Businessmodel of Xero

Customer Segments

Xero has a niche market business model, with a specialized customer segment. The company targets its offerings at small and medium-sized businesses across industries.

Value Proposition

Xero offers three primary value propositions: convenience, accessibility, and brand/status.

The company offers convenience by making life simpler for customers. It enables potential users to participate in a 30-day free trial. It provides updates to its SaaS platform every three to six weeks, and made 1,200 updates in 2016 alone. It allows users to instantly see their bank transactions when their bank accounts are connected. Lastly, it enables clients to cancel their plans at any time.

The company creates accessibility by providing a wide variety of options. Its platform supports numerous currencies and tax rates. It is also capable of integration with over 500 business apps, including solutions for eCommerce and time tracking. Xero has been able to provide many features (accounts payable, purchase orders, invoicing, management reporting, etc.) because it has acquired numerous competitors since its founding.

The company has established a strong brand due to its success. It claims to be the leader of the cloud accounting markets in New Zealand, Australia, and the United Kingdom. It has more than 862,000 subscribers in over 180 countries. In 2016 it achieved operating revenue growth of 67% and subscriber growth of 51%, and recorded NZ$1 trillion in transactions. It has over 1,400 employees working out of 20 offices globally. Lastly, it has won a number of honors, including the following:

• Recognition as the “World’s Most Innovative Growth Company“ by Forbes in 2014 and 2015
• The“Best Accounting Software“award from the Cloudswave Awards in 2015
• Recognition as one of the “Top 50 Places to Work in Australia“ in 2014
• A Fast Company Innovation by Design Award in 2012
• Two Webby Awards, including the People’s Choice Award for Banking/Bill Pay, in 2009 ### Channels

Xero’s main channel is its direct sales team. The company promotes its offerings through its website, social media pages, advertising, and participation in road shows and conferences.

Customer Relationships

Xero’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the main platform while having limited interaction with employees.

The company’s website features a “Business Help Center” section that offers useful resources and provides answers to frequently asked questions.

That said, there is a personal assistance component. The company makes customer service available 24/7. There is also a community element in the form of a forum where clients can interact.

Key Activities

Xero’s business model entails designing and developing its software and maintaining a robust SaaS platform for its customers.

Key Partners

Xero maintains a partner program through which it works with accounting and bookkeeping firms to help them promote and sell its offerings. These partners earn points with every new client they obtain that can be accrued towards various rewards.

On average, they refer around 10,000 new customers per month. The company has over 16,000 partners. Program benefits include:

• Access to training courses at Xero University
• The opportunity to become certified in the use of Xero’s software
• Invitation to exclusive Xero events such as Xerocon, an annual conference
• Qualification for annual awards based on sales performance ### Key Resources

Xero’s main resource is its proprietary software platform, which serves over 862,000 subscribers.

It depends on human resources in the form of engineers that develop its software and maintain and update its platform, and customer service personnel that provide support.  Lastly, as a startup it has relied heavily on funding from investors, raising $355 million from six investors as of February 2015.

Cost Structure

Xero has a cost-driven structure, aiming to minimize expenses through significant automation. Its biggest cost driver is sales/marketing, a fixed cost.

Other major drivers are in the areas of product design/development and administration, both fixed costs, and cost of revenues, a variable cost.

Revenue Streams

Xero has two revenue streams: revenues it generates from the fees it charges for monthly subscriptions to its platform and other revenues.