Good morning, everyone. Welcome. We are very excited to have you here for Xero's Inaugural Invest today. To those of you in the room and joining us online, a very warm welcome. My name's Nicole Mehalski, and I'm the Head of Investor Relations at Xero. I'm going to give a brief intro, and then I'm going to pass to our Chairman David Thodey to give a welcome. Today I'm joining you from the lands of the Wurundjeri people of the Kulin Nation. Xero acknowledges the traditional custodians of country throughout Australia and their connection to land, sea, and community. We pay our respects to their elders past and present, and extend that respect to any Aboriginal and Torres Strait Islander peoples joining us today. I'll now run through the agenda.
We're going to kick off by hearing from our CEO, Sukhinder Singh Cassidy, who'll outline our 2025-2027 strategy. We'll then be hearing from our Chief Product Officer, Diya Jolly, who will share her product vision and how that aligns with the strategy. We'll then take a break for lunch, and for those of you that are joining us in person, we'll be doing some product demos in the lunch break. After the lunch break, we'll hear from Angad Soin, our Chief Strategy Officer, and he's going to talk to us about product, pricing, and packaging. And then our CFO, Kirsty Godfrey-Billy, who many of you know, is going to host a fireside chat with our CRO, Ashley Grech, sorry, our CRO, Ashley Grech, and our CMO, Michael Strickman. And that allows you to get to know them, hear about their background, and their early observations on Xero.
Following that, they'll get up to discuss their go-to-market strategy. And then to wrap up for the day, we'll hear from Kirsty on Xero's capital allocation, and Sukhinder will then recap the day before we move to Q&A, and we're hoping to wrap things up around 3:00 P.M., 3:15 P.M. So we look forward to sharing this jam-packed day with you, and with that, I'll hand over to our Chairman and welcome David Thodey.
Thanks, Nicole. Good morning. Great to see you all. I was looking for a few of you on the 9:00 A.M., 6:00 A.M. this morning, red eye, coming down from Sydney, but I didn't see many of you, so maybe you were down here last night. But anyway, great to have you here, and thanks for spending time with us. I'm only going to say a few words, but I did want to be here because this is actually - I think it's our first Invest today we've ever done, so the team have done a lot of hard work, and I just wanted to be here because I think it's a really important sort of stage in Xero's development and maturing.
And also, it's quite an auspicious time because it's Sukhinder's sort of anniversary, one-year anniversary, though she did start before Christmas in 2022, so she had, well, 2023, and then she's been through in 2024. So I've got to say, we've been absolutely delighted to have Sukhinder leading the team. She brings an energy, a focus, and a drive. So Sukhinder, we're absolutely delighted to have you on the team. And the other big thing that you'll probably be looking to see today, the leadership team's had some really great additions, and that's been really, I think, purposeful from both Sukhinder and the board. As we go to this next stage of growth for Xero, we really do need to build our executive capability, both in terms of global perspective but experience. And I mean, many of you have invested in companies out of Australia who have gone global.
It is a difficult transition. It's not easy, and you need to sort of get that balance between Australian-New Zealand-centricity and global perspective, and we're absolutely delighted to have the team growing, building, bringing in best practice, and trying to really drive out what we think should be a true global company. The other interesting thing we've done, and really led by the team, is the board has really engaged with Sukhinder through the last six months on our long-term strategy, and that's what this is about today. But it has been an iterative process, and so I want you to know the board is really engaged in what you'll see today. I mean, not that I think, I mean, a lot of it you will recognize, but it's in the clarity of execution and strategy that is so important and so hard to do, really.
So we've been really pleased with the work that we've seen come through. As always, we are looking for feedback. I know some of you are not backward and coming forward, but we really do want it because we really want to make sure that we are taking the company forward, doing everything we can. So feedback, questions, critiques, ideas, as much as you're able to, we would really appreciate it. So I think that's the day. As I said, we're really pleased with the team, really pleased with Sukhinder. I'm not staying for the whole day. I'm around, but I will be seeing many of you sort of later in the year as we go through full-year results. Of course, it's always a bit of a difficult period now.
We've got first-half results generally, and you have first-half results go through, and then we do ours sort of later in the year with March end. So with that, have a great day. Sukhinder, lovely to see you, and come on up and take them through the day. Thank you very much. Thank you.
Thank you, David.
Thank you. All right. Thank you.
