond intended recipient
• Growing finance staffs
• Impossible to accurately benchmark companies
• Lack of transparency
The return to spreadsheets…
The Result:
• Lack of information visibility• Two sets of books
Slide 12 − Zuora Confidential, not for distribution beyond intended recipient
Lack of transparency on the most important financial metrics…
Page 11
The Result:
Slide 13 − Zuora Confidential, not for distribution beyond intended recipient
And Wall Street fails to value subscription businesses correctly…
“CRM shares look heavily overvalued because rising revenue growth has actually translated to falling net income.
“Maybe CEO Marc Benioff will one day be able to translate all of this low-margin selling into huge profits, but for now it kind of looks more like the Napster model than the iTunes model, and that concerns us.
The Result:
““
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giving you your
recurring profit margin
you spend to service the
base
First,you begin w/
ARR…
you then anticipate
churn…
giving you an expected recurring income
The Subscription Economy Income Statement
Confidential and Proprietary Information. Do not distribute beyond intended audience.
Margin Growth
You then get to decide
what to do with your
profit
Optimizing for Margin vs Growth
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Retention Rate
Recurring Profit
Margin
Growth Efficiency
Index
So, Then the 3 Metrics That Matter Are…
Slide 17 − Zuora Confidential, not for distribution beyond intended recipient
Top 10 Laws for Cloud Computing
How much of your ARR you
keep every year
How much margin to you
have left to invest in Growth
How much does it costs to
acquire $1 of ACV
Retention Rate
Recurring Profit Margin
Growth Efficiency
The metrics for Cloud computing is fairly different from traditional enterprise software. - Top 10 Laws for Cloud Computing
The 3 Metrics That Matter Tell Us Everything
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A company with 1.0 / 90% / 40% can grow at 43% a year a breakeven
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Or it can have $0 growth, and have a net income of $30.
Slide 20 − Zuora Confidential, not for distribution beyond intended recipient
Benchmarking the SaaS Leaders
Benchmarking the SaaS Leaders
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Ending ARR
Renewals
Recurring Profit Margin
83%
3%
$70 M
83%
41%
2001
$37 M $129 M
83%
58%
2002 2003 2004
Growth Efficiency 0.80:10.93:1 0.75:1
$231 M
83%
0.76:1
61%
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Ending ARR
Renewals
Recurring Profit Margin
86%
(27%)
$43 M
86%
6%
2004
$22 M $71 M
86%
35%
2005 2006 2007
Growth Efficiency 1.65:12.02:1 1.28:1
$105 M
86%
1.26:1
47%
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Ending ARR
Renewals
Recurring Profit Margin
92%
(29%)
$73 M
92%
(16%)
2006
$40 M $108 M
92%
19%
2005 2008 2009
Growth Efficiency 1.90:11.41:1 2.15:1
$147 M
92%
1.62:1
43%
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Growth Efficiency
Renewals
Recurring Profit Margin
83%
58%
1.26:1
86%
47%
1:1
90%
50%
0.75:1 2.15:1
92%
19%
Best Practice Model
Slide 25 − Zuora Confidential, not for distribution beyond intended recipient
Top 10 Laws for Cloud Computing
How much of your ARR you
keep every year
How much margin to you
have left to invest in Growth
How much does it costs to
acquire $1 of ACV
Retention Rate
Recurring Profit Margin
Growth Efficiency
The metrics for Cloud computing is fairly different from traditional enterprise software. - Top 10 Laws for Cloud Computing
The 3 Metrics That Matter
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Slide 26 − Zuora Confidential, not for distribution beyond intended recipient
Tien [email protected]
@tientzuo
Thank you.
Confidential and Proprietary Information. Do not distribute beyond intended audience.
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