AI Pricing Is Outrunning Your Billing and Revenue Stack

Slide. We just have our forward-looking statement, and just as a precautionary measure, our legal team asks that we share this on all our presentations. I will not read it word for word, but please take a moment to read our forward-looking statement. Great. Thank you all. And next, we’ll just go over our, our general housekeeping items. So one, if you haven’t done so already, please introduce yourself in the chat tab. Say hello, let us know where you’re joining from. Use the links and resources. So you can click more, and you’ll see Resources at the bottom of the browser. And here you’ll find resources. We’ll also have a link at the end to show you some of the resources that we’ve shared. Ask questions. So we do have a dedicated portion at the end to go over the Q&A.

We will be moderating it. I’ll come back at the end, and I’ll be moderating the Q&A section. But as questions arise, please feel free to, um, pop them into the chat. If we don’t get to them during the session, we will follow up with you after. This session is being recorded, and we’ll share the link in our follow-up email after the session. And then poll questions. So please participate in our poll questions. Today’s session is quite interactive, so the first portion, while Kathy is going through the topic, we do have a number of poll questions. And we know that when it comes to AI pricing, we’re all figuring this out together, from strategy down to how you actually operationalize it. We’ve got some recommendations to share, but honestly, this space is moving so fast that we’re just as eager to learn from you. So since everyone’s at a different stage, we’ll run a few quick polls to see where your peers stand and what’s working.

So keep the chat going, drop in those questions and comments as they arise. And for today’s speaker, I wanna introduce Kathy Pearson. So welcome back, Kathy. You were with us for the- Yeah… SSP- SSP AI session, and so you’re back today. Um, and I’m gonna kick it off to you. So welcome, Kathy. Great. Thanks, Lila. Um, we’re gonna get started on this topic, and as Lila said, we’re gonna talk about both billing and revenue. We’re gonna talk about those AI pricing shifts that we’ve seen, you know, what’s happening, the types of strains that we see it putting on systems, and how Xora can alleviate some of that strain by connecting usage, billing, and revenue recognition across a single platform and an auditable process. And then we’ll look at that from a live demo perspective.

As we keep saying, the market’s moving quickly, and it’s moving from fixed subscriptions towards usage, prepaid credits, hybrid models, and AI-based consumption. These are changing faster than ever. Rather than a twice-a-year shift change in pricing, we have customers seeing pricing models that are changing a dozen times in six months. This flexibility creates a downstream revenue question: What’s the customer actually purchased and used, and how should that be recognized? And with that, we have a first poll question: Which of these pricing models do you currently sell or plan to in the next twelve months? And you note that you can change multiple things. And

for those of you that don’t know, we do have our AI monetiza- monetization simulator that’s in the resources that will ask a few questions, and it’ll walk you through options of how it might look in Xora. So that’s a tool for you that we wanna make sure that we’re sharing. Ah, looks like hybrid is winning for us, which is what I would expect. That’s what we’re seeing a lot of customers doing. They started in subscription. We’re moving over to subscription with some sort of usage, moving into that hy– and that hybrid

of usage might be token credits or, or that thing. It still might be pay-as-you-go or just overage usage. So yeah, those are types of models that we’re seeing from our customers. Maybe we’ll just give that a few more seconds here, and then we can close that poll and keep moving forward. Okay. When we talk about that strain,

we see everything become more challenging when you move into these AI consumption models. It’s more challenging because now you have maybe disparate sources for your usage. You’re trying to present that usage correctly and bill it correctly to your customer at the level that they wanna see it, and you’re trying to reconcile that. On the revenue side, you now have complexity about how I should be recognizing revenue. That says, how should I be dealing with SSP and allocations in that hybrid model? And sometimes potentially overage, breakage, and variable consideration. And this is where when they’re disconnected systems, you’re running that risk between them two– between the two systems. What if that same information isn’t flowing?

When we look at Xora, that single platform for billing and revenue reduces the risk, and it starts with the first control point of Xora’s finance-aware product catalog. The commercial charge, the usage behavior, and the intended reve-revenue pattern are defined together so that the downstream process is repeatable. It gives you that idea that at the time that you’re creating those products, you’re also defining really key aspects to how I’m gonna bill, how I’m gonna rate, and how I’m gonna recognos- recognize on those products. And with that, we’ve got one– another poll coming up. Um, how are you handling AR usage pricing and for revenue today? How are you doing that process of going from billing to revenue?

