Zuora, subscription model as a service

The world is moving from a product based economy to a service based economy. Some companies born in the subscription model, but others need to transform from their existing model to the subscription based model.

So, well everybody knows already that Zuora is an emerging competitor in the market, creating and end to end solution for subscription models. Take care, they do not only take care of the billing activities (there are thousand of companies dedicated to managing billing activities), they do more.

Zuora’s solution:

  • Allows any business in any industry to launch or shift products to subscription.
  • Implement new pay-as-you-go pricing and packaging models.
  • Ways to play:
    • Freemium,
    • Packages model,
    • Promotional strategies,
    • Pay as you go,
    • Overall strategy,
    • Bundling strategy,
    • Segmentation strategy.
  • Gain new insights into subscriber behavior.
  • Open new revenue streams.
  • And disrupt market segments to gain competitive advantage.
  • 100% integrated with SalesForce.

I find specially interest on the documentation shared in the Zuora academy, where aspects as the financial metrics for a subscription company are defined, measured and analyzed. I read the Metrics white paper and it’s a worthy read.

The main concepts are:

  1. Churn rate: % of lost business, 10% churn is a healthy percentage. Small changes in your company’s churn rate can have a dramatic impact on growth over time.
  2. Recurring Profit Margins: the difference between your recurring revenues and your recurring costs.
    1. Cost of Goods Sold (COGS).
    2. General & Administrative (G&A).
    3. Research and Development (R&D)
  3. Growth Efficiency Index : How much new recurring revenue can you get out of a given investment in sales and marketing? If you spend $1 on sales and marketing, how many new recurring revenue dollars does that buy you?A healthy ratio for a b2b SaaS company with a direct sales force is 1:1. Invest $1 to book $1 in new recurring revenues.

Annual-recurring-revenueTo follow the competition:

  • Strong competitors: AMDocs, CGI Group, Oracle, CSC,
  • Prominent competitors:  Aria Systems, Chargify, AWS, SAP

Things to be improved:

  • VAT management,
  • Revenue recognition,
  • Multi-currency support outside of SalesForce,
  • Integration with other vendors: Microsoft Dynamics and Oracle.

 

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