Just as the Internet rocked the bricks and mortar world of business 15 years ago, the burgeoning Subscription Economy™ is forcing today’s enterprises to change how they do business. Subscriptions used to be just for newspapers and magazines, but not anymore. The last 10 years have seen a dramatic increase in companies using the subscription model to offer everything from music, movies, and textbooks to cars for a monthly fee. Every day, more traditional players are joining the Subscription Economy in response to changing consumer habits. For most companies, this shift means relearning a lot about selling, pricing, packaging, and building customer loyalty. Companies need to move away from a manufacturing-oriented, product focused way of thinking, and embrace a world of services that fundamentally change customer relationships.

1. The Definitive Guide to
Subscription Commerce
January 2012

2. The Definitive Guide to Subscription Commerce — January 2012 © Zuora Inc. 1 / 8
The Subscription Economy
Just as the Internet rocked the bricks and mortar world of business 15 years ago, the burgeoning Subscription Economy™
is forcing today’s enterprises to change how they do business.
Subscriptions used to be just for newspapers and magazines, but not anymore. The last 10 years have seen a dramatic
increase in companies using the subscription model to offer everything from music, movies, and textbooks to cars for a
monthly fee. Every day, more traditional players are joining the Subscription Economy in response to changing consumer
habits. For most companies, this shift means relearning a lot about selling, pricing, packaging, and building customer loyalty.
Companies need to move away from a manufacturing-oriented, product focused way of thinking, and embrace a world of
services that fundamentally change customer relationships.
Speeding Time to Market
What does it take to succeed in this new world? Right now, business leaders need to gain a more nuanced understanding
of the strategic, financial, and operational implications of a subscription-based model, or they risk losing ground in the time-
to-market sprint. Customers can now get nearly anything, anytime. Companies need to understand that the competition is
governed by new rules, and if you can’t provide the right service at the right price, your competitors will.
Rethinking the “What” and “How” of Selling
Consider BMW versus Zipcar. BMW’s leasing business already operates much like a service. You pay a one-time set up fee, and
then you pay a monthly fee over the life of the contract. Oil changes and maintenance are all included in that price. In fact, in
2008, 60 percent of BMW’s sales came from its leases. But compared to Zipcar’s pay-as-you-drive subscription membership,
BMW’s leasing service falls short. With Zipcar, you might drive a Toyota Matrix one day and a Mazda the next. What if a BMW
customer wants to try a 3 Series for a few weeks, and then switch to an X5? Zipcar’s fees even include the gas!
Pricing Based on Customer Demand
Forget fire sales, seasonal specials, and other brute-force price promotions. Armed with better insight into how prices affect
demand, subscription companies can lower prices in a more rational, granular way to manage inventory while maximizing
yield. For example, when the iPhone 3G was introduced, AT&T dropped the price of the iPhone by $100 and simultaneously
raised monthly fees by $10. In doing so, they were able to sell more iPhones (lower entry fee) but earn more money over the
life of the two-year contract.
Subscription-based commerce is spreading like wild fire across industries including software and high tech, cloud computing,
media and publishing, telecommunications and wireless, and consumer services. The reality is in any industry, companies
need to stay one step ahead of customer demand to remain competitive. Subscription commerce gives companies the
flexibility and agility to achieve this—whether they sell a physical product, a service, or combination.
The Old Model: Linear Transactions
Commerce used to consist of simple, one-time transactions. This process began with the initial customer acquisition process.
This might involve a direct sales force using a customer relationship management (CRM) tool to get the deal closed, or it could

