Translation Services Required: Your GL Close needs a SaaS Operating Model Conversion�

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Translation Services Required: Your GL Close needs a SaaS Operating Model Conversion

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  • Smaller professional services and cash, and side by side
  • Companies calculate ARR differently. The most important thing is to be consistent. Since it is the basis for all other metrics, if you take a conservative or aggressive approach to your calculation you should take that into account when setting other goals.Be conservative.ARR is contracted revenue (e.g. it does not include overages or estimates of future upsell)If multi-year contracts have ramps, those ramps are reflected in ARR at the time they become effectiveACV increases ARR at the initiation of a contracted service periodChurn decrements ARR at the time recognized
  • Companies calculate ARR differently. The most important thing is to be consistent. Since it is the basis for all other metrics, if you take a conservative or aggressive approach to your calculation you should take that into account when setting other goals.Be conservative.ARR is contracted revenue (e.g. it does not include overages or estimates of future upsell)If multi-year contracts have ramps, those ramps are reflected in ARR at the time they become effectiveACV increases ARR at the initiation of a contracted service periodChurn decrements ARR at the time recognized

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  • 1. Translation ServicesRequired: Your GLClose needs a SaaSOperating ModelConversionTyler SloatCFO – ZuoraCharles BestCFO – BlackLine Systems1 © 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 Subscribe3 © 2013 Proformative 3
  • 4. Product Focused Relationship Focused BUY NOW SubscribeThe Subscription Economy is about customerrelationships... 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 Companies6 © 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 away7 © 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 margin8 © 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 $1309 © 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 $13010 © 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 Computing11 © 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 Cash12 © 2013 Proformative
  • 13. Now, the Subscription Economy Operating Plan…13 © 2013 Proformative
  • 14. Operationalizing, Step by Step Alignment Educate & Goals Report & Measure Accountability14 © 2013 Proformative
  • 15. Traditional Business ModelEducate 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 StatementEducate Subscription Income GAAP 2011 2011 StatementRevenue $ 73,022 ARR $60,000 Churn ($7,000) Net ARR $53,000Cost of Revenue 21,285 Cost of Subscription Revenue $11,985Gross Profit 51,737 Research & Development $10,149Operating Expenses: General & Administrative $15,122Sales & Marketing 45,773 Recurring Expense $37,256Research & Development 10,149 Recurring Profit $15,744General & Administrative 15,122 Recurring Profit Margin 26%Total Operating Expenses 71,044 Growth Expense $45,773Loss 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 ARR17 © 2013 Proformative
  • 18. Alignment & What Drives Your ARR? Goals300250200150100 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 rateexcludes our Manager’s Edition application which provides us with an insignificant amount of revenue. We calculate our customerretention rate by subtracting our attrition rate from 100%. We calculate our attrition rate for a period by dividing the number ofcustomers lost during the period by the sum of the number of customers at the beginning of the period and the number of newcustomers 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 notreflect implied monthly recurring revenue for new clients added nor incremental sales to that same client base at the end of the prior fiscalyear during the current fiscal year. We define implied monthly recurring revenue as the total amount of minimum recurring revenuecontractually 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 issubstantially comprised of subscriptions to our solution. We believe that our annual dollar retention rate is an important metric to measurethe 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 # AEs 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 $55,440k Implied GEI (Feb 1) 1.3 1.2 1.0 1.0 0.9 0.9 1.0 1.0 Expectation should be that these might shift based on maturity of region, type of sale, maturity of market © 2013 Proformative
  • 26. Report PADRE - PPM &Measure26 © 2013 Proformative
  • 27. The Answer is the Whole CompanyAccountability$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 Live27 © 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 years28 © 2013 Proformative
  • 29. BlackLine Systems EFFICIENCY, SPEED, VISIBILITY & ACCOUNTABILITY REDUCED COSTS AND RISKS CONTROLLED FINANCIAL CLOSE29 © 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 Ownership31 © 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!!! 30025020015010050 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 HOC35 © 2013 Proformative
  • 36. WE ALSO GET: ACCOUNTABILITY AUDITABILITY PRODUCTIVITY EASE OF USE OPERATIONAL EFFICIENCIES INCREASED PRODUCTIVITY BALANCED APPROACH TO PROBLEM SOLVING36 © 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 ACCURATE37 © 2013 Proformative
  • 38. 38 © 2013 Proformative
  • 39. &39 © 2013 Proformative
  • 40. Thank You For AttendingTranslation ServicesRequired: Your GLClose needs a SaaSOperating ModelConversionProformative.comAsk, Share, Learn40 © 2013 Proformative