Billing Lessons Learned at eBay

by Elizabeth Tse

In my career, I have always held roles where - in one way or another - the complete focus is on the customer.

When I was at eBay, I oversaw worldwide billing, payments and collections operations, and gained an intimate understanding of what it takes to develop, implement and maintain a successful, large-scale billing and payments system. After many years in this industry, I have a deep and unique understanding of the intricacies of billing and payments. Even then, I bet you can all guess the most important element of a successful billing system….customer satisfaction.

Too often, people consider billing a back-office function and I think that’s so wrong. Billing is fundamentally a customer-facing process. In which other process in your entire business do you have an opportunity to touch your customer’s bank account?

As we embark on 2010, I wanted to share some billing advice and insight, relevant to companies of any size and at every point in their lifecycle.

Bring billing to the front office.
It’s your most important and your most regular direct customer touchpoint. Think of billing as an ongoing relationship with your customers, not just a transaction.

Pricing and packaging experimentation leads to competitive advantage
A good billing system is not a cost management issue, it helps a company focus on revenue growth and provides the flexibility to change, test and optimize pricing. Companies that experiment with pricing and packaging have a competitive advantage in that they quickly learn what their customers want and how much they are willing to pay. Testing various billing options makes it possible for companies to leverage their service to capture as much market share as possible. Get the most out of your services – bill strategically and learn from it.

Billing is hard.
Sure it starts out easy for some with a simple monthly package but then quickly a business grows and wants to package and promote different offerings. As you expand domestically and/or internationally, you need to address the complexities that accompany different taxation rates and laws, multi-currency conversions, and more. Billing is not just about an invoice, but also pricing, payments, collections and ultimately impacts financial reporting. It has multiple downstream implications.

Anything less than 100% accuracy is not acceptable to customers.
No customer ever shares a good billing story with you since 100% accuracy is the minimal acceptable performance level. However, they sure as heck will let you know if it's wrong. At eBay, during peak hours, customers were listing literally thousands of items per second. Simply being 99.95% accurate for an hour would have left me with thousands of unhappy customers, hence my keen focus on getting it right all the time.

Billing is fundamental to your business process, but it’s not a core competency (unless you’re Zuora).
Billing is mission critical and has to be done right, but you also need to have the confidence and freedom to focus on product development and customer satisfaction in other areas. Spend valuable time building what you sell and buying what you don’t. We’ve addressed this before on the Z-Blog.

I do have a few more billing tips and tricks up my sleeve and will continue to share my thoughts. In 2010, we will maintain our fierce focus on customer success and will showcase the real results and benefits realized by Zuora’s customers. You can already read about many of our customer success stories on Zuora’s customer page. We will expand this series to include regular blog posts as well, so you’ll be hearing from me a bit more this year.

Happy New Year!

Pricing, Packaging, and Payments Flexibility

by Tricia Reilly

So I mistakenly answered my home phone last night, and it was the Cal Alumni Association. Now I’ve been a member of the Alumni Association on and off since graduation, but I’ve never become a lifetime member. It’s not that I don’t intend to renew every year, but somehow I’ve never been able to commit to ‘forever’. Possibly because it makes me contemplate my own mortality, but I digress.

So, here’s how they got me:

Telemarketer: Did you know that Cal was ranked #1 public university in the country?

Me: Yes, I did.

Telemarketer: Did you also know that the football team is now ranked #6 in the country?

Me: Yes, I did.

Telemarketer: We can now offer you $75 off the lifetime membership, for just $650.

Me: Um, I can't afford $650 right now.

Telemarketer: Well, we can split it out across an extended period. You'd only have to pay $75 (which isn't due until Oct 1) and then just $150 per year for the next four years. And you can access all the lifetime benefits starting immediately.

Me: OK. I guess it's about time I became a lifetime member.

Telemarketer: I'll just need a credit card.

And just like that, they had me.

It just goes to show you that a little pricing and payment s flexibility can go a long way. A thriving subscription business needs a flexible subscription commerce suite in order to enable all the various permutations of pricing, packaging and payments that it takes to capture as much marketshare as possible.

Are you giving your customers and prospects different ways to consume your service? Do you accept credit cards, checks, PayPal, or ACH? Do you allow your customers to pay monthly, quarterly, semi-annually, or annually? Have you been converted by pricing or payment flexibility offered to you by a subscription business? Drop us a line, we’d love to hear about it.