All right. Well, I am so excited to get started, and what's really nice is now, having been here about a year - a year in the seat - hold on just a moment. Let's hope that stays. I see some faces I recognize, so I really appreciate getting the chance to engage with you today. I know many of you have asked me over the past year, quite rightly, what's our strategy? So it is a particularly fun time to be able to step back and share with you what we just authored with the board and finished completion on less than 30 days ago. Hopefully, it gives you insight into how we're thinking about the next three years specifically, and of course, our longer-term aspirations. Today, we've got five goals, and they're probably pretty obvious, but let me go through them.
Give you a view of where we've been and a perspective on how we've grown historically. To share where we're headed, obviously. I hope today's sessions give you deeper insight into key areas of our business and, at the same time, meeting our leaders and seeing how they think about their areas of the business. I mean, we have new leaders. We have tenured leaders. You're going to hear from both today. And then lastly, of course, to hear from you as our long-term partners. Now, we've scheduled the day with Q&A at the end. We debated whether to allow it in between the sessions, but if you would, let us get through our materials. We hope you find them engaging, as engaging as we are excited about presenting them.
And then, of course, we'll have a full and robust Q&A, including with people who aren't presenting today, the entire representation of our leadership team. So with that, let's get started. Now, there are four key things I hope you will notice from today. Number one, we've been a consistent performer. We've been a consistent grower over the last 17 years, and we think that's been a function of both the markets that we've chosen to play in and our execution. There are a few things we said to you last year, and I think as we look back, you'll see that we've delivered on the things we committed to you a year ago. Number three, I'm particularly proud of the clarity of vision that we have around the next three years. We believe it's purposeful. It's focused. We understand what we need to execute.
It has things that are obvious. It has innovation, but overall, the word that comes to mind is measured and focused, and deliberate. And then lastly, that the team for this next chapter is turbocharged. Whenever you share a strategy, it hasn't yet been executed. We'll see how we do over the next three years. But what you are backing is a team, a culture, a set of capabilities, and I couldn't be more proud of what we've put together between long-standing Xeros and the best of what we've always been and what we think we need to bring to Xero for this next chapter of growth. So I hope those are things you notice, but that's what I'm most excited about. Now, I'm going to go briefly through our history to date, and I'll try and get through this material pretty quickly.
You know we have had a history of being pioneers, innovators, particularly when it comes to cloud accounting. Many of you were here at the beginning or knew Xero from the beginning days with Rod and even our early arrival on the public markets in New Zealand and then on the ASX. You've, of course, witnessed our expansion to new geographies and then expanding our footprint of what we call jobs to be done, the jobs that we hope SBs do with us, and of course, their AB advisors. You also will note that, as I talked about earlier, we've been a consistent grower. Our annualized growth over the last 10 years has been 43%. In that time, we've returned 269% to shareholders. That's a 6-to-1 performance against the ASX 200.
It's a good company, and I really am proud to have been given the opportunity to come help lead the company into its next chapter. Of course, this is even more powerful for us. We've built a brand that people love, and we've built a values-driven company. Here's the five-year average of our AB and SB NPS. Not a number we've shared before, but mid-50s and very proud of it. Obviously, that varies between SB and AB, but the most important part here is we have two different sets of customers who enjoy our services, and collectively, they believe Xero is giving them value. At the same time, Xero has stood behind being a company of purpose and of values, whether that's sustainability, whether that's diversity and inclusion. Our posture towards the world and the communities in which we participate is open.
That is vitally important to our culture, and it's really important to me. People always ask me, "Why did you come to Xero?" And I said, "Of course, I wanted a great business model. Of course." But I also said, "I want to come do great work with great people and in an environment where I also find values fit." And I can tell you, the Xeros who come to work every day in this building or around the world, they feel the exact same way. So we're proud of our financial returns. We are equally proud of the brand we have built and will continue to build around our purpose. Now, I want to give you a bit of commentary on how I think about our growth and go just one click deeper because, of course, during half-year results, full-year results, I get lots of questions.
Well, is the U.K. growing fast enough? How do you think about your performance?" So we just stepped back and took a historical look at our trends. There are observations in here that resonate with me deeply as a 30-year operator in technology. The first is, of course, great execution matters. It absolutely does. Great teams and great execution and choices. But it's great execution and choices interspersed and in concert with macro trends and the spaces you choose to play in that often leads to, there's water dripping here, that often leads to this notion of outside success. So it is a confluence of factors. People give me a lot of credit for going to Google early in my career. I was 26 years old. I came off a ski trip at Whistler. True story. I moved to California because I thought the weather was great.
