Welcome to the PayFAQ: Embedded Payments Podcast brought to you by Payrix. As payments and software experts that eat, sleep, and breathe Embedded Payments were as passionate about you as you are about your customers. Each podcast episode will provide insights about Embedded Payments designed to help you feel the transformation and growth of your software business. You’ll learn from industry experts, Payrix customers, and leaders on the Payrix team about the latest trends, best practices, and real-world guidance from payments experts to help you take your software platform higher.
Ian Hillis
With over two decades of experience in sales, marketing, and revenue in the software, technology, and payments industries, Adam has been at the helm of many companies experiencing significant growth. Today, we’re excited to get his take on how software companies think about and measure growth and how payments can accelerate that growth journey. Adam, welcome to the show.
Adam Tesan
Thanks, Ian. Excited to be here. I’ve been waiting for this conversation for a while or the invite at least.
Ian Hillis
Well, our audience has been waiting as well. Adam, look, you’ve held a number of executive leadership positions across revenue, sales, and marketing within the world of software. Most recently before joining Payrix, you were the CRO at Chargebee, where you were engaged with hundreds of software companies on top of being a rapid growing software company itself. Can you help set the stage for our audience by telling us a little bit more about Chargebee as a company and your role as CRO there?
Adam Tesan
Absolutely. So Chargebee is a subscription revenue management platform that manages billing subscriptions and payments for companies globally. Some of their customer base includes companies like Typeform, it’s an online form building and survey tool, Bloomberg media company, even, Pret the coffee and sandwich shop started a coffee subscription, and Calendly, the online scheduling tool. They’re truly global in nature, about 50% of their business is in North America, 40% Europe, and about 10% Asia Pacific. When I started with them, there was no revenue organization or CRO office to speak of. They had a separated sales org, customer success, partnerships teams. And so, the role when I came on board, which was the beginning of 2020, was really to scale and synchronize the revenue functions and start a line in the GTM motion along with the customer buying journey to optimize that experience. They have been and they still are experiencing really impressive growth. You know, when I started with them, which as I mentioned was back in early 2020, we were about 300 people processing about 3 billion in revenue. And just around the 17 million ARR mark. I spent about three years with them. And we scaled to about 13, 14 billion in processing up to 1,200 people approaching the 100 million ARR mark, and we’d raised about 450 million during that time period. So pretty significant scale. And a large part of that was actually fueled by payments. We had at the time about 30 native integrations to processors globally. And we were just embarking on a payments and Embedded Finance strategy (that looks a lot like the Payrix roadmap) and looking to start better monetizing payments and found that channel.
Ian Hillis
So, on top of leading tremendous growth within Chargebee, you’re given the first-row seat to a bunch of software companies experiencing fast growth themselves. You noted a couple of names there that will ring a couple people’s bells in terms of familiarity. Adam, I’m wondering, let’s put your fast-growing software company CRO hat back on. Can you walk us through the most important performance metrics you’re often tracking within that type of business at that stage?
Adam Tesan
Yeah, absolutely. I kind of think about them in three buckets. So, the first one being growth and profitability. So obviously ARR growth, you know, when I talk about scaling that ARR number from 17, up over 100 million, incredibly important. The second growth and profitability metric is really NRR. And that’s net revenue retention, which takes into account your new revenue, as well as your upsell and cross sell revenue. And then takes away kind of your churn and down sell. Benchmark for good depending on size is 110-115%, which means if you stopped selling any new business, you’ll still grow the business at that 10-15% whatever you are over 100. So, it’s showing the growth of your customer base and your ability to expand share of wallet, and then following on from that is gross revenue retention. So that’s more straight line as your revenue minus your down sell and churn. Best in class is really around the 90% mark there. And then the rule of 40 which really is a scaling. VC, sometimes PE backed organization, you’re not profitable. So, what the rule of 40 does is takes your growth rate plus your profitability margin, which is typically negative in a high scale and growth business, and you know, the benchmark is you should be plus 40%. So, if you’re growing 90% year over year, and you’ve got a negative 50% profitability margin, you’re right on the 40% mark. So that’s one bucket.
Ian Hillis
Growth and profitability, NRR, gross revenue retention, and combining the rule of 40 across those pieces, does that change the importance of those four across the various stages that you’re going you’re always keeping those four top of mind? How do those four kind of come into your world depending on the stage that you’re in? Or what you’re waking up thinking about that particular day?
Adam Tesan
Good question. They do change, I think the metrics stay the same, but the benchmarks of those metrics will change, right? So, the growth and profitability is one bucket, the other bucket that you spend a lot of time on, especially nowadays, where it’s not growth at all costs, right? Efficient growth is critical. So, those sales efficiency metrics are pretty important. So, sales team efficiency, what’s the percentage of reps over 80% of quota? How efficient are you using or capitalizing on your sales capacity? There’s your CAC to LTV. And depending on which segment of the market you’re in you should have a 12-month cost of acquisition to lifetime value or Enterprise is more 18 months. And you’ve got things like getting into a little bit more of the financial SaaS quick ratio, which really compares new dollars to dollars from lost customers. And then the magic numbers, another one that a lot of VC firms like to use, really measures dollars spent on dollars earned. And then the last buckets really pure go to market ones like new bookings as a percentage of total bookings. How much new business are you winning as a percentage of all your business that you’re getting, upsell and cross sell, and new bookings, average sales cycles different in the SMB and Enterprise space, and then your sales and marketing percentage as a total OpEx, as that last one will change as your business matures.
