Read the full interview HERE

We recently interviewed a Former VP Sales at Xero on the go-to-market strategy of Xero vs Intuit.

We explore:

  • How Xero successfully drove down customer acquisition costs by focusing on adding value to the accountant channel
  • Why it is harder to move down-market than up-market as software a vendor
  • Comparison of Xero vs Intuit pricing and go-to-market strategy in the UK market
  • How Xero creates value for accountants and helps them make more money
  • How to benchmark at CAC/LTV ratios for fast growing SaaS businesses in the SMB market

On the subject of pricing and really to bring that to where we are today, in the context of the current market and in the SMB space, what’s happening to pricing, in the crisis, or as we go through a crisis?

In terms of the Covid crisis, specifically, I think I mentioned before that these products are fairly business critical and, therefore, they are very sticky, from an existing customer perspective. Unfortunately, we are going to see some business failure, in the next few months. I think that’s inevitable. Therefore, software providers, like Xero and FreeAgent, are going to lose customers, due to business failure. But the ones that remain in business are going to be pretty stable and will continue to pay their monthly subscription fees. I think what we’ve seen, in the Covid scenario and the current climate is, it’s difficult to acquire new customers. We are still acquiring customers, but not at the same rate as we did, pre-Covid. That’s partly because some businesses aren’t even trading at the moment. If you’re not trading, why would you look for a new piece of financial accounting software?

I think that’s just a natural thing that is happening, that growth rates, across all providers, will slow down. I think the main battleground and where pricing will become interesting is when businesses do start to get back to work and some degree of normality does come back. At that point, the one thing that the Covid crisis has probably taught a lot of businesses is that they do, actually, need to be more on top of their finances and they do need to get more control over their businesses, just in case, God forbid, another Covid crisis comes again, in two, three, four, five years.

Therefore, what I anticipate will happen is, some good special offers, in September or October time – it’s probably a bit insensitive to do this at the current time and in the current climate – some initial offers for businesses to come on board, with Xero and Sage and Intuit and FreeAgent, whereby there could be six months discount, at 40% discount, on each subscription. I think there will be a bit of – a race to the bottom is probably not quite the right term – but there will be some good promotional offers out there, to try and gain that market share of people who are coming back in, post-Covid. But also for some of the start-ups which, a bit like a phoenix from the flames, there will be a resurgence in the start-up businesses, post-Covid. Businesses which have failed will tend to have serial entrepreneurs and they will start up a new business, post-Covid. Or people will like working from home, being masters of their own destiny and may like the idea of starting their own business. They will be, again, gold dust and key targets for the providers, to get traction and gain market share.

I think you will see, in some areas, some very aggressive and interesting pricing offers, initially, with a view to gaining that market share. But then, undoubtedly, once those offers come to an end, everyone will be then trying to work out how they can monetize those new customers, by upselling and cross-selling them onto different or complementary products and services.

Could you help us understand how a business, like Xero or FreeAgent, would look at making it about more than just price?

Let’s take the Xero versus Intuit scenario, because I think that is quite a good comparison. Intuit, typically, in the last three or four years, in the UK, have grown market share by throwing a lot of money at above the line advertising. You’ve probably seen then be quite prevalent on TV adverts, etc. Also, by aggressively pricing their software, encouraging end users with the sort of offer you mentioned, but also with accountants, in terms of bundling products. It’s not unheard of, in the accountants’ channel, for Intuit to offer 50 licenses for £1 each, to accountants. You can’t get much cheaper than £1 per month, really.

So they’ve gone down the aggressive pricing route and that is all about gaining market share, gaining traction and then monetizing the customers that you’ve acquired, by either, unfortunately, price increases in the future or by selling them other products and services which are complementary to their core software.

I think Xero have taken a slightly different approach, where they position themselves, very much, as a premium product. Whilst they did a few offers, certainly in the early days, they didn’t do many offers. It was, pretty much, this is the price; we believe we’re the best product in the market. In terms of your specific question about adding value, it was all about adding efficiencies into business processes, when Xero first came into the UK. That was by using things like connecting bank feeds, from your bank, into your financial accounting software, so that you didn’t have to actually rekey every single transaction into the software. The bank feed took your bank transactions, they were already posted into Xero and all you then had to do was analyze each of the transactions, rather than typing in every single one of them.

In terms of value, certainly with the accountants, Xero very much went down the efficiency route. They also went down the route of, particularly with their relationship with the accountants, around how they could add value into the accountant’s business. The way that they demonstrated that was by saying to the accountants, well, instead of waiting for access to your client’s data, at the end of the year, with their permission, you can log into their data at any time that you wish to, because the data is in the cloud. What that means, you can start to do more frequent monthly management accounts, for example, and show value to your customers by showing them their profitability and giving them business advice on a monthly basis, rather than on an annual basis. Because you are offering them a better service, you can charge them for that and you can feel more valued that the advice you’re giving them is helping them to grow the business, rather than just to remain compliant and do the tax return and VAT return on time.

So Xero went down the route of, that’s the value that we can add to you, as an accountant and also the value that we can add to your customer’s business. Because you’re more on top of the finances, you’re being more efficient in terms of your business processes. I don’t think Intuit went as hard, on that message, as Xero did. Therefore, Intuit chose the above the line campaign, plus the aggressive pricing, which was quite a different strategy, from Xero’s.

Read the full interview HERE