Operationalizing usage-based revenue with Zuora

Awesome. Well, thanks everyone. Looking forward to talking to you today. My name’s Chris Hemenway. I’m a director in our solution consulting practice. Been here at Zuora about 10 years, may have crossed paths with, uh, many of you in, in previous engagements. Uh, Kathy? Sure. Kathy Pearson, I’m part of our revenue advisory team. I’m a principal in that team. Um, basically Chris’s counterpart on the revenue side, but I’ve been here about 12 years here in the Bay Area, so same thing. Probably likely crossed paths with many of you, but hopefully we can get something new out there in what we’re seeing. Awesome. All right, so for today’s presentation, I’m going to b- be wearing a lot of hats. I’m gonna be playing a little bit of our sales operations team, our product organization that’s coming up with new consumption insights, et cetera. Um, and then I’m going to be working with Kathy as my counterpart. Kathy, who are

you gonna be today? So, I’m gonna be finance, I’m gonna be the person that I am. The one that has to figure out how to account for all these models and figure out how to do that and make sure that we can do that in an automated repeatable process. Awesome. Okay, so before we get started, one question we had was, you know, kind of, “How along in the usage journey are many of you as an organization?” There’s different levels of maturity, um, and so we wanted to get this poll out there. So if you can, you know, take a minute and give us a, a response here. Um, are you just learning about consumption-based pricing as an organization? Um, are you pretty close, you’ve decided you’re going to market here and you’re preparing for an implementation? Or, is this your bread and butter, right, and this is what you all do as an organization? Um, that would be helpful just

to make sure we understand what the universe of folks looks like. So, thank you guys for taking a second to respond to this. Quite a few folks, it looks like, that are just getting into this, so that’s exciting. Um, hopefully this will be valuable, ’cause we are gonna walk through this whole sort of process of what it looks like to configure some of these options inside of Zuora, all the way to the finance side of the house, as Kathy just mentioned, um, as well as some of the t- the tools that we have for analyzing your success as an organization. Okay. All right, with that, let’s go ahead and let’s jump in. Um, I’m gonna go ahead and I’m going to start sharing my screen here. So,

um, again, wearing multiple hats, right? So, um, this is, again, a landing page. You guys are gonna get to see this soon in your Zuora environments if you have this, but where we really wanted to start was in the product catalog. So, there’s, there’s a journey that many customers are going through as an organization when you start thinking about moving into this consumption model. Um, almost no customer or business wants the full variability that comes with just jumping directly into a pay-as-you-go model. So, what we see is many customers that are starting on sort of a recurring license-based model, as an example, that are gonna jump into consumption-based pricing. So, if you wanted to go straight to the deep end of the pool, again, we have all of the usage charge models that are available inside of Zuora. So, if you were

doing just a pure pay-as-you-go model, you certainly have that flexibility. Um, if you’re familiar with Zuora, you’ll know that things like the unit of measure here are very configurable. So, whether we’re talking about tokens or API calls or minutes or gigabytes, whatever it may be, you can configure that distinct unit of measure inside of your environment to allow you to monetize against that. All right? Um, you also know that we have lots of different pricing models that are available. So, this is an example of a volume-based pricing model, where if you’re trying to give customers a sliding discount the more that they actually consume inside of your services, all of that can be configured here. So, again, a variety of different pricing models, from overage models

for customers that are blending a recurring charge model with a certain number of included units with an overage if the customer goes over those included units. We do the volume and tiered-based pricing. Um, you’ll notice I even have what we call multi-attribute pricing here. So, you can think about effectively being able to write a formula inside of the Zuora product catalog if there are specific attributes that influence the price of the consumption that your customers are doing, that you’ll ultimately wanna be able to write inside of your product catalog and enforce for customers. We can even go as far as allowing rating to happen in other services. So, this is the pre-rated pricing option that you’ll see here. So, lots of different options here, in terms of what you’re going to measure as an organization, as well as how you’re going to price it.

