Zuora VP Matt Darrow: The Intelligence of the Subscription Model

Matt Darrow is a vice president and general manager of product at Zuora.

In this exclusive interview, Darrow shares his thoughts on boosting customer engagement in the new subscription economy.

CRM Buyer: How does the subscription model improve customer engagement?

Matt Darrow: We’ve been talking about this in the industry for a while now — how we’re moving toward a subscription economy. The way that we define the word ‘subscription,’ however, maybe isn’t quite what you’d expect.

Zuora VP Matt Darrow

We think of “subscription” broadly. It’s when companies do business with customers with whom they have a known relationship, and those relationships are sticky. The subscription model is great for engagement because companies know that in order to be successful they need to deliver ongoing services that keep providing value over and over again, because naturally clients can turn off their service and go somewhere else if they’re not getting the outcome that they expect.

The benefit for the business is that they get this long-term, predictable revenue by building a relationship they know and can cultivate over time. However, in order to keep those customers and keep them engaged, businesses have to keep providing valuable services and delivering new innovations and services.

We’ve come to expect that in both our personal and business lives when we interact with services. Customers benefit from the subscription model because they’re getting access to ongoing innovation, and it’s wonderful from the customer engagement side because companies are giving customers more than just a product.

How does it provide a customer relationship?

Darrow: One of the key metrics is managing against client churn. You’ll never grow if you’re losing customers. Subscriptions themselves don’t prevent churn, but if you run a subscription model, you need to care about customer churn.

If you have a relationship with a client that you know over time, you can tailor your outreach. You’re also building up intelligence through everything you provide. You enter a world of hyper-personalization.

In a traditional product world, the business processes are normally pretty siloed. With a subscription model, however, you’re building a product and pushing it through different channels, and you’re building a customer relationship that you’re going monetize, and that’s going to change over time.

Customers’ interactions with a service will change over time. By keeping track of customers over a lifecycle, businesses can do interesting things. By understanding financials in terms of recurring revenue and how customers use a product, businesses can tailor sales and marketing efforts toward particular customers.

You don’t treat every customer the same way. You use all of the metrics that subscription companies care about.

What are the unique metrics a subscription business needs to consider to successfully run a business?

Darrow: We talk a lot about how the metrics are fundamentally different for subscription businesses than traditional product-based businesses.

For a subscription company — and this is the same for a startup as it is for a large Fortune 500 company — all the metrics revolve around subscribers and their lifecycle. You start to care about churn rate, and you start to care about net dollar retention, which is a measure of ‘are you expanding or contracting with me as a subscriber?’

How is the marketing department impacted by the shift to a subscription model?

Darrow: It actually doesvetails nicely with many of the things marketers are talking about now, like one-to-one campaigns and personalized marketing. Treating every customer the same doesn’t work.

When you run a subscription-based business model, you inherently know more about your customers than with any other business model. Once you know that, marketers have a much better way to understand their customer base. They take that understanding, and they can drive promotions, re-engagement campaigns, and targeted adoption campaigns based on this knowledge.

The whole financial system revolves around that, and now marketing can start to benefit from tailored campaigns and outreach.

What’s in the future for subscription management? How is it evolving and changing?

Darrow: A lot of it has been maturing in the marketplace. Even six or seven years ago, media companies were very subscription-focused. The first big change is that now, the subscription economy is becoming mainstream.

Subscriptions are for all companies of all sizes. They are growing because many different types of companies are starting to adopt this model.

The second thing that’s part of the evolution is that as the subscription market matures, businesses will be able to make better decisions based on subscriber data. You need a different product catalog and a different set of metrics.

Now that companies are offering subscriptions, they’re starting to ask, how do I get really smart about who these subscribers are? Unlocking subscriber data is the next big thing.