How does Xero make money?

Xero sets a tiered pricing plan, each of which can be used by an unlimited number of users

When you think of technology, certain countries come to mind. I don't know if anyone thinks of New Zealand, but it is the home of one of the largest companies in the world.

That would be cloud-based accounting software provider Xero. Founded in July 2006 by technology entrepreneur Rod Drury and specialist small business accountant Hamish Edwards, Xero is a competitor with Quickbooks: it provides accounting software for small businesses and their advisors.

The service allows its customers to see their cash flow in real time, to automatically import and code their bank statement, create and send invoices automatically, and to get paid online. With Xero, businesses can be connected directly to the banks, and offers a dashboard where all the business' transactions appear in a real time view.

Xero's revenue stream is very simple, the company told me: its sells one product and it is a subscription model with various pricing tiers based on the type and number of company entities managed by the subscriber. Each plan includes unlimited users. 

Here are how its three plans break down:

The first is its Starter plan, which costs $9 per month. That includes the ability to create and send five invoices, enter and pay five bills and reconcile 20 bank transactions. It also comes with free conversion from QuickBooks to Xero, unlimited 24/7 supports, integration with over 400 apps, the ability to prepare W2s and 1099s, and automatic backup.

The next plan is Standard, which costs $30 per month, it has everything in the Starter plan, includinh he ability to create and send unlimited five invoices, enter and pay unlimited bills and reconcile unlimited bank transactions, along with payroll for five employees, federal and state e‑file and e‑pay, and payroll direct deposits and checks.

The final plan is Premium, which starts at $70 a month. It has everything from the Standard plan, along with the ability to deal with multiple currencies, and payroll for 10 employees. If a company needs payroll for additional employees, there is are two additional Premium plans: a $90 plan that allows for 20 employees, and a $180 plan for 100 employees. 

Xero first entered into the U.S. market in 2011, and has seen a lot of interest from American investors, most notably Thiel, who has made four separate investments in the company.

The company has also been making some big moves in the United States with its executive team, completely revamping its top team in the country last year. 

In the12 months ending on March 31, Xero saw $120.9 million in revenue, up from $66.9 million in the same period the year before, an 81% year-to-year growth rate. 

$89.1 of its revenue came from New Zealand and Australia, where is has 341,000 of its 475,000 customers. Only $7.7 million of its revenue came from North America, where it has 35,000 customers. though the company is trying to change that.

Xero first entered into the U.S. market in 2011, and has seen a lot of interest from American investors, most notably Peter Thiel, who has made four separate investments in the company.

The company has also been making some big moves in the United States with its executive team, completely revamping its top team in the country last year. In February it hired a Russell Fujioka as its U.S. President.

Xero has raised over $340 million in U.S. dollars, most recently a NZ $147.2 million (US $110.8 million) round in February.

Investors include  Valar Ventures, which is backed by Thiel, Craig Winkler, Sam Morgan, Accel Partners and Matrix Capital Management, which is also Xero’s largest institutional investor.

(Image source: xero.com)