But if you’re familiar with Zuora, one of the things that you’re probably aware of is the fact that we are finance-aware. So, within each one of these usage sections that you can see here, we have the ability to define both the accounts, the natural accounts, the account codes that are associated with these transactions, but also some of the revenue information. So, Kathy, how important is it to you, as a finance user, to be able to set some of this up in advance? I think it’s very important, because now, as soon as products are created, I’m gonna be able to make sure that revenue recognition is correct. And with Zuora, with, when you’ve got consumption, I can decide if it’s purely based on that usage event, like pay-go, I’m not even waiting ’til billing occurs. Or, for the models that we’re seeing our customers get into, like prepaid

commitments, is it still based on consumption or is it ratable but then tracking consumption? So, I’ve got like ZR usage event. Is it ratable over those start and end dates? Is it based on the consumption event? So, can I do ratable and track that usage, see how I’m pl- playing against it? All of that’s done upfront in that product catalog, so once we start selling that, now I know that my revenue treatment for that product’s going to be the same every time we use it. So, that’s that repeatability factor. What we see is the best practice is to get that finance team involved in that new product introduction process. Let them be there. Don’t let people start selling things until you’ve done that analysis, ’cause then all your data’s right and you can move forward.Yeah, that’s awesome. So this is really that blend

of automation, as Kathy just talked about, her finance lens of being able to automate any downstream treatment of these models. But again, it’s that go-to-market persona who wants to come up with either some new item that we’re going to measure, or a new pricing model that we wanna run out to the field with. These are all capabilities that we offer out of the box to drive that end-to-end automation. Kathy even mentioned, you know, some more sophisticated models like prepay drawdown here, these are other options that we offer out of the box from a product catalog standpoint. So, you have the ability to set up a prepaid amount here, so whether we’re doing a prepayment or a minimum commitment. So whether I pay you at the beginning of the year or chew it up at the end of the year, these are both examples of some of those go-to-market models that Zuora offers out of the box,

that blend that sort of, uh, ability to predict what you’re going to do as an organization from a spend standpoint, but give customers the flexibility to draw down that balance from a variety of different services. So, I wanted to highlight this, because what we have set up is actually a subscription here where we’re taking advantage of that prepay drawdown model. So here you can see on this customer’s subscription, I’ve prepaid for services and I have two different products that are gonna draw from that balance. So if you’re not familiar with this new model inside of Zuora, one of the things that you’ll see here that’s new in your subscription object is this Prepaid Balance container. So we can see that I have an amount that I’ve prepaid at the beginning of this year, along with the definition of how long I

have to use those prepaid units or dollars in this example. So, we call that the validity period. So here you can see I’ve got a whole year to consume this, and then as we actually load usage records into the Zuora platform, we start automatically drawing that balance down. So I can do things like track this percentage of drawdown of how much of that prepaid balance have I actually consumed? And one of the great things is as- as we load this data, we are automatically rating it and drawing it against that balance, even though I may not have generated an invoice. So this is where you can see this unbilled usage. So it’s been rated and drawn against that balance, but we haven’t actually put it on an invoice if it were an overage charge, as an example for these customers. So,

um, it- we’ve really separated rating and billing, uh, inside of the platform, and this has some real value downstream for our customers. But it’s also valuable for your end-customers, where you can make this sort of, uh, balance visible to customers through a portal, through mobile applications, et cetera, so they can track in real time, um, exactly how much they’ve spent as a customer, and when they may either hit overages or need to come in and replenish that balance. So Kathy, how is it valuable on the rev rec side for us to be rating this r- prior to billing It’s extremely important, because with that, basically every day, we get a summary of that usage, those consumption history, and we can use those to recognize revenue. So when we look at this prepaid,

we’re recognizing it basically as things ac- in this case, we’re recognizing ratably, but that usage, I’m getting in and I’m tracking that usage. So this was a determination that this is a stand-ready obligation. I’m gonna recognize it over time, but I wanna see how they’re using it, ’cause I may need to make an adjustment for it. But that usage record, I see every month how much usage has come in. If you click on that, I’m gonna see by day, by product, all that usage. And this is automatic, so that usage that gets loaded in Zuora for billing purposes also automatically comes to rev rec for tracking and rev rec purposes. It will turn it into rev renue recognition events, schedule that revenue, or at least just track it if I’m recognizing it ratably. Now in this case, if you go back there, come- go back to that again.