And I suspect that, once again, multiple, ’cause you may be doing multiple things. You might be using your ERP for some of it, and then manual spreadsheets for other pieces of it. Okay. We’re seeing manual spreadsheets is still number one at about forty percent. And yeah, that’s a lot of it, or some custom-built logic within maybe where you’re doing tracking your usage. So definitely what, uh, goes along with what we’re hearing from other prospects

that I talk to every day. This is the number one topic that we talk about every time I talk to someone. And let’s go ahead and maybe give a few seconds and move on. So when we think about consumption, there’s different ways to recognize. It’s not just one size fits all. You can build one way, but you may potentially recognize four different ways on that based on what’s it de– it’s dependent on the nature of the obligation,

when should revenue be released, and are usage estimates, rollover rights, or unbilled accruals required. And rather than having just one size fits all, we do have different models that you can use from it being ratable with variable consideration. Our old classic pay-as-you-go model based on unbilled or, um, just as invoiced on that invoice practical expedient to, “I’m gonna recognize it. I’m gonna use those usage events as my driver for rev rec.” So different models to deal with different ways that you’ve structured your contracts and what that underlying obligation is. Is it stand-ready or is it really transaction-based? And before we jump into our demo, we’re gonna do one more last poll about where are you feeling this

impact the most. You know, we’ve got different people from different roles on this call, and is it really in getting that right usage data? Is it calculating it? The price for that? Is it recognizing revenue? Which of it? And once again, because we know this is a topic that you’ve got many f- feeling the pain in many places, we’ll, uh, just choose many answers for you. We got people after my own heart on this call. It’s revenizing recogni- [chuckles] revenue correctly.

That’s my background is in revenue, so yeah, and that’s why we’re here. So we’re gonna look at kind of how we can do that in bo- on both sides. How helping using Zuora Billing and Zuora Revenue help us do that revenue recognition together in the most, um, efficient and compliant way that we can. Okay. And we’ll close that and go ahead and move forward. And what we’re gonna see today, we’re gonna configure, uh… we’re gonna look at a consumption pricing plan, how that product catalog in Zuora Revenue helps you define that consumption and the revenue recognition on it. We’re gonna look at how usage

gets inputted. We’re actually not gonna do it. We’re gonna see usage and input and how it’s defined and how I can see unbilled and what’s happening on it. And then we’re gonna go look at it from the rev rec perspective, and we’re gonna take a couple of different models, so we can look at am I recognizing truly on consumption, am I recognizing ratably, we, we really need to track consumption and the reporting that’s available with that. So hopefully you get a good sense of how that Zuora platform will work. And with that, we’ll go ahead, and we’ll jump into the demo. So I’m gonna start, and I’m gonna start in Zuora Billing, and I’m gonna start with a product catalog. So I’ve got a rate plan here that’s set up to be my annual AI credits. So I’ve got my prepaid credit

amount. If I look at that, and I edit that plan, I can go in, and we’re gonna start, and we’re gonna look at the credit plan. So we’re gonna start here, and we’re gonna see about this a couple of things. In Zuora Billing, you can define different types of charges. So in this case, I’m defining this as a prepaid charge. It’s a unit-based prepaid charge that’s a prepaid model. So it allows me to define what type of model am I using. And within that, if I scroll down, a couple of different things that I get to set up. I get to set up validity periods. How long do I get to use these credits? Is it for a month? Is it for a quarter? Is it for a year? I get to set how I’m gonna prorate those credits. If I’ve got a customer that’s already

got a u- a subscription, and now I’m adding on these, uh, credit-based items to them so because now I’m going into monetizing those AI credits, and it starts mid-subscription, I have the ability to prorate that. I get to set the drawdown, so if they’ve got multiple items going on, what’s the priority to draw down against this prepayment? It also allows me to potentially use rollover. What period of time do I wanna roll over this for? And how many ti– how do I want the priority of this rollover? Use the rollover first and then other credits? How do I wanna do that? So it allows me that flexibility within the charge to set up the rules, and those rules that I set up are- Are potentially gonna drive then

