This podcast interview with Matt Darrow, Zuora’s former VP & GM was originally recorded and published by Membership Services Inc.
How would you like to know the secrets of the fastest growing subscription companies? Subscriptions are exploding for everything from information, software, to monthly boxes. This growth has attracted new resources for analytics, software, and marketing to learn what works and how to grow the largest subscription companies today. These tools can give you more visibility, control and monthly recurring revenue for your subscription program. This interview reveals what the largest players in the subscription economy do to attract new customers, understand their subscribers to reduce churn, and grow their monthly recurring revenue.
In This Program You’ll Discover:
- Why subscription businesses are growing nine times faster than t the S&P 500 companies.
- Why subscription programs are growing and what you can do to cash in.
- Where 50 percent of the revenue growth comes from within a subscription business.
- The various ways to charge for a subscription program.
- What the advanced analytics reveal about the future of the subscription economy.
This program features our special guest: Matt Darrow
Matt Darrow is the VP and GM of Product of Zuora. He’s a University of Berkley graduate who has been with Zuora for more than five years. Zuora is one of the top subscription billing platforms, serving clients like Zendesk, Docusign, HBO, Ford, Time, Inc., Zoom, Box, Dell and hundreds of others.
- What is Zuora
For starters, Zuora offers products, resources, and cloud technologies to help subscription businesses attract and retain members. Zuora has sophisticated monthly billing systems that increase revenue with better pricing models and international acceptance rates. In Matt’s reply to this question, he states that “companies are using Zuora instead of traditional ERP systems, like an SAP or an Oracle, to drive their business model innovation, to launch new pricing and packaging models, to automate their complex billing and payments, and ultimately get the subscriber analytics they need to improve their business and win in this market. And, it’s a really big market. Analysts have estimated the size to be about $100 billion by 2020.”
- What is Fueling the Growth in the Subscription Economy?
“The traditional media companies and print providers have been doing subscriptions for 100+ years. A lot of the new interest in the market that we see is all the ‘software as a service’ or technology vendors, or even traditional hardware manufacturing companies that are connecting their devices to the Cloud and actually providing over the top services and access to any of their physical devices,” replied Matt. “So, I think that the key reason for the growth and why subscription companies are growing nine times faster than the S&P500 is that they’re not only focused on delivering outcomes, but they’re delivering services that continuously enhance their value over time.” Simply put, customers today “want to own an outcome instead of paying for a physical product and service.” The growth not only comes from the subscription element, but also from the focus on each member’s experience. It’s about transformation rather than transactions.
Zuora publishes a Subscription Economy Index report providing a wealth of information about this growing industry. In this report, it is stated that at least half of the subscription growth comes from existing subscribers. This led to my next question.
- What Advice Can You Offer About Member Retention?
Subscriber retention is necessary for a subscription business to remain successful. “When you’re running a subscription-based business model, churn really can cause the biggest challenge to that model. If you’re not managing churn, and you’re not managing your customer retention growth, you’ll hit a wall very, very quickly. You can have the greatest sales and marketing team and the greatest acquisition team, but you’ll kind of be spinning in place if you keep churning clients,” added Matt.
So, to help in member retention, Matt stated that many of the successful subscription businesses have a dedicated function and team that is solely responsible for nurturing the ongoing customer relationship. He also added, “what we see some of the higher performers doing is really basing their metrics and their incentives on net retention rates. And that retention actually turns you from a firefighting subscription squad to more of a proactive squad, which is actually going back into the install days to not just prevent churn but to actually drive expansion. And expansion can come through a variety of ways – it could come from upgrades, it could come from upsells, it can come from cross-sales, and it can just be from having great advocates who are going to help expand your technology and further lower your costs of acquisition.”
When most people think of subscriptions, they think of a fixed monthly pricing, meaning one fee for the product or service. Zuora has many customers that use several other types of pricing models.
- What Type of Pricing Models Do You Recommend?
“A lot of different pricing models are now at the fingertips of companies that are focused on maintaining or really sticking a customer relationship over time. And the key is they’re using these monetization models to nurture this relationship. Monthly recurring is probably the simplest model out there to meet that demand and to meet that need,” answered Matt. He then went on to discuss 7 different varieties of pricing models:
1. Use different frequencies of billing clients.
2. Have different price points tiered for different commitment levels.
3. Divide your products into upgrade packs.
4. Offer add-ons.
5. Consider a usage model, where the member only pays for what they use.
6. Price things out internationally.
7. Have promotional offers.
In addition to trying different pricing models, it is beneficial to measure and examine your results. One of the features I love about Zuora is the analytics report that allows their clients to flag customers who are about to churn or identify those who might be ready for an upsell or cross-sell opportunity.
- What Data Does Zuora Measure and Why?
“The metrics engine is one of the six core components of the platform. We measure metrics like monthly recurring revenue, annual contract value, churn rate, net retention, all of those key non-gap metrics which are the governors of subscription businesses. We allow clients to start to blend in information on how their customers actually engage with and use their service, and that allows them to derive a whole set of behavioral metrics. And that ultimately leads us into predictive indicators where, if you have a great grasp on your customer financials (when they started, what’s their lifetime value, what’s their monthly recurring revenue rates), you can start to combine that with their usage patterns. You could start to do some really clever things around identifying a score that’s going to quantify a probability of churn or even a level of engagement with the service which is a proxy for how likely are they to renew” replied Matt.
In addition, Matt shared how the analytics help with improving customer engagement, optimizing activity, and even upsells.
- How Does Zuora Guide Clients In Their Upsells?
“When we talk about moving around the upsell path I think a lot about pricing and packaging, and being able to design not only how you package, but which one of those seven monetization levers to choose.”
Matt mentioned using different levers, one being the value metric which is based on usage and consumption. “There are clients of ours across many different industries that do this very effectively that once you’re a customer, the more you use then the more that you grow with the vendor that you’re subscribing with.”
When asked how to advise the publishing industry on upsells, he stated, “for those style clients I would probably gravitate towards a second lever around designing growth through feature gating. Here’s where you see a progression that’s based on either access to premium content or access to additional features.”
By upselling, you manage to keep your product or service relevant and exciting.
In this summary of our interview, we covered many tools to give you more visibility, more control, and greater recurring revenue in your subscription program.
For more information from this interview, you can read the transcript or listen to the audio file by clicking on the links below.
I encourage you to visit Zuora.com. and give Zuora a test drive, look at the engines, and find out what it can do for your subscription business.