When we take it sh- Sorry. It’s okay. This is this ability, because I’m taking this ratably, I’m really going quickly over my monthly amounts. If I look at three months here, my ratable amount is much less than my usage amount. So maybe I need to account for that overage, that variable consideration. So I track that. I have ability to apply that VC and make that adjustments and do that catch-up for that VC estimate. So when I look at my revenue summary, now you can go where you wanted to go. Yeah. I can see how that revenue has changed. My VC revenue’s doing that catch-up ’cause I set it to, I think, $36,000, but it’s doing that catch-up now because I think I’m gonna go about $36,000 over

that prepaid commitment. Zuora Revenue knows, “Okay, I made that idea. How do I do that and make sure that I’m b- doing the correct accounting?” If I was recognizing it on consumption, I would have recognized all that usage every month. Now, this is- That’s awesome. We had two products, right, on that? So… We did. I still… Yeah. What I wanna show is, from a reporting standpoint, I’m gonna track at the product level what that usage is. So that’s our consumption history water- consumption waterfall. It will show every month what is the actual consumption by that individual usage project- product. No matter if it’s going, it’s a prepaid, a commitment, it’s overage, you’re gonna be able to see that tracked at that product level.

So you get that level of granularity that you may not get just thinking about it from a ratable, prepaid situation. That’s awesome. Cool. So the cool thing here, too, is that all of this same data has come from the Zuora billing platform, right? To Kathy’s point, I had all of those different usage events that we had loaded into the platform that are actually drawing from those services. And I have similar granularity in terms of the visibility of how much is coming from product A versus product B, but it’s all uniform. And so this is one of the areas where Zuora really shines, is this end-to-end support for that sophisticated process that you have of actually tracking and metering usage data. So, if you’re not familiar,

Zuora actually have what we call a mediation platform. And so if you think about the data pipeline that’s associated with consumption events…It starts within your platform, so there is some sort of usage that’s going on, right? Customer-generated prompts are making those API calls, et cetera. So you’re gonna actually track how the customers are using that service at a very granular level, every click, every prompt, every call. What the mediation platform is designed to do, is it’s designed to handle that high scale of events that you have going on as an organization. So this can handle up to 200,000 events per second being passed into the mediation platform. Up to three billion events per day is what we have actually tested this platform

from a scale perspective to address. And so the idea here, is that you wanna pass all of that super-granular information into a mediation platform. And what a mediation platform is designed to do is to group and cleanse and aggregate and enrich that data to make sure that it’s readi- ready for rating and billing, and ultimately revenue recognition at the end of the day. But we don’t wanna pass three billion records per day into the billing system. We don’t need to show that sort of detail on an invoice to a customer. So the mediation platform helps us, again, group and consolidate and reduce that volume from your product platform into amounts that would make sense to show to a customer on an invoice potentially. And then the billing platform could reduce it even one more step, like we just saw, to get it to that

daily value that Kathy showed inside of the revenue recognition platform. But the, one of the real big unlocks here is, again, you’re doing transformation and aggregation and cleansing of data from a variety of sources. So this doesn’t have to be just one product platform. This could be multiple product platforms that are coming into the mediation tool. And then we also have the support for all of the sophisticated pricing models that we highlighted, along with the ability to generate unbilled usage, giving us, again, that automated accurate revenue recognition at the end of the day. But more than anything, there’s now traceability and visibility across this entire pipeline. So you can show a customer on their invoice exactly how much they’ve consumed, and then if they have questions about that