how I recognize revenue. So if I look at the revenue piece here, I’m going to define the accounts, but what’s really important is I’m gonna define the trigger and timing for revenue recognition. In this case, I’ve set this up that I’m gonna recognize on consumption. I’m gonna get that trigger of usage from Zuora billing into Zuora revenue and recognize on these prepaid credits based on that. I could set this up to track, to still recognize ratably, but track that usage. That’s another one of those vis– that ratable but tracking mechanism to do that, or just with a SaaS, recognize an order ac-activation over the timeframe. Now, on the drawdown side, when I’m using

that, I get to set many different, uh, units of measure here, and this is what I just wanna point out, is that my unit of measure for my drawdown of that credit, in this case an API call, is different than my credits, so I’m setting a drawdown rate. And this is totally configurable about all the different types of is it API calls, is it transfers, is it transactions? However you’re counting that usage, you then have the ability to set a drawdown rate, but I’m drawing down against the credit. So this is a way that I can use different items to draw down around that same credit pool, and that rate is what I’m gonna use to understand how much to recognize revenue on. And on this now,

what I can do on the revenue side is that depending on my rules, I can say, “If I go over, I wanna recognize that overage right as it occurs.” So now this is this ibuild– idea of an unbilled accrual. I can recognize that usage even before I’m billing it. So we’ve set up that product. Now we need to set up what happens when I actually create the contract against it or that subscription. And that’s really where I can go, and I can look at a subscription, and in this I’ve set up a subscription, just that annual that we had, and I’ve got my charges against it. But what I really wanted to point out is this idea that that balance that we set up, I’m now tracking how quickly I’m using those usage. So if

I look into the validity period, I can see how that drawdown is occurring. How am I using that recognition? And that’s gonna drive how I recognize revenue on that. In this case, I’m not over, so I’m just drawing down against that item. But I could have a subscription where I get ahead, where I use that all up. In this case, my validity period is quarterly, and I’ve actually gone over. So if I look at August, I actually u-used all of that. And if I look at August as well, I can see that in August I actually have some unbilled. I haven’t billed for August yet, but I’m already recognizing revenue. So this is on that if I need to set it up that way. So this is that ability

to take what’s happening in Zuora billing, and we’re gonna use that in Zuora revenue to transfer. With that, let’s go ahead and let’s look at these contracts in Zuora revenue. So if I go, and now I’m gonna transfer over and I’m gonna be in Zuora revenue. I’m gonna look at a contract. I’m gonna look at that same one we were looking at earlier. What we’ve got on, on the Zuora revenue side, we’ve now set up that contract. We understand what our value is. This is that hundred thousand dollar prepayment. I can see that I billed the whole prepayment ’cause I billed it annually in advance. I’ve got my revenue recognition and my balances. If I need to, I can go back to that subscription through the hyperlink, and I could see what we were looking at on the billing

side. But what I really wanna point out here is what we set up is our PoB templates. So those drivers in Zuora billing that we saw in the product catalog are driving how I’m gonna recognize. So on those AI credits, I’m gonna recognize on that event, on getting usage. And on the overage, when I get on the overage on those usage charges, I’m gonna recognize that as it occurs. How do I see that recognition of that thirty-seven thousand? Where I get to see that is if I go into my consumption history. Now I can see what we’ve taken is every single usage charge, we’ve brought it into revenue on a daily summarized basis. And here on a monthly basis, I’m gonna

see how much revenue I recognize. If I look into one of these months, I’m gonna actually see the daily usage charges that came from Zuora billing. And in this case, I’m gonna see that I have multiple charges on multiple days, but I can also see what’s the sub-product that it was done against. Different charges, in this case, it was different items that went together in terms of that items where they happened on every day. So it gives me that level of detail to see what’s happening. When I look at this from a waterfall perspective or a revenue summary perspective, I can see that drawdown.