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be the result of marketing campaigns driving traffic to an e-commerce website. Customers pick their products, each with a
single SKU and a single price. A simple quote and invoice, or a one-time online payment completes the transaction, and
your general ledger system takes care of the accounting.
While this lead to cash process is straightforward, it’s also limiting. To keep your business growing and revenue flowing, you
need to close additional transactions with new customers. Even generating additional revenue from an existing install base
requires a new sales cycle.
The New World: Subscription Commerce
The Subscription Economy introduces an entirely different commerce process. It’s no longer just about lead to cash. It’s about
lead to cash to renewal. This new process not only offers several advantages to end customers, demonstrated in the ZipCar
example, but also to companies delivering the service.
Subscriptions deliver a steady recurring revenue stream that will compound over time. For established vendors, it’s not
unusual to see renewals account for 70-80 percent of annual revenue. Unlike the world of one-time transactions, the
subscription model also offers the opportunity to start your customers small and grow their usage and spend over time.
New software-as-a-service (SaaS) and Cloud Computing vendors have become experts in this process. A common strategy is
to hook initial customers with a “freemium” offering, and then to up-sell that customer to a premium “bronze”, then “silver”,
then “gold” package. If you have the right type of service, you might get that same customer to adopt that service at work,
delivering an “enterprise” package.
Transaction Economy: Lead to Cash
Sales
Process
Flat Pricing
Simple Quoting
Single
Invoice
Single
Payment
Lead Cash
Front Office
Applications
Back Office
Transaction
Applications
New revenue
comes from
the next deal

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For this strategy to be successful, companies need to identify the right product packaging, prices, and bundles to drive
customers up the chain. Since every market, customer segment, and service is unique, there is no one-sizefits-all model for
success. Companies can experiment in the following five areas to find the mix that maximizes customer value: frequency,
add-ons, usage, upgrades, and international markets.
Frequency
How often should you bill your customers? Is a simple monthly charge the most attractive model? Or can you drive more
loyalty and improve cash flow by offering a pre-paid yearly solution?
Add-On’s
You may start with a single product line, but find adjacent products or services that are complimentary. Like a cable company
that now offers Internet and voice services as well as television. Salesforce.com started with a sales force automation service
and now offers customer service and support applications as well as collaboration tools.
Usage
Beyond simple recurring payment models (i.e. per user per month), it’s likely that you’ll find ways to measure customer
usage. How many gigabytes are customers using? How many emails are they sending? How many miles are they driving?
The possibilities are endless, but usage charge models open the door to a whole new world of pricing and packaging options.
Subscription Economy:
Lead to Cash to Renewal
Sales
Process
Complex
Quoting?
Change Orders?
Bill Repeatedly?
Add users
Add products
Upgrade tiers
Suspend service
Renew & Upgrade?
Setup Charges
User Charges
Usage Charges
Pricing Tiers
Subscription
Products &
Pricing
New revenue
comes from existing
customers
Who’s using what
Who’s up for renewal
Who’s most valuable
Co-termination
Align charges
Revenue recognition
Store payment info

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Upgrades
Once you’re tracking usage, you likely have a means of upgrading your customers from one tier of service to another.
Cell phone plans are a great example: a customer starts out with a 400 minutes a month plan, then later upgrades to the
600 minutes a month plan if they have gotten rid of a land line at home.
International
Finally, international markets offer tremendous growth opportunities. Though beware, buyers in different markets might
respond differently to your domestic pricing strategies. You’ll also need the right systems in place to manage currency and
taxation issues.
The Middle Office Gap
Companies need to manage all aspects of subscription commerce including pricing and product catalog management, quoting
and order management, billing and payments, up sells, cross-sells and renewals, and revenue and customer value metrics.
In the front office, there’s a need for new marketing automation tools, like Marketo, and proven CRM applications, like
Salesforce CRM. These are great for bringing new customers to the table. Once customers are in the door, the differences
between the old world and the new subscription commerce world become clear.
Traditional back-office systems, like order management, ERP and accounting systems, as well as custom, homegrown
billing solutions, were designed for simple, one-time transaction commerce, not recurring billing and payments that define
CASE STUDY
Xactly Corporation Meets Rapid Growth
Challenges with Subscription-Based Billing
Challenge:
Relatively new company experienced rapid growth
No automation tools or processes for handling invoices and customer billing
Needed accurate and timely customer invoice processes to support complex billing scenarios
Required fast implementation with relatively no IT resources
Solution:
SaaS-based subscription billing and management platform
Intergration with CRM system and partner systems
Minimal IT resources and upfront investment required
Results:
Clear financial payback through improved customer billing
Better insight and visibility into sales data and metrics
Implemented within one month
Ability to manage customer subscription changes due to upgrades, renewals, cross-sells and upsells
Usage: Beyond simple recurring payment models (i.e.
customer usage. How many gigabytes are customers u
are they driving? The possibilities are endless, but usag
pricing and packaging options.
Upgrades: Once you’re tracking usage, you likely have
service to another. Cell phone plans are a great examp
then later upgrades to the 600 minutes a month plan i
International: Finally, international markets offer trem
different markets might respond differently to your do
place to manage currency and taxation issues.
Challenge
Relatively new com
No automation too
Needed accurate an
billing scenarios.
Required fast imple
Solution
SaaS-based subscri
Integration with CR
Minimal IT resource
Results
Clear financial payb
Better insight and v
Implemented withi
Ability to manage c
renewals, cross-sell
Xactly Corporation Meets Rapi
Subscription-Based Billing
CASE STUDY

