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© 2014 Proformative
2
In The Subscription Economy, Focus Is On Relationships
Product
Relationships
BUY NOW SUBSCRIBE
© 2014 Proformative
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But there’s a problem(s)
We are still using legacy financial formats to present our Company’s
results and help our Executives plan for the future.
© 2014 Proformative
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Problem 3Public Markets Use GAAP/IFRS to Get the ARR & the Three Metrics … Imperfect Data Leads to Estimates
© 2014 Proformative
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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
ARRn – Churn + ACV = ARRn+1
you start the period @ some
recurring revenue rate
At Zuora, Annual Recurring Revenue (ARR) is the Cornerstone of our Business Model
© 2014 Proformative
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That Business Model is Centered on ARR and has Three Main components
Recurring Expense
GROWTH
One Time Events
© 2014 Proformative
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While we invest in Growth, Disciplined Investment in all Recurring Functions is Paramount….
© 2014 Proformative
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Even if We Solve for Growth and Recurring, Without Predictability of any One Time the Model is at Risk!
© 2014 Proformative
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A new Income Statement
&
Three Metrics that represent the health of a business
© 2014 Proformative
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The Subscription Economy Income Statement
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
Annual Recurring Revenue $100
Churn (10)
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40
© 2014 Proformative
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So, then your Three Metrics That Matter are…
Annual Recurring Revenue $100
Churn (10)
Net ARR 90
COGS (20)
G&A (10)
R&D (20)
Recurring Profit 40
Recurring Profit Margin 40%
Growth Expense (40)
Net New ARR 40
Ending ARR $130
Retention Rate
Recurring Profit
Margin
Growth Efficiency
Index
© 2014 Proformative
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Web Visits
Inbound & Outbound Events
Sales Mgmt
Sales Ops
AEsBD
SDRs
Marketing Sales
+
ACV
AcctMgmt?
How Are You Calculating Your GEI?
© 2014 Proformative
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Retention… (almost) as important as bookings
Go LiveClose Deal Increase
Usage
Churn
Failed
Implementation
Decreased Adoption
Churn Upsell
© 2014 Proformative
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Recurring Profit Margin
Last Year Next YearARR $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%
© 2014 Proformative
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Now, Operationalize It
CFO Webinar FY11 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13Starting 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 1.00PS 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
CFO Webinar FY11 FY12 Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13Starting 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 1.00PS 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
© 2014 Proformative
Report and Measure
Product
People
•Recruiting•Onboarding•Training•Help Desk
Money•Finance
•Operations•Legal
•PM / PMM•R&D•Docs
Pipeline Acquire Deploy Run Expand•Field Enablement•BD•Emerging•Enterprise•Int’l•Sales Eng.
•Self Service•Squads•Partners•Methodology
•Tech Ops•Support•Renewals•Account Management•Adoption•Training
•Upsell•Expansion
•Web•Social•AR / PR•Events•Product Launches•Demand Gen
PADRE / PPM
© 2014 Proformative
Report and Measure
BookingsBillings
CashRevenue
Deferred RevenueBacklog
Accounts ReceivableREPORT:
WhatHappened
FORECAST:
What toExpect
© 2014 Proformative
Contact Details
Iain Hassall
VP Finance
Zuora, Inc.
iain.hassall@zuora.com
650-241-0658
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