Ian Hillis
That’s really helpful. I like the bucketing across growth and profitability, sales efficiency, and go-to-market. We’ve watched VC and PE continue to increase their investments, particularly within the vertical software space. And that can create a unique relationship for a CRO, are there differences in what a PE owner might care about more versus your day-to-day as a CRO? Is it at the bucket level? Are there specific metrics within those buckets that you mentioned? Just curious, what metrics might be used to show a software company’s strength and success and that relationship between PE, VC?
Adam Tesan
Great question, there’s a lot of alignment, obviously, between both parties, because they’re striving for the same thing. High growth, efficient, and profitable business. I think the difference to where you’re leading to between the day-to-day operational metrics of how you’re monitoring and managing the business versus what you’re talking about at the board level are more around strategies to increase Enterprise value. So, you know, in that context, the discussions are really circulating around value creation or value capture opportunities within the business. And that’s where payments certainly is one of those, I would suggest under monetized, and a lot of companies opportunities for that value creation, value capture. You know, when we go back to Chargebee, as our processing volume grew, I mentioned we went from 3 billion to 13, 14 billion in the space of about three years, we were woefully under monetizing that revenue stream, we were getting a revenue share just because of how big that volume was. But it wasn’t anything close to what we really could have got to. And so that was a big conversation at the board level. And it was an Embedded Payments and finance play starting with payments which we had in the water and were in flight on but how did we get more of that revenue share, and then looking at the other ancillary finance products that we could get into. I think the other part of that conversation that we spent a lot of time on at the board level was around the treatment, and the reporting of that revenue. And I have a lot of conversations when we’re talking to VCs and PE firms, even today, some are more established, and have a very strong viewpoint on how that treatment is, you know, if you think about software companies, and you start introducing these revenue streams, they have really different margin profiles, like you got a SaaS company that’s driving 70-80% gross margin on their SaaS product, you start introducing, you know, a payments revenue stream that’s got a very different margin profile to it. And then there’s a conversation of which part do I take on the top line and a lot of this at the board level PE and VCs are geared around, how’s that business value, right? If it’s going back a couple years, it was top line revenue growth was where Enterprise value was going. PEs tend to take a little bit more of a look at the gross margin or EBITDA of a business. And so, treatment reporting and you know, even up until recently, if people are just putting a viewpoint on this, and don’t necessarily have a strong opinion on how that is, it’s going to be very specific to that profile of that business, how they’re valued from an Enterprise perspective, where there multiples are coming from. So, I think it’s an ongoing conversation.
Ian Hillis
You started going a little bit around levers, and the levers you can pull to influence those metrics. I’m wondering, do you bucket those in different levers? Is that how you think about it, or you mentioned payments being one of them? Obviously love a deep dive on that one. Maybe we start there. But we’d love to hear about the different levers a CRO has in play to influence those metrics?
Adam Tesan
Yeah, I mean, we could start from the top right. If you think about the ARR growth rate, well, that’s really driven by your sales efficiency. So how do you make your sales team more efficient and more productive? And as you get confidence in that efficiency and productivity, you can obviously add capacity into that. And then you think about metrics like your NRR, your net revenue retention, well, that’s really impacted by your customer growth. So, the ICPs that you’re chasing. You know, Chargebee, they happen to be a really high growth SaaS business. Just like here at Worldpay for Platforms, right, we tend to partner with a lot of high growth companies well that’s going to expand your NRR payments plays into Embedded Finance or just other products that you can cross sell. Part of cross selling is then product adoption, your service, and support also impacts the NRR metric because it factors in churn. So, if your customers aren’t happy with your service, support, or they’re not getting value from your core product, or the additional products that you’re cross selling into them, there’s a potential risk for churn there, which will have an impact on NRR. And then the other metrics that we refer to. GRR, which is more around product adoption, service, and support, because that’s your revenue minus your return, right? So, if you’re not getting great product adoption, and your service, and support isn’t where it needs to be, you’re going to experience churn, which will have a negative impact on your GRR, then you’ve got your CAC to LTV that we mentioned. And that’s really about controlling and optimizing your sales and marketing expenses, right? Ensuring your customers stay with you longer, your product stickier, and continuing to add value are all going to contribute to that LTV element. And then I think the last one as you think about the payments, you don’t really have a CAC because your customer acquisition cost is already gone. So, when you’re introducing a product like payments, right, all that you’re doing is starting to increase your NRR and your LTV because they’re consuming more products, you’re getting more value, your LTV is getting extended. So, all of those elements impact each of those metrics differently.
Ian Hillis
That’s really helpful. Double clicking into payments, in particular. You were kind of there for some of the seminal moments of the payments strategy for Chargebee, in particular. How did you position that with the board? Were you talking about the metrics that would influence or other factors? What was your strategy for talking to that at the next level there and getting the buy-in there for how it would influence the underlying business?