Go Bears. :-)

Could Subscriptions Save the Online Publishing Industry?

by Tien Tzuo

There's some irony to the fact that the publishers of the Wall Street Journal made waves this week by announcing they will soon charge for all content. On a conference call held after the company’s earnings announcement, News Corp Chairman Rupert Murdoch said that he plans to roll out paid content on all of their news websites as early as this financial year. Aren't newspapers one of the originators of the paid subscription model?

Earlier this year, we blogged about how subscription revenue models are taking center stage, and noted that Murdoch hinted at a move towards paid content saying "the challenge for media organizations was finding a balance between advertising and subscription revenues and figuring out how to charge for content without alienating existing users -- which could lead to Web sites offering tiered levels of free and paid-for material."

Staci Kramer, co-editor of PaidContent.org, really hit the nail on the head. Interviewed on Marketplace yesterday, she said:

"There's a lot of different ways that people are trying to do this. You know, what I think what we're going to enter here is a very big experimental phase with News Corp, and how they will handle this. And if you look at, whatever they do at the beginning shouldn't be viewed as something that even they expect to be in place a year from now."

News Corp is not alone - the online publishing industry as a whole is starting to come full circle on the topic of paid content. Wired Magazine is talking about "raising the price or straying from the traditional magazine business model with ideas like tiered pricing with different benefits."

Zuora customer GigaOM Network understands the power of subscriptions and recently launched a premium content service for its annual subscribers.

We’re watching this space with great interest. Subscription business models are - at the very least - part of the answer to helping struggling online publishers. But, does anyone believe that free news sites will cease to exist? The paid content providers will have to find a way to differentiate themselves in order to justify the premium.

Cost Containment is Not a Growth Strategy

by Jeff Yoshimura

Seems like an obvious one doesn’t it? But you’d be surprised how many people we run across in the subscription and SaaS business who still think cutting a few dollars here or there is going to get them through the economic downturn. Those who survive (scratch that) THRIVE, profit, and beat their competition this summer will be those who find new ways to build, manage, and grow their subscription businesses by launching new products, reaching new markets, and finding new ways to package existing product lines. That’s why over 100+ subscription leaders dialed in to learn the secrets to subscription success last week.

Care to learn these secrets for yourself? Check out the recording at http://info.zuora.com/WebinarSeriesJuneRecordingLP.html or check out the next in the series “Top 10 Ways to Improve Cash Flow” on July 16th featuring Zuora’s Chief Financial Officer Gary Hagmueller.

Virtual economies need flexible pricing and packaging

by K. V. Rao

Last week I had the chance to meet with a group of very smart folks at a dinner hosted by Canaan partners on virtual economies.

One of the subjects that was discussed was something all of us in 'real' economies understand too well: the importance of pricing flexibility to reach every micro-segment, and the potential loss of economic value when merchants cannot offer variable pricing and packaging targeting different segments.

Atul Bagga from ThinkEquity, who probably knows more about virtual economies than anyone else in the world, offered this very interesting analysis. A gaming company offered recurring pricing to its subscribers and had attained fairly respectable revenues. But the revenue growth appeared to be slowing down. The company, after much soul searching, decided to move away from recurring pricing to a free-to-play model with a pay-to-play option (we at Zuora call this usage pricing).

They were afraid of the revenue drop with the switch and how long it would take for them to get their revenues back to what it was with the recurring pricing. It turns out that the dip lasted only a few months, and in fact usage revenues started accelerating soon after, quickly exceeding the projections with the recurring model.

Why was this? It turns out, in the virtual world, folks are reluctant to commit to a recurring payment each period (I think fear of commitment is true in the real world as well, so maybe there is something here for the socio-economists to analyze). A lot of people are happy to pay usage fees, even if it means they pay more over time. This probably goes to their feeling of control, including the thinking that their expenses will actually be lower - i.e. why pay $10/month if you can pay only $1 per use and you think you will use the service less than 10 times, maybe only once or twice.

This for me brought home a few points:

While the recurring model works for many people, it does not appeal to folks who do not want commitment (sort of like dating), people really want to feel in control, and pay for what they use, i.e. a usage model.

This flexibility is important for almost everyone in a recurring revenue business. But many businesses start with simple recurring pricing because:

• Their financial/billing systems do not support usage charges (or as the industry calls it, their billing systems do not have a rating and billing engine)
• The recurring model yields a more predictable revenue stream
• Usage revenue is usually billed in arrears, while recurring revenue is usually billed in advance - thus the merchant gets money up front with a recurring model

In our business, we see a lot of innovative companies who understand the implications of these pricing models well, and use our flexible billing system to target different segments:

• Offer usage pricing, but bill in advance based on a committed volume, or based on a previous month's (or quarter's) volume, and then "true up" for the actual usage in the next bill cycle
• Offer some products on a recurring basis, and some on a usage basis
• Offer some products on an overage price basis - i.e. charge more if you go over your committed volume

In fact, our subscription management, billing, and payments platform supports 30+ charge models, and a variety of payment options to our merchants, to give them the flexibility to target different segments, optimize for cash flow, or for market share, or for predictable revenue streams.