value, we’re gonna show you here in just a second how the mediation tool actually provides an audit trail and a history around how we ingested the data and transformed the data to ultimately have it end up both on the invoice for the customer if they have questions, or inside of our revenue recognition platform if the audit team has any concerns or wants clarification as to how we recognize the amount of revenue that we did from a platform standpoint. So with that, what I’m gonna do is I’m gonna hop over here into another tab, and this is, uh, some visibility into our mediation platform. So if you haven’t seen this yet, the way that this works is we have both events and meters. So an event, here, if we look at an event definition, this is basically how we s- we defined the,

the catcher’s mitt, if you will, that is the front end of that mediation platform. So you aren’t forced to transform your data into a format that Zuora requires. We build that catcher’s mitt to be structured to mirror exactly what the data looks like coming out of your platform today. So these are examples where we know there were six different fields with different field types and what was required or not required. So that’s step one, is to define what does the data itself look like coming off of your platform? From there, we’re going to build a meter, and in ex- in this example, I’ve done a file-based upload of the different usage transactions. But what we wanted to be able to do was actually add information to that data to pull things like the account

number from Zuora, the unit of measure from our rate plans, um, as well as things like the subscription number and charge number. Um, we wanted to make sure that that aligned with the data structure that we have inside of Zuora. So if you’ve ever loaded usage into the Zuora platform, you know that things like the subscription name, charge number, account number, and unit of measure are all required fields that you have to have on these records. And so this is an example of where you don’t have to have all of the, the things like subscription name or rate plan charge number inside of your operational platform. Our mediation tool can add that to the data that you’re sending into the system. The accumulator is now going to add everything up based on a day, a day’s bucket, right? So we’re gonna take all of these transactions throughout a

24-hour period, and we’re gonna wait until the end of that 24-hour period before we send that usage record into the Zuora platform. So again, this helps make sure that we’re not sending three billion usage records per day from your platform into the Zuora platform. We’re just sending the, the level of detail that would be valuable for a customer on the invoice when they look at that. And so then now, this is really just sending those records into the usage record element inside of the Zuora billing platform. But what’s great when we think about that auditability and traceability here, which is really gonna matter for Kathy and the finance organization, is that we have the ability to trace every step of that meter. So what you can see here is I had 400 records that I uploaded, and there was nothing that had any errors

associated with it. But if there were data records that had missing information or the file type, or the, excuse me, the data type didn’t match, we’d actually be able to see that I had loaded a different number of records and the system was ultimately able to process. The next step then highlights what information we added to those particular records. So I can see that things like the subscription number and the charge number have now been added to each one of those 400 records that you can see here at this point, right? And so this is a great example of us enriching that data and adding reference data from the Zuora environment or key operational information…. like the subscription data to the record. And then ultimately, again, I mentioned, we accumulate

this by day. And so what you can see is I started with 400 records at the beginning of this processor, but I end with just eight. So these are the eight that we’re ultimately now have consolidated by division, by day, that we’re going to pass into the billing platform for these usage records to be rated. And so as we do that, what’s great is that each one of those records gets a unique key associated with it. So now, again, from that auditability and traceability standpoint, I have a unique key attached to each one of those usage records, and you can see how we could march back from that record all the way to the source data that was passed into our platform, to again, drive that auditability and traceability, uh, which is again, so important for our

customers, for our support team, for our finance organization. Um, these are real requests from the finance team these days to be able to defend why we’re charging as much as we are for a customer at this point. Okay? Yep. And that usage record is what then goes down into Zuora revenue in a summarized version, because you might have region or things in that accumulation that you did, and I need to get even farther for rev rec, but I’d be able to see, how did I go that way to get myself all the way to revenue? And that’s the idea, and it knows where to put it. Is it a prepaid? Is it an overage? Where does it go? Zuora a- automatically knows where to put that usage as well, from a billing perspective as well as a rev rec perspective. Yeah, absolutely. So