Waterfall’s gonna show me what’s been scheduled over time, what’s my contract liability balance, what’s billing been doing. So this one is one where I’m just recognizing. I can set up rules so that I can expire at the end of the contract, so that I don’t even have to do anything. If I don’t use all the usage before the end of that validity period, I can recognize it. So that’s the way that we can handle breakage today automatically is at the end of that validity period. Now, what if I wanna recognize ratably? What if I have a situation where I define that underlying obligation as a stand-ready obligation? Now I need to recognize on a daily basis, but I need to- I wanna track that usage. So this is one where I now am recognizing it

differently. So if I look at this contract, now I’m saying that I’m gonna recognize it ratably, but I have the potential of tracking variable consideration on that. I might need to do that if my, uh, recognition on a monthly basis from a usage perspective is above what my daily rate is. And we can see that, once again, in that consumption history. Every month, I can see that I’m slightly above that monthly recognition. So in August, what I can do is I can sign a VC estimate. In that estimate, I can then say, “Where do I think I’m gonna end up?” And the system will do a catch-up, of a cumulative catch-up

to change that to make sure that that VC revenue is recognized in line with the rest of the system. I can change that estimate. I can view that. If I look under my transaction pricing, I can see what has been set. I would have the ability to adjust that or look at that history if it’s changed over time. When I look at the waterfall and the revenue summary in this, I can now see how that’s affected my revenue. If I look at the waterfall, I’m gonna see what is that VC revenue every month. So that’s why I’m adjusting that hundred thousand to a hundred and fifteen, because I know I’m gonna go over. Then I’ll wait on that overage. That will all true up at the end of the contract. Now, this is a single contract we’ve been looking at, but there’s extra reporting. That same consumption

history that we were looking at is a consumption waterfall that I can see, and this is gonna show me month by month across all my contracts what is my usage, not what my recognition is, but what my usage revenue is every month. So including that one where I was recognizing ratably as long as the one– as well as the one I was recognizing on consumption, or anything that I’m recognizing on an unbilled usage accrual. I’m gonna see that when that unbilled usage comes in, not when I bill against it. So now we’ve talked about this as revenue side, and that tracking of that usage goes all the way back. But I need to look at that usage. And on the billing side, I have ability, what we call our consumption insights, to look at that kind of on a higher level as well. So I’m looking at it as revenue

side in my, um, consumption usage waterfall, but I have a consumption insights report on the billing side that allows me to look at this on more of a trend. So I can look at what are customers that are using– they’re going through their usage very quickly or their credits very quickly. What are customers that are very slow in that usage? And what are the trends of how I’m billing? So not only do I get to see how I’ve built so far, but I get a forecasted trend of what was happening. So I can use this from a cash flow perspective. I can use this from l- going to interact with customers and saying, “Hey, when is this gonna occur?” Just like I had that prepaid balance, do I need to go talk to them about making a top off? Are they a churn risk ’cause they’re using

under? Are they gonna ask for some sort of renegotiation of their contract? As well as looking at, how does this help me forecast? And what we wanna say is what gives you across this is a flexible but repeatable operating mi- model for your AI consumption with fewer handoffs, fewer manual reconciliations and steps, and a faster path to close. You’re not waiting for that usage to come across, you’re seeing it every day from a billing perspective and from a revenue perspective. And with that, we’ll go ahead and we’ll go into our last poll, is… Ah, went the wrong way here. Where are you in your journey of looking at billing and revenue together?

Ah. Unsure, yep. Kinda just starting the process. That’s what we thought you’d be here ’cause you’re trying to gain information. Yep. Information is the key, and that’s why we do these webinars, is to help get it out there and help you connect with people that are doing the same thing, from us to your peers and all of that. So with that, um, why don’t we go ahead and open it up to Q&A?