Our goal is to support a marketer's dream: infinite pricing and payment flexibility, so that merchants can price and package products according to what an individual customer wants to pay - no more one price fits all, but one price per customer!

Our belief is that businesses should only be limited by their imagination and the innovation in their products and services they can offer to their different customers, not by the limitations of their subscriber management and billing system.

Flexible Packaging and Pricing Puts Me in the Mood to Shop

by Annette Giambroni

Recently I’ve noticed a definitive change in the way that companies are marketing to me – as both a consumer and a business decision maker. Whereas last year it was about winning my business, now it seems that companies are focused on keeping it. And they’re using innovative pricing and packaging strategies to do so.

You’ve probably noticed an onslaught of offers from companies to buy now, and pay later. In just one day, I received three such offers:

• An analyst firm not only offered me a discount if I would agree to renew their service, but also offered to defer billing until next quarter, and to spread out my payments over the next year.
• A few minutes later I received a discreet call from a professional interest group to which I have belonged for years offering to delay and spread out my payments if I didn’t cancel my membership.
• But my favorite has to be the email I received from the commercial airline JetBlue. They sent an offer to “Bill Me Later” allowing to me to buy a ticket for this summer but not pay for it until the fall (after using the ticket!). Okay so not exactly a traditional subscription service, but unexpected flexibility in packaging from an otherwise notoriously uncompromising industry.

It seems that these companies are finally getting it... It’s better to have a customer who might pay later verses no customer whatsoever. In order to survive the downturn, companies need to adapt quickly and offer flexible payment options to entice the increasingly discerning customer and build brand loyalty. In the meantime, I’m suddenly feeling inspired to book a flight to Miami...

Have you received any interesting or unusual offers aimed at keeping your business lately? I’d love to hear about them.

What subscription services would you pay for?

by Tricia Reilly

In a recent interview with Kara Swisher at the WSJ's D7 Conference, Arianna Huffington proclaimed that "subscriptions are for porn."

Unless you’re selling porn, and especially “very weird porn”, you shouldn’t sell subscriptions.

We obviously think this view is incredibly short sighted. But we're happy to see it's not just us who are challenging the conventional view that people won't pay for things on the Internet.

In a recent TechCrunch article that explores the whole concept of freemium services, MG Siegler lists the services that he would gladly pay for, and the list is interesting:

      Facebook
      Twitter
      Gmail
      YouTube
      Digg
      Friendfeed
      Instapaper

In fact, MG Siegler goes on to compare these services to the $2000/year that he forks over to Comcast:

“I would rather pay a bunch of hard working start-ups (and yes some bigger services like YouTube — owned by Google — and Flickr — owned by Yahoo) all that money” [than pay Comcast] for “mediocre content and shit service.”

We did a quick poll around the office, and here’s a list of some of the subscription services that Zuora employees are willing to (and in some cases do) pay for:

• FREE & PAID Skydeck – Back up your cell phone address book, read your voicemail as email, read and reply to your text messages online. Beautiful.
  
  
• FREE & PAID Box.net – Upload, store, and share up to 1GB of data – great for large creative files or graphics heavy presentations. A number of Zuora employees have accounts – some free, some paid.
  
  
• PAID – Club Penguin - Virtual world for kids, owned by Disney (clearly this one of our employee’s kids).
  
  
• PAID – match.com – Especially matchmobile, for the busy, on-the-go, Zuora singles.
  
  
• FREE (but we’d gladly pay for):
  
  NPR podcasts
  Hulu – television episodes
  Online News Services – this came up a few times, e.g. New York Times
  Food Network – especially if they had a premium content only version
  Fit Sugar – fitness and health tips from the people who bring you the “insanely addictive” PopSugar

What free services would you be willing to pay for if premium features were available?

Who needs a subscription management and billing solution?

by Amy Pruitt, Zuora Account Executive

Why do I need a subscription billing system when I already have an accounting package?

On the front lines here at Zuora, this is a question that comes up from time to time when speaking with prospective client CFOs and COOs. Maybe you’re asking yourself the same thing. Put simply, accounting and billing systems manage two different worlds in the business; so an effective accounting system doesn’t guarantee an effective billing system. Just how are billing and accounting systems different?