One of my former roommates was at Stanford Business School. I had this vague notion of entrepreneurship, vague. I didn't know what it meant, but I moved. I ended up with a job at Google, which in hindsight was a great pick. So people give me a lot of credit. Yes, I made the move. But Google chose to enter search not as the pioneer, as a follower, at a time when internet content was multiplying. The where-to-play choice and the macro trend of the internet really made for a phenomenal company. So of course, it was great execution. But choosing to do search when content isn't proliferating, that's why Overture didn't win and Google did. When I was a founder at Yodlee, we were right on the idea of aggregating financial data. We were also 10 years too early. Online banking had not reached mass market.
Fintech apps had not been built. Luckily, we survived and raised enough money that 10 years later, when those things exploded, Yodlee was there. And Yodlee, I'm so proud of. Today, it's a vendor to us, and it's around 20 years later and as relevant as ever. But my point is, it's always the intersection of these things. So what does that mean for Xero as we look to Xero's history? Well, first of all, Rod was right in thinking about this real-time collaborative software in accounting that two people could share a view on and interact with. He made a bet on cloud accounting. And interestingly, early on, Xero built a good product-market fit, not just in cloud accounting, but interestingly, in payroll too. Now what happens? Xero is starting to grow. Oh, and along comes a regulatory tail wind, STP 1. Well, that's a nice tailwind.
Great that you have a product that is really good in payroll when STP 1 arrives. Then we have COVID, which actually was maybe better, relatively speaking, for AN Z than other markets like the U.K.. Then we have STP phase II. And of course, now we have brand awareness, a virtuous cycle between our AB and SB. We have efficiency in our CAC and LTV. So a lot of things are moving in concert. But again, it's a choice of where to play, our moves, and the macro trends, be they regulatory, geopolitical, what have you. Now, let's look at the U.K.. The U.K. has also grown well. We are pleased with our growth. If you look at the moves in the U.K., we moved early to launch a product, and that's been a great choice. You can see the effects of MTD phase I. They do accelerate growth.
When there is a time-bound pressure put upon an SB to make a digital choice versus a long consideration cycle, it does help your CAC. Absolutely, it does. It does help conversion. In the absence of regulatory tailwinds, you're growing a market. So we look at MTD phase I. I mean look at MTD phase II. We look at COVID. You can see that in our trends. You can see that we've normalized through the pausing of MTD phase I and phase II, the pausing of MTD phase III, sorry. And here we are, and we continue to grow, and we will continue to drive and grow markets. And we hope that we create great product-market fit that's ready for when those tailwinds head our way.
Of course, we believe we're riding a macro tailwind of small business digitization, and we're excited about that, and AB seeking to become more efficient that has helped at certain times from other factors. Obviously, black swan events like COVID-19 will also influence us as they will influence others. Then you look at North America. North America has been a steady grower. North America has not been a market where regulatory tailwinds drove cloud penetration. It's been a market that's been developing on its own. It's just an observation on how we grow and how we think about our growth and product-market fit. Okay, lastly, the last point about our growth is, many of you know, that Xero has grown by continuing to expand TAM.
You can see here the number of markets we've entered, and you can see here the number of jobs to be done. Does everybody understand the jobs to be done terminology? Generally, yes. Just nod if you yes. This idea that we classify the things SBs can do and ABs need to do in order to run their businesses. You can see here what we call jobs, and you can see here what we call super jobs, jobs that contain lots of jobs. Okay, so very clear that we've expanded. The blue squares represent all the things we've expanded into to grow our TAM and revenues. All right, so now let's specifically go to the last 12 months. What did we tell you we would do, and what have we, in fact, done?
Well, I recall being in front of you, first and foremost, when we did the restructure and then at full-year results, FY 2023. At full-year results, we said three key things. First and foremost, we said we are pivoting to target balanced, profitable growth, not just growth at all costs. Number two, we said we are going to be more focused in the allocation of our capital and our resources. Number three, we said we are starting a new journey. We are starting a new chapter for Xero, and we will need to exercise and learn new levers for growth. We're going to evolve our levers, and that's appropriate. As I have said before, we are in a place of which we, as a management team, feel very lucky. We feel lucky and fortunate to be stewards of a really strong business.
