When CircleCI recently moved from a subscription to a usage-based pricing model, it was tasked with its CFO, Chitra Balasubramanian, to model the impact the change would have on the business. It was a task she was prepared for; several years earlier, at a previous company, she had led a team whose job it was to make sense of huge amounts of data – just the kind of experience she needed to understand the price change.
“Predicting a usage model is more of a data science problem than a classic Excel modeling problem,” Balasubramanian told Dive’s CFO. “Turnover is a retrospective measure. The subscription values are just fairly standard, fixed units. You can’t necessarily call a model based on using recurring income because it really is recurring income. ”
To model the impact, she said, she and her team looked for patterns among cohorts, among others, from which clues could be extrapolated.
“How do cohorts develop over time? ” she said. “Is there a coherence between them in their movement? While you can’t get specifics on every account, you can look at groups of customers and see how they grow over time.
First days
Balasubramanian joined CircleCi, a platform to help companies accelerate software development, just under five years ago to help it grow its finance and other functions.
Chitra Balasubramanian
Courtesy of CircleCI
“When I joined, there were maybe 70 or 80 people,” she said. “There was no FP&A team in place. There was a small accounting team, one or two people responsible for HR functions, very basic human functions.
Today’s company, which recently completed a $ 100 million Series F funding round and is valued at around $ 1.7 billion, is in a very different situation. It hosts around 50 million software versions every month.
“The sector has grown quite rapidly,” she said. “This is what drives software development practices today. ”
Last year, the company appointed her as its first CFO, which allowed her to move into a position to which she brought a wide range of experience, but which she had never held before.
“I am grateful that I have been trusted to take on this higher level role,” she said. “There was no question of becoming a CFO when I arrived. It was just a matter of getting in there, developing the function, focusing on the work. I didn’t even think about becoming a CFO.
His experience leading this data team at his previous company, called RetailNext, which collected data to help retailers improve their traffic flow and physical sales, allowed him to critically prepare to handle the type. work expected from her at CircleCI. “I was helping to learn from a lot of data,” she said.
But she also brought relevant experience in technology development from her early days as a public auditor at PwC. The company had formed a small group last year where it was there to design technology tools to help it stand out from other large companies.
“It was basically an opportunity to be an accounting expert wearing a product management hat,” she said. “That year it was basically me looking at our audit practices and thinking, ‘How can we make this better? How can we avoid just doing a test and then writing a Word document about what we’ve done? ‘ “
Balasubramanian said she still thinks about the experience today. “It allowed someone who thought differently about auditing, day-to-day accounting, to think more operationally in a forward-looking fashion,” she said. “How can we use technology, change the process flow, make what we’re doing a lot more scalable, a lot more error-proof, and a lot less manual? “
Growth forecasts
At CircleCI, one of the key metrics she examines is net dollar retention, which shows how the company’s accounts grow and deliver more value over time. This is one of the metrics she relied on to see how changes in cohort usage might help predict the impact the shift to pay-as-you-go pricing would have on the business.
It can show, for example, what types of customers tend to have more seasonal use, a data point that can be connected to the forecast model. “We are trying to separate our customers to see how the use is going,” she said.
Like many in the Software as a Service (SaaS) space, the company attracts customers using a freemium model and then works with them at the enterprise level as the platform becomes part of their business. software development process.
“We have a lot of developers signing up to our product themselves using our freemium model, and then over time as their needs change and their businesses demand it, we help them close deals and a logical plan within our suite of offerings, ”she said.
It was after following how customers were using the platform that company management decided to move away from the dominant subscription model.
“The subscription in the previous model looked a bit more like shelves,” she said. “You pay for it whether you use it or not. “
The usage model, on the other hand, better aligns revenue with the value customers get from the platform.
“We just thought it was more the right way to serve our end customers than having loopholes when it comes to a fixed subscription model,” she said.
To help heavy users deal with the cost increases that would result from the change, the company devised a bonus credit system.
“You buy a bundle of credits,” she said. “The more you buy, the more bonus credits you get, so it’s an implied discount. If they’re gearing up for a product release or whatever, then they’ll end up using a lot of it. But then during the holidays, when they don’t need that much, that’s when they probably keep some of those credits. So it ends up balancing out in a much more organic and natural way.