All right. So we have a couple of questions. Uh- Okay. And feel free to, uh, ask more. So the first question is: Is the usage and prepaid drawdown mechanism part of the core out-of-the-box product, or is there another module that needs to be purchased? If another module, how do I get pricing for that? So it’s part of Zuora Billing. It is not another module within Zuora Billing. So if you have Zuora Billing, the prepaid drawdown and usage, that part of it is part of Zuora Billing. That… And then the recognition part is part of Zuora Revenue, and that is part of just the, the, the POB templates and the ability to get that usage, that’s just part of Zuora Revenue. And you do have the ability to bring in outside consumption if you were just using Zuora Revenue. We have– You have those same,

um, templates available to you to use. And then our second question: if the revenue recognition is less than the usage, will VC be in the picture? Usually no, what we see, that would be more of a breakage situation, and I know we did a webinar a- uh, my teammate Erin did an m- a webinar talking about breakage. Usually when it’s under, if that prepaid, it’s all about what you do. Do you allow them to roll it over and use it till a certain amount of time? Then we see it just keeps going. But there is this idea of breakage when you’re under. Um, but when you’re saying when you’re ratable and you’re under, you’re recognizing the right amount, so you’re not necessarily gonna go under unless… VC’s not gonna come in the picture unless you’re thinking that you’re gonna give them a credit back, and you’re not gonna recognize all of that.

Is, I’m gonna say SKU or S-K-U, and pricing set up in the billing schedule? In the billing schedule. So it’s set so that pricing… So there’s a product catalog that’s gonna set kind of that list price and some of the mechanisms to do in terms of how you recognize revenue in those rollovers. Then the subscription itself sets the customer-specific rules on that, and then that’s what we use for pricing. So I’m not sure if that answers the question, but hopefully that’s where it is. So you’re setting up kind of your product catalog as your base, but then when you create that contract or that subscription within Zuora Billing, that sets the customer-specific information. So you can override, instead of being $100,000 credit,

prepaid credit, it might be $80,000. Instead of drawing down at a two-to-one rate, you’re drawing down at a 1.5-to-one rate. In the demo you’re showing, does the RC have initial revenue to start with? Uh, on the consumption, where we’re recognizing on consumption, no. It’s all sitting in deferred. When I’m recognizing ratably, that all gets scheduled out just like a normal SaaS or ratable product, and then the usage is tracked. And I believe that is all for our questions. I’m gonna give it another minute. Anyone has a question, please drop it in. Oh, I guess we have another poll. We have one more poll? Oh, yes. [laughs] Just one more. And it’s if you’re interested in meeting with our team, yes, maybe later, um, or no, thanks. So if there’s anything that you want to learn more about,

please, um, please let us know. Yep. And a- as it says there, that’s one of revenue managers, people like me, CSEs that can help if you want to know more about on the billing side of Zuora Billing. That account team is a lot of people that are here to help you learn more. Great. And while we’re taking the poll, one more question came in. So the current dynamic pricing integration between billing and revenue is inefficient and lacks scalability. Are there plans on the roadmap to enable the transmission of another, of attribute values to revenue for reporting purposes? I believe so, and we, I, we will get back to you in terms of more attributes on the usage record themselves. I think that’s what you mean. ‘Cause on that, on the usage record, you can have things like region and all of that and the ability to push that, some of that through. I think so, but we will make sure

that that’s something that we get answered and, uh, sent back to you. Cool. Well, thank you everybody for joining us. We just have a couple of resources to share with you. Get back to… So, uh, previously Cathy had mentioned, uh, the AI monetization pricing similar. So you can either scan the QR code or it’s located in the resources. And then, um, so Gartner named Zuora a leader for recurring revenue- Oh, sorry, I was on the wrong- Okay. [laughs] I switched to the, to that. No, no, no. It’s better. Here’s what I was talking about. Yeah. Yeah. So this is the QR code. Feel free to scan it here or click on the link. It’s also located in More under Resources. So as Cathy mentioned earlier, if you have an AI product to launch, let’s figure out how to price it. So please use this simulator. It’s a couple questions,

and you’ll get some answers. Great. And then one more resource that we wanted to share was that Gartner named Zuora a leader for recurring revenue billing applications. So we score the highest for overall revenue recognition, usage billing, fixed recurring billing, invoicing, and payment. So please take a look. Um, so great report. And once again, you’ll find it in More and Resources. And please reach out to account teams, uh, Zuora, if you have any other questions that you didn’t think of for here, or you didn’t want to ask in the chat. Someone will get back to you, and we’ll make sure that we answer them. Great. And thank you, everybody, for