Supporting the Transition to Subscriptions
Transcript of Supporting the Transition to Subscriptions
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Supporting the Transition to Subscription
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Brian BellChief Marketing Officer
Amy KonaryVP of Research
Joe AndrewsSr. Director, Product Marketing
Moderator Featured Guests:
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Table of Contents
Industry TrendsExpansion of the Subscription Economy
Subscription Business ModelShift Focus from Products to Relationships
Best PracticesPricing and Packaging Secrets, Key Metrics
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© 2012 IDC 4
Subscription Highlights
Source: IDC, 2012
57% of the top 100 software vendors worldwide by revenue had subscription revenue in 2012.
For 16% of the top 100 software vendors worldwide, subscription represents greater than 50% of total software revenue.
For the top 25 software companies (with subscription), subscription revenue grew an average of 17% from 2010 to 2011
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Dollar Shave Club
Razors
Wonder Sitter
Baby Sitting
Babbaco
Kids Toys/Activities
Rent the Runway
Women’s Dresses
Bespoke Post
Luxury Items
Mystery Tackle Box
Fishing
Spice Guides
Date Idea
Spotify
Music
Businesses Can Subscribe To Anything
Test Tube
Beauty Samples
Workday
HR
Google Apps
Apps
Amazon
Infrastructure
Zendesk
Helpdesk
Intacct
GL
RingCentral
Phone System
Concur
Travel/Expense
Salesforce
CRM
ServCorp
Virtual Office
Consumers Can Subscribe To Anything
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This is the
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1999 Today
Subscription Economy
BUY NOW SUBSCRIBE
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Moving to Subscription Requires a Change of Focus
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Focus on RelationshipsFocus on Relationships
Features and functions are only part of the experience
Key: Build Substantive Relationships; Monetize the Relationship
Transparency and Communication
Commitment to doing what is right for the customer, even if it means a smaller deal size
SUBSCRIPTION
Relationship Status: “It’s Complicated”
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The Foundational Elements Necessary To Support The Subscription Business
Model
Subscription Order Management
Back Office Scalability
B2Any Commerce
Pricing Agility Subscription Metrics
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But Your Existing Systems Don’t Support The Subscription Business
Model
ERP Homegrown SystemsSimple E-Comm
Subscription Order Management
Back Office Scalability
B2Any Commerce
Pricing Agility Subscription Metrics
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Relationship Business Management: Built to Support The Subscription Business
Model
Subscription Order Management
Back Office Scalability
B2Any Commerce
Pricing Agility Subscription Metrics
“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
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Best Practice:Fine Tune your Pricing and
Packaging Strategies
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Focus on Pricing and PackagingFocus on Pricing and Packaging
As business strategy changes, pricing strategy should also
Usage, Freemium, Trials, Promotions
Transparency! Don’t hide your pricing page, or require a conversation with the prospect to explain your framework
It can’t take “forever” to get pricing done
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Pricing and PackagingPricing and Packaging
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DEFINE
IMPLEMENT
MEASURE
ITERATE
Analyze “Huge bubble of
new accounts, but significant increase in churn.”
Product Plans Entitlements Marketing
Conversion Churn Rate Revenue
What are you trying to do? “2 months free for new
customers”
”It’s all about putting a number on the wall and your setting goals and checking back on it.”
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Strategy #1: Multiple Edition Strategy
Multiple editions for different audiences.
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Strategy #2: Promotional Strategies
Start with a free trial.
Offer:2-months
free
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Strategy #3: Freemium Strategy
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Best Practice:Key Subscription Metrics
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Traditional Income Statements are One-timed Focused (Product Sale) Focused
Traditional income statements do not differentiate one-time from recurring revenue or expenses.
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Subscription Economy Income Statement
ARR $100 Churn (10)Net ARR 90 COGS (20) G&A (10) R&D (20)Recurring Profit 40
Growth (40) Net New ARR 40 Ending ARR $130
Retention Rate
GrowthEfficiency Index
Recurring Profit Margin
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When looking at a Subscription Economy company, only these 3 metrics matter
ARR less Churn less Non-Growth
Spend
Recurring Profit Margin
How much of your ARR you
keep every year.
How much does it cost you to acquire $1 of
ACV
RetentionRate
Growth Efficiency
The metrics for Cloud computing is fairly different from traditional enterprise software. Top 10 Laws for Cloud Computing
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Pay Attention ToPay Attention To
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1. 2.
3.
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(1) Focus on sustaining high Retention Rates
“How much ARR you keep every year”
Make Renewals Really Easy Auto-Renewals, Early Bird Renewal Incentives
Enable Your CSRs to Renew CustomersChurn defense, ARR preservation
Prevent Churn with New Price Plans Monthly vs. Annual, Discounted, Lower Tiers
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(2) Maximize your Recurring Profit Margins
“How do you cost effectively service the base”
Take Credit Card Payments No touch, bring cash in the door immediately
Automate Quote-to-Cash-to-Renewals Seamless, eliminate manual errors
Drive Multi-Year Commitments Multi-Year Pricing Tiers, Term Discounts
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Tune Your Pricing Strategies Freemium, Editions, Pay-as-you-Go, Tiers 1
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(3) Optimize your business for Growth Efficiency
“How much does it cost you to acquire a $ of ACV”
Increase Total Customer Value Upsells, Cross-Sells, Add-ons
Make Doing Business Simple Self-Service, Promotions, Free Trials
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q & a
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Thank You!