Adam Tesan
Great question. This is where it gets really interesting for software platforms, because we just talked about all those metrics that I just referenced can be impacted by payments, right, you’re increasing revenue, you’re adding more value to your customer. So, all of those will be impacted. But the other thing is, we were thinking about it strategically as a GTM tool. A lot of software platforms will talk about payments and their attach rate, whether it’s to the new customers that are coming on board or their existing businesses, we thought about the world in a three by three at Chargebee. So, we had North America. We had three segments: startups, scale ups, and grow. We had that in Europe. And we had that in APEC. One of our segments, we knew by introducing payments would double the ACV of our customer base. So, we used to sell a subscription product for 10 grand, we knew if we introduce payments, we could get 20 grand out of that customer. That’s a pretty significant increase in value that you can create out of some of your segments. The other way we were thinking about it was how do we leverage it to potentially enter new verticals, go into new geos. So, there’s a lot of interesting things you can do with payments when you think about just your GTM motion. And then I think the other one is really NRR as well as LTV, so we have a Payrix customer today and when we were talking about their core metrics, they were talking about NRR. And they’d done an analysis that the customers that had payments attached to them had an NRR that was north of 100. I think it was like 105. The ones that didn’t have payments attached actually were 10% lower, and we’re in the mid 90s. So, if you think for that software platform, that’s one of their top three metrics, and you can get a 10-point swing by attaching payments to it, it becomes pretty strategic in nature to the core metrics and how they manage that business.
Ian Hillis
Pretty compelling and slam dunk stats. I’m wondering in your journey, when you were talking to the board there, what pushback you got? Were there any challenging questions around payments as a strategy? Things to anticipate, as people contemplate this as a strategy for improving their performance metrics?
Adam Tesan
The conversations were always around protecting the subscription revenue. You talked about this kind of in payments parlance, the front book and the back book. It’s easier to attach those payments for new customers coming on board. The conversations were how do you treat your existing business that already has payments from other providers? We had, like I mentioned at the top of the conversation, 30 native integrations to payment processors, some strategic partnerships with a lot of those payment processors with a bunch of different motions on the GTM side and partnerships. So, a lot of conversation around how do you keep those partnerships going because a lot of business is going to come to you with existing processors and maybe won’t switch? How do you better monetize and get more of your wallet share of your existing? So those are important. And then a huge part of the conversation, especially around the board level, was those discussions around treatment of the payments revenue. How do you treat it? The margin profile? How does that impact the margin profile off your SaaS revenue? How do you think about reporting that out from a valuation perspective? Top line, what do you take? Those are a lot of the conversations that we were having, as we were getting further and further into monetizing payments.
Ian Hillis
Recognizing that we’re kind of in an interesting environment, where to your point earlier coming off of the “growth at all costs, revenue, revenue, revenue.” Now an enhanced look at margin and many of the other metrics that you’ve mentioned here. What advice do you have for listeners and fellow CROs in this current environment that they’re facing themselves in, particularly in the world of software?
Adam Tesan
To your point, I think the days of growth at all costs are behind us. So, it’s an all-around efficient growth. So, I think about the structure that we have here and really leveraging revenue ops and enablement are really key to driving that efficiency, especially in a customer success, partner success, or sales organization. So, I think those are key, I think that investment will pay off, because now there’s such a big focus on that. The efficiency and productivity organization, and they have such an impact, and helping drive that, driving those metrics in a revenue organization. The other side of it is companies are still faced with challenging market conditions. Payments can be a huge value, as we mentioned, and a strategic element to a GTM strategy in helping entering new verticals, accelerating market share. I mean, we have a PayFac customer right now, that’s transitioning their whole payments model, they’re flipping the whole thing over, and payments is a key element of helping them move. They’re moving to a subscription-based model. And they’re leveraging payments as a way to move that transition where they’re changing their whole business model and customer base and revenue line, payments is playing a very strategic part in that, you know, and then the other part is a lot of software companies over the last couple years and still today are facing a slowdown in new business growth. And so, as that happens, really thinking about how to get more share wallet from your existing customer base? What other products can you sell into them, and payments can have a meaningful impact on these core metrics that we walked through and helping you still drive revenue growth when your new customer acquisition has slowed down.
Ian Hillis
Very helpful guidance. This has been an amazing conversation. Thanks for giving us that firsthand view into the environment through the lens of a successful growth CRO. We absolutely need to do this again sometime soon.
Adam Tesan
Pleasure was all mine, Ian, and I really enjoyed the conversation.
Ian Hillis
Thanks, Adam.
We want to be a trusted resource for software providers who are out there trying to make sense of Embedded Payments and finance to help them get the education they need to make the business decisions their customers and investors will thank them for. Thank you to everyone for joining our conversation today and I look forward to continuing the conversation.
Thank you for joining us today on the PayFAQ: Embedded Payments podcast brought to you by Payrix. For more information about Embedded Payments, subscribe to our show at Payrix.com/podcast.
