UK SMB Accounting Software: Xero vs Sage vs Intuit

Current VP Sales at FreeAgent & Former VP Sales at Xero

Why is this interview interesting?

  • 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

Executive Bio

Nick Longden

Current VP Sales at FreeAgent & Former VP Sales at Xero

Nick has over 20 years experience in financial technology and software businesses. He was Xero's first UK Sales Director (2012-14), after which he moved to one of the UK’s largest FTSE 100 tech businesses, Sage, where he served as General Manager of the Sage One product and later as VP of Sales (2014-16). Nick has remained in the accounting software space and is currently VP of Sales at FreeAgent, an online accounting system specifically designed to meet the needs of micro businesses, freelancers and their accountants. Read more

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Interview Transcript

I was looking at the recent Xero numbers. Their [monthly] churn rate, on the latest deck.

When you annualize that, 1.13%, that’s probably about 13% a year, for annualized. On average, you’re looking at about seven to eight years, in terms of the lifetime that the customer is going to stay with you. That’s a pretty sticky customer, in a SaaS business, seven or eight years. To answer your question, in terms of how they did that, first of all, it comes back to having a great product. Xero have got a great product, FreeAgent have got a great product and, ultimately, if your customer is finding value and finding your product easy to use and, in both of those, with financial accounting software, pretty central to the way that they run their business, then making that product into what I call a killer app, which is a business-critical app that a small business owner has to go into and use on almost a daily basis, essentially, that’s how you create the stickiness. You create the stickiness and, therefore, low churn rates, by making sure that you are maximizing customer engagement, by making it a meaningful, central part of their day-to-day business environment.

The first way to get those churn rates is to make a great product and make it as engaging and sticky as possible, as a business-critical app. It then comes down to things like reliability. Obviously, in a SaaS environment, your software and your data is being held in the cloud and that is maintained and the uptime is very much in the control of the service provider, either Xero, or maybe Amazon Web Services, where the data and the software is being hosted. Ultimately, you want to make sure that when you want access to your software and your data that, first of all, it’s reliable access, so the uptime of the service of there. Secondly, and crucially nowadays, that your data is really, really secure, as well. Security and credibility around security is really important, in a SaaS environment.

Then the third element, as well has having a great product and having good uptime and good, reliable service, is then the support tools around that. In terms of minimizing churn, if a customer needs help, we live in an instantaneous environment nowadays. Whether you want to see what’s on TV tonight, or whether you want to see what’s on at the cinema or if you want to find out the football scores, people go their mobile phones. There’s a demand for instantaneous access to knowledge and access to information. Therefore, the way that you can also retain your customers and get those good churn rates, that Xero and FreeAgent have got, it’s about giving access to your customers, to that information, ASAP, on demand almost, so that they feel as if they are getting good service and they feel as though Xero and FreeAgent are good businesses to deal with.

How different is that, really, from what Sage might be offering, for the equivalent customer, in this space?

To be fair to Sage, they are transitioning to that type of service now, but it probably took them a lot longer to do that than it probably should have done. I guess, when you compare how the Sage service used to be and still is, to a certain extent, the access to the updates to the software was, again, very different. I know that, now, things have transitioned in the Sage business, as well, to have cloud-based software, but a lot of their software is still, what I would call, hybrid cloud, which is where you’ve got the data synching in the cloud but, actually, there’s still an implementation of the software, on the local PCs and server. Sage 50cloud is a good example of that. They’re not fully cloud, in my view, in the true and purest sense. But when you look at the way they also used to do their customer help, for example, it used to revolve, very much, around a helpline. You would have a number to call the helpdesk and then a human would answer the phone and try and answer your query. They still offer that, but they offer some of the digital services, as well, such as online knowledge bases and video learning and that type of thing.

They’re definitely transitioning, but they were probably very slow, compared to the true cloud providers, like Xero and FreeAgent. But Sage have had some customers for 10, 12, 15 years. They’ve got a fairly loyal customer base and a lot of their customers are used to phoning that helpline and, therefore, probably aren’t transitioning to more of the digital, online, on demand type services, as quickly as some of the true cloud providers, like Xero.

Then customers get a bit frustrated, because they’re hanging on phone lines, listening to music. To be fair to Sage, they are going through that transition process and they are starting to bring more and more digital, online, on demand services, but in my view, I still believe that they are behind the true cloud players.

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