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Supporting the Transition to Subscriptions
 

Supporting the Transition to Subscriptions

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Companies are looking to effectively price, package & position their subscription businesses for future growth. In order to be successful there are a number of factors to consider including: churn ...

Companies are looking to effectively price, package & position their subscription businesses for future growth. In order to be successful there are a number of factors to consider including: churn reduction, flexible monetization strategies, and simplifying your financials. Join IDC's VP of Research, Amy Konary & Zuora's Chief Marketing Officer, Brian Bell as they outline the transition to subscriptions and discuss the best practices in offering this approach.

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  • Welcome
  • Joe Andrews introduces Brian Bell and Amy Konary
  • 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

Supporting the Transition to Subscriptions Supporting the Transition to Subscriptions Presentation Transcript

  • Supporting the Transition to Subscription1
  • Moderator Featured Guests: Joe Andrews Brian Bell Amy KonarySr. Director, Product Marketing Chief Marketing Officer VP of Research2
  • 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 Metrics3
  • Subscription Highlights  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 Source: IDC, 2012© 2012 IDC Mar-13 4
  • 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 Idea5 5
  • This is the Subscription Economy BUY NOW SUBSCRIBE 1999 Today6 6
  • Moving to Subscription Requires a Change of Focus7
  • Focus on Relationships SUBSCRIPTION  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 Relationship Status: “It’s Complicated”© 2012 IDC Mar-13 8
  • The Foundational Elements Necessary To Support The Subscription Business Model Pricing Agility Subscription Metrics B2Any Subscription Order Back Office Commerce Management Scalability9 9
  • 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 Systems10 1 0
  • 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, IDC11 1 1
  • Best Practice: Fine Tune your Pricing and Packaging Strategies12
  • Focus 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© 2012 IDC Mar-13 13
  • Pricing and Packaging What are you trying to do? DEFINE “2 months free for new customers” ITERATE IMPLEMENT Analyze Product Plans  “Huge bubble of Entitlements new accounts, but Marketing significant increase in churn.” MEASURE”It’s all about putting a number Conversionon the wall and your setting Churn Rategoals and checking back on it.” Revenue © 2012 IDC Mar-13 14
  • Strategy #1: Multiple Edition StrategyMultiple editions for different audiences.15
  • Strategy #2: Promotional Strategies Start with a free trial. Offer: 2-months free16
  • Strategy #3: Freemium Strategy17
  • Best Practice: Key Subscription Metrics18
  • Traditional Income Statements are One- timed Focused (Product Sale) Focused Traditional income statements do not differentiate19 one-time from recurring revenue or expenses.
  • 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 $13020
  • 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 Computing21
  • Pay Attention To1. 2. 3. © 2012 IDC Mar-13 22
  • (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
  • (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
  • (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
  • q&a26
  • Thank You!27