this is a real differentiator for Zuora to be able to show this whole lineage and history, as well as provide all the attributes that we need for reporting and revenue recognition, et cetera. But that was a pretty granular view. And so now if we bubble this back up to look at this at a more macro level, what you’re seeing on your screen now is what we’re calling our consumptions insights dashboard. So you, you know Zuora for all of our great recurring revenue metrics, but there’s a new series of metrics that are associated with consumption models these days. And so these dashboards are designed to give you visibility into more of those consumption metrics that are important for our customers. It’s also gonna layer in some account scoring, right? So we’ll start with some of the basics here. How much have we billed previously? Um, you know, what’s our month to-day usage billing look like as an organization?

W- how did we do last year, right? What’s our comparison look like in terms of the amount of consumption billing that we’re doing as a business? So hopefully we’re seeing that grow, because if it shrinks, that’s a potential sign of risk, right? There’s more risk associated with the revenue for these pure pay-as-you-go models, like we talked about potentially. Somebody can just stop using at any given point. And so that’s where these sort of scores that you see around our top five usage growth accounts and top five usage risk accounts are coming from. So we have the ability to score each one of these customers based on their usage patterns, how many different meters and units of measure are the- they taking advantage of as an organization. So we’ll see this when we look at a customer account here quickly, but you’ll be able to score these to say which customers are growing the

most or have the most potential for growth, versus what customers may have fallen off a cliff, that have simply stopped using a service or multiple services potentially. And so therefore, they look like a churn risk, effectively, because they’ve stopped passing usage data into our platform. So I get to see this again at a macro level, sort of by top fives or bottom five. We’ll show you more detail as we look at an account here in a second. But then we also have things like billed usage trends. So again, from a portfolio standpoint, I can see exactly how much I’ve billed for the last few months, as well as some forecast data for how do I believe, based on these billing trends and usage trends up to this point, how do we expect that usage data to change over the next few months? So this is, again, great at a portfolio

level, but we’ll show you some value that we have in an account-by-account level as well. And then I can even break this down, like we mentioned, different products have different usage information. There’s the amount of billed usage by customers, so this is no longer just scoring data. This is actual billing volume data that you’re able to see here from a dashboard standpoint. So, good executive-level information, as you would expect. But it’s pretty interesting when we start looking at a particular customer now. So I’m gonna hop into the global payments account. And so in this example, I have both a risk score as well as a growth score, because what you’re gonna see here is this customer has multiple different services associated with their account. So some of these are actually shrinking slightly, but there’s quite a few that are growing quickly. So you’ll notice things like the contextual tokens

are dropping for this customer, and so this is gonna help influence the risk score, is that some of these services appear to be declining, whereas others, and if we look at the fine-tuning training tokens, we’ve seen some real spikes in usage for these. We haven’t done a great job of continuing to load usage data in this tenant. But you can see the ability for us to track product by product how customers are taking advantage of these different services, and what their usage trends look like over a multi-month period here. Um, the other thing that’s great is now I can turn on anomaly and forecasting capabilities for these customers as well. So we can see quickly anomalous data, right, that we shouldn’t use in forecasting, when a customer went over for a particular reason, or under.

So if we wanna, you know, again, proactively track this and make sure we’re not missing data or double billing for customers, you have the ability to track that data. But we also start forecasting their usage to understand what their usage patterns look like. So Kathy, how is this information valuable to the finance team when we start forecasting usage for customers? Well, in our, in our example, we were like, “Well, it looks like they’re going over.” Having a tool like this that does forecasting to look at where do you think you’re gonna end up at the end of that contract, that then can be used as a starting point to determine what that variable consideration that has to be considered might be. So it’s that ability to get that real time in your hands rather than having to… put data together to come up with, “Where do I at, where do I think?” It’s a forecast

