The Only 3 Metrics That Matter in the Subscription Economy

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Why ZuoraZuora Provides a BluePrint to Succeed in the

Subscription Economy!

The Only 3 Metrics That Matter

T i e n Tz u o , C o - F o u n d e r & C E O

in the Subscription Economy

ti e n @ z u o r a . c o m | @ ti e n t z u o

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Five+ Years of Incredible Growth

Zuora foundedSeries A; First

product launchedSeries B, Zuora featured in WSJ

Series C; Zuora announces 1B in

contracted revenue

Series D, Trademarks Subscription

Economy; EMEA expansion

Zuora wins AlwaysOn Company of the Year Award; expands to Asia

The Leader in Commerce, Billing and Finance Solutions for the Subscription Economy

2

Zuora celebrates 50 product releases;

$15.5Bn contracted invoice volume

2013201220112010200920082007

Offices: Silicon Valley, London, Sydney, Beijing, Chicago, Atlanta

$82MFunding

500+ Customers

250+Employees

95%Customer Sat

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A World of Innovations…

… All Offered as a Service

QualcommPettracker Box HP CloudAmex

The Times of London Nest Kaplan AT&T Dollar Shave

Club

Swiss Car Club Xplornet Lowes IRISDriveCam

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We Call This Shift the Subscription Economy

The Past The Future

BUY NOW Subscribe

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BUY NOW SUBSCRIBE

Relationships(Long-term, adoption, loyalty)Growth Model Sell Units

Fixed, SKU Based

One-Time Transactions

Backwards Looking Metrics

Pricing ModelFlexible, Plan Based

(Editions, Bundles, Usage)

Commerce Model

Financial Model

This is a Completely Different Business Model

Recurring(upgrades, add-ons, renewals)

Forward Looking(ARR, MRR, Churn, Renewals)

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You then end up at a new ARR

level, kicking off the next period

you invest in growing ARR by acquiring new

ACV

you do a good job & minimize the amount of ARR that goes

away

you start the period @ some

recurring revenue rate

The Subscription Economy Business Model

Slide 7 − Zuora Confidential, not for distribution beyond intended recipient

1494 A.D.

Luca Bartolomeo PacioliInventor of the system of

Double Entry Bookkeeping

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A $100 is a $100 is a $100. The rules say it all goes in the same bucket.

You need to differentiate between one-time and recurring amounts.

The Problem:

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The rules don’t allow me to spread these amounts over time. Now you’re just being a rebel.

You want to spread revenue over time.

The Problem:

“ “

Slide 10 − Zuora Confidential, not for distribution beyond intended recipient

Your system doesn’t know what to do when subscriptions change.

The Problem:

I don’t have a rule for that. You’ve got yourself into quite a mess…

“ “

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• Growing finance staffs

• Impossible to accurately benchmark companies

• Lack of transparency

The return to spreadsheets…

The Result:

• Lack of information visibility• Two sets of books

Slide 12 − Zuora Confidential, not for distribution beyond intended recipient

Lack of transparency on the most important financial metrics…

Page 11

The Result:

Slide 13 − Zuora Confidential, not for distribution beyond intended recipient

And Wall Street fails to value subscription businesses correctly…

“CRM shares look heavily overvalued because rising revenue growth has actually translated to falling net income.

“Maybe CEO Marc Benioff will one day be able to translate all of this low-margin selling into huge profits, but for now it kind of looks more like the Napster model than the iTunes model, and that concerns us.

The Result:

““

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giving you your

recurring profit margin

you spend to service the

base

First,you begin w/

ARR…

you then anticipate

churn…

giving you an expected recurring income

The Subscription Economy Income Statement

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Margin Growth

You then get to decide

what to do with your

profit

Optimizing for Margin vs Growth

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Retention Rate

Recurring Profit

Margin

Growth Efficiency

Index

So, Then the 3 Metrics That Matter Are…

Slide 17 − Zuora Confidential, not for distribution beyond intended recipient

Top 10 Laws for Cloud Computing

How much of your ARR you

keep every year

How much margin to you

have left to invest in Growth

How much does it costs to

acquire $1 of ACV

Retention Rate

Recurring Profit Margin

Growth Efficiency

The metrics for Cloud computing is fairly different from traditional enterprise software. - Top 10 Laws for Cloud Computing

The 3 Metrics That Matter Tell Us Everything

“ “

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A company with 1.0 / 90% / 40% can grow at 43% a year a breakeven

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Or it can have $0 growth, and have a net income of $30.

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Benchmarking the SaaS Leaders

Benchmarking the SaaS Leaders

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Ending ARR

Renewals

Recurring Profit Margin

83%

3%

$70 M

83%

41%

2001

$37 M $129 M

83%

58%

2002 2003 2004

Growth Efficiency 0.80:10.93:1 0.75:1

$231 M

83%

0.76:1

61%

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Ending ARR

Renewals

Recurring Profit Margin

86%

(27%)

$43 M

86%

6%

2004

$22 M $71 M

86%

35%

2005 2006 2007

Growth Efficiency 1.65:12.02:1 1.28:1

$105 M

86%

1.26:1

47%

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Ending ARR

Renewals

Recurring Profit Margin

92%

(29%)

$73 M

92%

(16%)

2006

$40 M $108 M

92%

19%

2005 2008 2009

Growth Efficiency 1.90:11.41:1 2.15:1

$147 M

92%

1.62:1

43%

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Growth Efficiency

Renewals

Recurring Profit Margin

83%

58%

1.26:1

86%

47%

1:1

90%

50%

0.75:1 2.15:1

92%

19%

Best Practice Model

Slide 25 − Zuora Confidential, not for distribution beyond intended recipient

Top 10 Laws for Cloud Computing

How much of your ARR you

keep every year

How much margin to you

have left to invest in Growth

How much does it costs to

acquire $1 of ACV

Retention Rate

Recurring Profit Margin

Growth Efficiency

The metrics for Cloud computing is fairly different from traditional enterprise software. - Top 10 Laws for Cloud Computing

The 3 Metrics That Matter

“ “

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Tien Tzuotien@zuora.com

@tientzuo

Thank you.

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