• Accounting systems record revenues and expenses after they happen. A subscription billing system is where your product catalog, customer subscriptions, and all change orders and amendments are housed. This is where you group features into various packages and rates plans, allowing you to offer customers the level of service they want at a price they can handle, based upon their individual needs.
  
  
• The accounting world revolves around debits and credits and requires business events to work around it. Billing, on the other hand, is built around the business events that drive the flow into accounting: customer acquisition, provisioning, pricing, usage tracking, calculations, invoice generation, collections, etc.
  
  
• An accounting system stores the charge after it has been billed; whereas a billing system looks at the customer’s subscriptions, including all change orders and amendments, and calculates what the bill should be, e.g. prorations, upgrades, downgrades, etc.
  
  
• Accounting will generate a balance sheet, but falls short when it comes to generating key subscription metrics like MRR, churn, renewals, etc.

So, let me pose the question:

How important are money and growth to you, right now?

The answer you give to that question indicates whether or not you should invest in a subscription management platform on top of the accounting package you already have.

If you said, “It’s about cash. Darn it! It’s about fueling the growth of my company by enabling my product, marketing, and sales teams to position and capture as much market share as humanly possible – right now, today! And, I want a system I can leverage in the day to day operational complexities of my business.”

Then, I would respond, “You need a subscription billing system.” Actually, I would say, “You need Zuora.”

Here’s why:

A subscription billing system, correction – a subscription billing system that is flexible, scalable and integrated, handles the tough stuff – change orders, proration, billing in advance and arrears, usage-based billing. The hard part of subscriptions is where the value is. Go for that if you want to make money!

You might not see it yet – actually you might not feel it yet, but it’s there. The pain you’ll experience when your customers want to upgrade, downgrade, pay with a briefcase full of cash (not a credit card), or pay you monthly not annually. Or your sales team wants to discount, and you want to empower them, but without fostering rampant pricing inconsistencies. Or your marketing team wants to offer all kinds of pricing and packaging scenarios to see what the market will respond to… without involving your IT department.

The way that subscription businesses grow is by understanding how the different segments of the market want to buy from you and then selling to them in those ways. It’s NOT about a lot of products but it IS about a lot of pricing and packaging options.

Totally not a surprise when I’ve hung up the phone or left a client meeting in which my client tells me that his customer said one of two things: “You’re charging how much??” or “Your price isn’t high enough for a company like ours.” Both of them have money, so sell to them in the ways they want to buy. This is what a powerful subscription billing system (read: Zuora) can do for you.

SaaS Pricing Strategies to Stimulate Sales

by Jim Geisman

Kicking off the Zuora Guest Blogger Series, Jim Geisman, founder and principal of SoftwarePricingPartners, Inc. shares new ways to monetize your existing assets by making quick modifications to pricing and packaging.

Software pricing and packaging are often viewed as long-term tools. So, in a severe economy — when you need action now — what do you do?

Many software companies believe their only option is to counter with deeper discounts, and extras like free products or services. While these tactics can help close deals, these quick wins may be setting precedents that will be hard to overturn down the road.

To stimulate sales in a slow market without the baggage of long-term liabilities, here’s a thought: Give your sales team the freedom to negotiate packaging options, just like they have the freedom to negotiate discounts.

Far-fetched? We think not. Here’s what we suggest...

• Downsize or "de-feature" existing products to create new, no-frills packages. Unbundle a larger product into several smaller packages. Limit, or eliminate, high-value services, and pare down what’s inside your products, disabling (but not hiding) more-advanced features.
  
  Whichever of these you choose, the key is to downsize in a way that allows you to rapidly bring these lower-value, lower-priced products to market. Avoid creating new packages that require any new product development.
  
  
• Get these no-frill packages into the hands of your sales team immediately. Don’t wait for launch plans, new price lists, etc., take your plans straight to your sales force now. Give them the guidance they need to start selling these new offerings immediately. Let them know what options they can trade for price, and give them the go-ahead to start selling.
  
  
• Use time limits and short-term contracts to control these deals. Position them as short-term promotional packages that won’t necessarily be around downstream. This positioning should also be a part of any deep discounts or free product offers, if they continue to be a part of your "poor-economy arsenal".
  
  Don’t get locked into long-term contracts that guarantee price protection. Instead use short-term contracts that give you the freedom to raise prices and promotional offers to coax prospects off the fence.

We will also cover ways to more effectively use pricing, packaging, and discounting in detail during a series of software pricing workshops that will be held this year around the country. The first two workshops will coincide with OpSource’s SaaS Summit (March 11th) and SoftLetter’s SaaS University (April 16th). Zuora readers can save $200 off the $595 registration fee by entering the promo code ‘zuora’ when they register.