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subscription models. As a result, companies have had to deal with manual processes and highly customized, inflexible
solutions that introduce errors, drain critical resources, and hold back pricing and packaging innovation.
Subscription commerce (lead to cash to renewal) also requires the concept of a “middle office” not found in transactional
business. Companies need to manage an ever-changing product catalog while keeping finance and sales in sync on the latest
pricing. They need quoting and ordering tools that account for not only initial orders, but upgrades, add-on’s, or downgrades.
Front office employees, like sales reps or customer support agents, need access to customer invoice and payment
information, usually locked away in back office applications.
Companies that fail to consider this “middle office” gap and base their subscription business on billing and payments
platforms designed for one-time transactions will run into roadblocks that will impede future growth. As new customers,
product lines, and pricing strategies are introduced, these challenges become more pronounced.
Subscription Commerce Requirements
Zuora
®
has helped hundreds of companies in industries like media, telecommunications, SaaS and cloud computing, deliver
the missing piece to monetize the entire Quote-to-Cash-to-Renewals processes. Companies like Reed Business Information,
Coremetrics, InsideView, Marketo, Ricoh, Box.net, Xactly, Cloud Central, Open Range Communications, and Ning have already
seen the benefits of subscription commerce.
Four themes arise again and again. These requirements are critical for any company planning for and managing a
subscription commerce business.
Complete Subscription Commerce
Front Office Back Office
Subscription
Middle Office
Campaigns
Leads
Opportunities
Accounts &
Contacts
Support Cases
Pricing
Quotes
Orders
Renewals
Analytics
Product Catalog
Subscriptions
Amendments
Invoices
Payments
Usage
Taxation

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1. Product and Pricing Strategy
How do you want to price and package your offerings? What is the right structure today, and in the future as your
customers, marketing, and sales demand new product packaging? What is your mix of one-time fees, usage fees, and
recurring fees? How quickly can you roll out pricing changes? Can you do it on your own, or are you dependent on a
back-logged IT department?
2. Customer Subscription Management
Customer subscription occurs over the lifetime of that customer. What is your strategy to progress a customer from free or
light usage, to premium and heavy usage? Do your sales reps have visibility into customer subscription details to help them
cross and up-sell and manage renewals? Do they have the right tools to not only create a new quote, but a renewal, upgrade,
add-on, or downgrade quote? If you don’t have a direct sales force, how do you manage subscription changes on your website
and through your channel partners? What is the back office impact of a change in subscription?
3. Subscription Billing and Payments
A payment gateway or a general ledger application may work for simple one-time transactions, or even basic recurring
payments for a single product. As customers change their subscriptions, it’s important to consider how you’ll be able to
manage things like co-termination, charge alignment, and revenue recognition. Can you handle all of this in an automated
fashion, or does each customer change result in hours of manual work? Can you generate invoices that reflect what’s really
going on with a customer’s subscription?
4. Subscription Analytics
Once you have these pieces in place, what mechanisms do you have to measure the success of your subscription business?
Can you track your monthly recurring revenue (MRR) in real time? Do you have insight into how metrics are changing over
time? Can you tell what each customer’s total contract value (TCV) is? What are your days sales outstanding (DSO) and what
can you do to get that number down and improve cash flow?
When you add new products or dramatically increase your customer base, you need to be ready to handle these challenges. When you
make a strategic pricing and packaging change, can you quickly change your systems accordingly, or are you limited by what IT can deliver?
One of the biggest roadblocks that companies run into is a rigid back office application. This prevents them from executing a growth
strategy. Consider how to keep the front office (sales and service) in sync with the pricing and packaging changes you roll out. Orders
created with out-of-date pricing can take hours to unwind and strain a new customer relationship.
You need to make sure everything flows through to the billing system automatically so small changes on the front end don’t result in an
increase in work for the finance and accounting department.

