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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 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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Supporting the Transition to Subscriptions

  1. 1. Supporting the Transition to Subscription1
  2. 2. Moderator Featured Guests: Joe Andrews Brian Bell Amy KonarySr. Director, Product Marketing Chief Marketing Officer VP of Research2
  3. 3. 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
  4. 4. 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
  5. 5. 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
  6. 6. This is the Subscription Economy BUY NOW SUBSCRIBE 1999 Today6 6
  7. 7. Moving to Subscription Requires a Change of Focus7
  8. 8. 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
  9. 9. The Foundational Elements Necessary To Support The Subscription Business Model Pricing Agility Subscription Metrics B2Any Subscription Order Back Office Commerce Management Scalability9 9
  10. 10. 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
  11. 11. 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
  12. 12. Best Practice: Fine Tune your Pricing and Packaging Strategies12
  13. 13. 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
  14. 14. 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
  15. 15. Strategy #1: Multiple Edition StrategyMultiple editions for different audiences.15
  16. 16. Strategy #2: Promotional Strategies Start with a free trial. Offer: 2-months free16
  17. 17. Strategy #3: Freemium Strategy17
  18. 18. Best Practice: Key Subscription Metrics18
  19. 19. Traditional Income Statements are One- timed Focused (Product Sale) Focused Traditional income statements do not differentiate19 one-time from recurring revenue or expenses.
  20. 20. 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
  21. 21. 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
  22. 22. Pay Attention To1. 2. 3. © 2012 IDC Mar-13 22
  23. 23. (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
  24. 24. (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
  25. 25. (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
  26. 26. q&a26
  27. 27. Thank You!27