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!

Paid content – Accenture bets on subscriptions, and so do we.

by K. V. Rao

Will consumers pay for online content? Of course they will and they already do. Look at the Wall Street Journal, Financial Times, even Netflix. At Zuora, we’re a bit weary of the over-reaction that occurs when companies announce planned paywalls. Business models are good things.

Paying for something that was once free might not be our first choice, but the free rides are over. Internet advertising spend continues to go down – the industry lost another 5.3% or $10.9B in the first half of 2009 – and online publishers continue to struggle with audience numbers. Content companies finally realize that they need business models and we, as consumers, need to accept that there really is content that we are interested in and will pay for. The sad truth is, if we don’t pay for what we want (like local news), it may very possibly cease to exist.

Rupert Murdoch made big waves when he said News Corp would start charging for all content. When I look back at other announcements made throughout 2009, I’m not so sure why everyone was so shocked at Murdoch’s plans. More and more companies like Hulu and the recently announced magazine consortium, including publishers News Corp, Hearst, Time, CondeNast and Meredith are putting wheels in motion to charge for content in the coming months.

As well, throughout the year, there’s been growing evidence that supports the fact that consumers will pay. Two surveys that stand out to me are Accenture’s Global Broadcast Consumer Survey from earlier in the year and the recently released survey by Boston Consulting Group.

Accenture’s findings highlighted the fact that subscriptions will likely reign supreme (we like that!). Accenture says “despite the downturn in the global economy, consumers revealed an increased willingness to pay for different types of programming.” Folks in every age group preferred subscriptions over pay-to-play. Accenture concluded “subscription service content appears the most resilient to the economy, as its consumption shows no signs of being hit by a drop-off in consumer spending.”

BCG’s survey found that consumers were more likely to pay for certain types of content, specifically news that is:

• Unique, such as local news (67 percent overall are interested; 72 percent of U.S. respondents) or specialized coverage (63 percent overall are interested; 73 percent of U.S. respondents)
• Timely, such as a continual news alert service (54 percent overall are interested; 61 percent of U.S. respondents)

In conjunction with what kinds of content people would pay for, they also told BCG they’d be willing to pay $3/month in the United States and Australia and even $7/month in Italy.

For example, based on BCG’s findings, an American online publisher with a relatively small monthly readership of 30,000 readers could bring in close to $100K in revenue via paid content. That’s money that wasn’t there before…not bad.

What this says to me is there are content delivery and subscription models that will work for everyone – content providers and consumers. Freemium, pay-as-you-go, usage-based pricing, recurring subscriptions, ad revenue. There is something for everyone and at Zuora, we’re confident there is a solution. We just need some time to work it out on the business side.

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. :-)

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.

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.

Recurring Billing - Build vs. Buy

by K. V. Rao

There are so many emails, articles, television news stories – you name it – beginning with "In these economic times…" and continuing with a negative or depressing story about businesses suffering.

At Zuora, we don't claim to have the answer to bailouts or the housing crisis, but we do consider ourselves experts in SaaS and subscription businesses. Popular during the first tech downturn and again during the offshore outsourcing craze, the Build v. Buy debate is back.

From our perspective, it makes perfect sense to reengage in this discussion – it's something we discuss with our customers and prospects on a near daily basis.

What you build, you should sell.

Our customers are realizing they are diverting precious resources into critical, but non-core activities like subscriber management, billing, and payments instead of dedicating them to building and enhancing differentiation in core products. They fall behind in product differentiation and competitive advantage leading to loss of market share and revenue when operational laundry lists and details are usurping time that could be spent on revenue-generating activities.

What you can't sell, you should buy (or preferably subscribe).

This becomes even more important in tough economic times, when businesses get lean and mean, regain focus on building differentiation in the core business, and divest non-core activities or outsource them.

Today, business agility is made easier by advances in cloud computing, SaaS, and service oriented architectures. These technology trends are making it easier and easier to plug and play best of breed components without having to re-invent or re-build everything.

And with pay-as-you-go pricing (also re-emerging with consumers in the form of 'layaway'), the price is right as well!!!

Most of our customers get it - they chose to invest their precious development resources in gaining market leadership in their chosen domain, be it marketing tools like Marketo, online analytics like Coremetrics, or online storage like Box.net, they made the wise decision to subscribe to our billing service instead of building this critical (but not core) functionality themselves.

Subscription-based services are becoming a strategic advantage, especially in this economy. With the availability of subscription-based offerings for everything from cloud computing (Amazon Web Services) to payroll (ADP, Paycycle) to billing (Zuora!), today's businesses have no excuse. There is enormous flexibility, efficiency, cost-effectiveness and business agility just a few mouse clicks away.