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Selecting the Right Subscription Commerce Partner
Selecting the right subscription commerce partner is a significant decision, and any technology you implement will likely
be in place for years to come. It’s important to consider not only the functional needs your business has, but also the
characteristics of the company behind the technology.
Compliance and Security
Your partner should have the highest level of accreditation
such as Payment Card Industry (PCI) Level 1 for payment
processing, the worldwide standard set forth by the
PCI Data Security Standard (PCI DSS) and SAS 70 Type
II certification, the internationally recognized auditing
standard developed by the American Institute of Certified
Public Accountants (AICPA) for internal controls and
processes.
Scalability and Reliability
Assuming that you are selecting a SaaS provider, your
partner should have a multi-tenant architecture that
allows for scalability, growth and capacity planning, just
like Salesforce.com. Be sure that any partner you chose
has true disaster recovery measures in place, like multiple
redundant data centers.
Ecosystem
With cloud computing today, multiple touch points are
required with various systems and applications such
as CRM, payment gateways, and back-office accounting
systems. Your partner should have a strategy that involves
productizing common integration points to reduce your
risk and eliminate the burden of maintaining multiple
integration points and upgrade cycles.
Openness
An open system should be a requirement for any business
operating in the cloud. This means that application
interfaces (APIs) are publicly available and releases are
made available instantly to all customers and partners.
Innovation
You don’t want to be stuck with a vendor who is not
innovating, as your business requirements will change
over time. Innovation means having a standardized
approach to product development, engineering and release
management providing consistent new features, upgrades
and long-term benefits to adapt your business over time.
Billing Care
As billing is mission critical, your partner should have an
experienced billing care team and support system in place
24x7.
Leadership
You want a mission critical partner who will be there for you
for years to come. Choose a partner that has the resources
to support you now and in the future as well as a track
record of a committed focus on customer success.
About Zuora
Zuora is the leader in on-demand subscription commerce solutions changing the way that subscription businesses manage
and sell to customers, allowing them to bring new products to market in less time, with more flexibility and less hassle. Built
from ground up by SaaS industry visionaries and veterans from today’s leading technology companies such as Salesforce.com,
WebEx, eBay and Netsuite, Zuora provides a complete solution to manage all aspects of your subscription business from lead
to cash to renewal.

9. www.zuora.com
3400 Bridge Pky, Suite 203
Redwood City, CA 94065
Phone: (650) 641-3777
Fax: (650) 551-1500
Copyright © 2012 Zuora Inc. The Zuora logo, Zuora and Subscription Economy are registered trademarks of Zuora, Inc. All Rights Reserved.
Designated trademarks and brands are the property of their respective owners.
“To meet the diverse needs of our customers
while maximizing revenue, we need the
flexibility to negotiate renewal terms, up-sells,
and other deals on a case-by-case basis.”—Mary Collerton, Corporate Solutions Director, Reed Business
Information (a division of Reed Elsevier Group PLC)