to see what is it. Might not be exact, but it allows you to see trending of where that customer is going to use and to defend what’s happening on the BC side. Yeah. That’s awesome. So, there’s a lot that the customers are asking for us here, around being able to forecast that data, because again, it’s so hard to understand where the revenue’s gonna come from for customers that are moving into these, uh, consumption models. The last thing I’ll highlight is if you want a little bit more detailed breakdown of billed usage trends, either by customer or by product line more than anything, you have the ability now to come in and search for specific products. And so now you’ve got another slice on that data, more at a macro level, to understand exactly how much consumption is associated with each product or customer cohorts,

um, and again, with another sort of breakdown exactly how that billable data is actually coming in for each one of those products. So, there’s quite a bit of insight here that you’re gonna get as an organization once you start blending this, uh, meter data that we have of how our, how’s the mediation platform ingesting data, as well as some of the product monetization models that we highlighted at the beginning of this, so that you can see exactly how that’s influencing even some of the consumption that your customers have. So, in general, when customers are trying to monetize consumption models on the billing platform here and the revenue platform, they’re really looking for three big things: the pricing flexibility that we highlighted at the beginning to support all of the various charge models that we talked about, as well as that blend of some recurring

commitment, whether that’s an overage charge or a prepaid drawdown or a minimum, uh, commitment, like we talked about. So that’s one area. The other side is the end-to-end automation, that ability to have all of those sophisticated pricing models that drives automation all the way down into the finance processes for revenue recognition and AR and reporting and analytics, et cetera. And then lastly, insights into this customer lifecycle. What’s working? What’s not working? Who’s at risk of churning? Who’s an upsell opportunity for us as an organization? Um, so there’s quite a bit of insight that you get in having this whole process from ingestion to rating to finance all on one, on one platform that our customers are gonna see a lot of value in leveraging Zuora to forecast and analyze that data.

Okay. So that’s a quick overview here. Um, let’s see if we have any questions here. Um, I do see- There’s a question on, “Can we analy- can we use this functionality?” And I’m assuming they’re talking… We’ll start with the idea. “Can I use the Zuora revenue consumption functionality if I’m not using Zuora billing?” Yes, those performance obligations templates to recognize ratably and track usage or to recognize on consumption. It just then is now the input is not from Zuora billing. That usage data input’s going to come from somewhere else that needs to be uploaded and tracked and done, kind of how we get that same booking and billing information. Um, Chris, I don’t know if there’s anything on the mediation side with that at all.

Uh, no, I think you covered a lot of that at, at this point. Okay. Um, I do see Claire had a question on the mediation side. “What is the mandatory field for the upload of a file?” So, when you define those event streams, you get to define what your field types are as well as which field types are required when you’re passing information in from the source data. And that source data is coming from your systems. Wherever you’re tracking prompts or API calls or providing those services to your customers that they’re using, that you wanna meter form or meter from, all of that data is coming from your, your platform. Um, and then I see Buck had a question about how customers are getting their revenue information into their GLs. Kathy, I don’t know if you wanna cover that? Sure, sure. That revenue information, if we go to

the Journal Entries tab, we’re creating those journal entries. So, if you think about it, it’s a, Zuora revenue is a revenue sub-ledger. So we’re doing that deferred revenue to revenue rec-, um, entry or that revenue to un-billed entry, whatever that might be. And then that reversal of that un-billed when we get the billing invoice. So that’s coming through. Most of it is through, we have detail and summary. We’ve got, um, connectors with, like, NetSuite and SAP and Workday. We’re working on other ERPs, but a lot of our customers just do it through API or download the CSV, upload it. So there’s all different ways to get it in there. But those journal entries are created. All right. Well, if there’s any other questions, feel free to throw ’em in the chat. We got about a minute left

before we, we close the doors here. But we really appreciate you all, uh, sitting through this. Again, if you have questions about specific scenarios in terms of how you’d use any of these consumption models or how it passes through the revenue platform or how the mediation platform is configured, um, more than happy to, to talk to you. So feel free to hit that Talk to Expert button, and you’ll likely see, you know, either someone on my team or an expert like Kathy, uh, to walk you through some of the nuances of these platforms.