Three Keys to SaaS Billing Success

by Tien Tzuo

For any SaaS company, having the right billing and payment systems in place is critical to growing and scaling the business.

(1) A billing system must give you Pricing and Packaging flexibility.

At Salesforce.com, we learned early on the importance of having the right pricing & packaging strategy in order to grow you subscription business.

When we first started, we thought the right strategy was to keep our pricing simple. We priced our sales force automation (SFA) service at $50 per user per month, and we thought that would be the price forever.

The market, though, had other ideas. Many tiny companies loved the idea of an on-demand service to manage their sales force, but they told us that $50 a person was too steep a price. At the other end of the spectrum, large companies like Autodesk told us they actually wanted to pay more -- but in return, they wanted more features, and stronger customer service.

We quickly realized that a one-size-fits-all pricing model would never work. Different companies had different needs, and different price points. That's when we embarked on our packaging strategy that ultimately led to a Professional Edition at $65/person/month, an Enterprise Edition at $125/person/month, and a Group Edition at $995/year for 5 users.

Looking at other subscription companies like Netflix and Zipcar, you see the same evolution in their pricing models.

Netflix started off in 2000 with a simple model too -- $19.95/month. Fast forward almost a decade, and Netflix now has over 9 plans hitting multiple price points. Their most popular plan is $16.99/month, labeled as the 3-DVD-at-a-time plan. But subscribers new to Netflix can dip their toe in the water with the $4.99/month 1-DVD-at-a-time plan, and heavy users can upgrade all the way to the 8-DVD-at-a-time plan for a whopping $47.99/month.

Similar, Zipcar started off with a $50/year membership fee for their popular car sharing service. Today, Zipcar also has renamed the original plan as the "Occasional Driving Plan", and introduced 4 new price plans called "Extra Value Plans" for its heavy users.

Salesforce.com, Netflix, Zipcar -- what's behind this pattern of how all three companies price and package their services? Quite simply, different customers have different needs. Customers want choice as to how they consume your services -- and how they pay.

(2) The right billing system allows you to offer your customers the ability to customize their service -- without breaking your back office operations

Most companies dramatically underestimate what it takes to run a subscription business (see Top 10 Recurring Payment Headaches) It's no surprise actually, because we're all so used to a transactional way of doing business.

In a traditional, transactional business model -- such as what you find in manufacturing, distribution, or retail industries -- you express interest in purchasing my products, I write up an order form, ship you the products, send you an invoice, collect payment, and the transaction is completed.

Not so in the subscription world.

In the subscription world, the first order is only the start of the relationship. Each month, I measure how much of my service you are using and, based on the price plan you are on, I compute how much I should invoice you and send you a bill. This happens month in and month out, potentially creating a huge volume of transactions for your company to process.

In addition, at any time, you may choose to change the service. Perhaps you have purchased a cell phone plan, and now you want to add text messaging. Perhaps you started off with 10 licenses of a SaaS application, and now want to add another 2 licenses. Or perhaps you subscribe to delivery of the New York Times, and you want to suspend delivery for 2 weeks while you are on vacation.

Subscriptions are a living, breathing representation of the relationship between you and your clients -- and every change to the subscription must be handled by all your back end systems -- from quoting, to billing, to order provisioning, and through to collections.

With the right infrastructure in place, offering your clients all these capabilities is a snap. But without the right systems in place, every time the client makes a request, it can wreak havoc on your operations.

(3) The right billing system will give you all the metrics you need to run your business

As you can see from the examples above, subscription businesses are truly different from traditional businesses. And that comes right down to the metrics you use to run the business.

For example, a popular metric used by many SaaS companies is MRR, which stands for monthly recurring revenue. Across our customer base, you can have many types of deal terms. Quarterly contracts, annual contracts, 12 month pre-payments, etc. MRR normalizes all your contracts to a common period -- a month -- so you can have an apples-to-apples comparison of the value of your various customers.

Another critical metric for recurring businesses is churn, or its opposite, renewal. But there are many ways to calculate churn. For example, for any given period, such as a quarter -- what percent of the business (perhaps in terms of MRR) at the start of the period is still there at the end of the period? The part that is lost is considered the churn. For companies with longer term contracts, a renewal metric may be more appropriate. For a given period, such as a month, what percent of the business that is up for renewal actually renews -- that is the renewal rate.

Unfortunately, traditional CRM or accounting systems don't produce these metrics. But with the right online billing system, producing these metrics is a piece of cake.