That business, as it enters its next chapter of scale, needs evolutions of motions, new motions that maybe we haven't had before. That's okay. That's why we all came. We came for that opportunity, as you can imagine. How did we do against those commitments? Well, in the targeted profitable growth category, obviously, we made the very difficult decision to do Xero's biggest restructure and really the only one of that magnitude it's ever done in a 15% headcount reduction 6 weeks after I arrived. Very, very tough move. I'm glad it's behind us, but I feel very convicted that it was the right thing to set us up for a strong financial profile going forward. We increased free cash flow. You saw that at the half.
And we, of course, also said to you, "Hey, the Rule of 40 is a useful measure." When it comes to the middle category, not only did we restructure, but we benchmarked every group, and we reshaped the organization for where we thought we needed more or less resource. So we took the opportunity to make sure it wasn't a blanket cut. Not at all. I remember telling many of you, "No, we went function by function." And we literally said, "What is the size of our P&T footprint, our engine-to-product ratio? What is the size of our marketing team? Does this make sense?" So we took that opportunity, and I'm glad we did it. Number two, everybody asked us about our capital investment in the U.S. And at the time, I said, "I'm going to give you an update on H1." And we did.
We shared our historic capital allocation. We shared our focus strategy on the segments we believe we have an opportunity to be differentiated in. We gave you a rough sense that we'll try and be reasonable but not profitable in, that's not our goal in the U.S., but reasonable in our burn rate. We defined the areas we're seeking to improve. Then lastly, we've discontinued non-core businesses. You'll recall we wrote off Waddle, a very small lending business. I think of Waddle in that sort of non-core jobs category, one of the places we expanded to. We also, more recently, announced, I think this summer, announced the sale of WorkflowMax, an early acquisition that has done amazing things for us in building out our practice management tools, but now was left with a residual customer base that wasn't actually our core customer base.
So we've discontinued non-core businesses. Then let's come to the last thing we've done, which is we started to talk to you about new levers. And at the time, in May, we said, "Hey, one of our levers, as an example, is product mix." And at the half, we started talking about product mix. We started talking for the first time to you guys about segments. And today, we're going to go deeper there so we can give you some insight into how we think about our segments and our products and our customers and mix and other levers. But we, in fact, mentioned it.
We said, "Hey, for further focus and really to focus on the right value creation, we're going to take this small base of long-idle subs, and we're going to write them off," which we'll do at the end of the year, after the end of the year, because we want our sales teams to finish fiscal 2024 strongly. So we sort of said, "Hey, we have a plan to address these subs. Yes, they're orgs, but they're not using our products. And they signed up to use them, and it's been a couple of years. If they're not going to use them now, they're probably not going to use them. I really don't want the sales team focused on that.
Let's focus on activating customers and licenses that we know are going to come to fruition." Now, underneath all of this, if there's a message that shines through that we were setting the foundations for our next chapter, well, that's exactly the right message. The last thing we did, and it's the thing I'm most excited about, is we started to evolve our culture and rapidly identified the areas where we needed new capabilities at Xero, and we invested in them. I'm going to show you some of those new capabilities in just a moment. I started by talking about the fact that Xero has an incredible culture. It resonates with me deeply. I come to work every day, and I always say we kind of have a no-jerk culture. I like that.
Sometimes I think I'm probably the biggest jerk when I'm deeply impatient and pushing for progress. At least I know I'm a jerk. My point is, it's a culture that prides itself on people who are collaborative, open, transparent, and that is amazing. At the same time, our ambitions keep growing. We keep raising the bar, and we will continue to evolve the performance side of our culture. That is a big focus for us. It should be for you as investors. It should be for our teams who want to do the best work of their lives and want feedback and coaching and career ladders. And most of all, it should be for our customers because that's who we serve every day. So pretty committed to evolving our culture in this direction. Now, let's talk about the new capabilities we bought in.
So today, you're going to hear from just about everybody here. If you don't hear about them in the main sessions, you'll have an opportunity to ask them questions. But the thing to note about the team, whether it's Kirsty, who's long been with Xero and has some of the deepest history here, and obviously, one of our key Kiwi leadership team members, or whether it's Diya, or whether it's Mike, who, I mean, I joke, is like 120 days on the job, so go easy on him. The reality is what you see here is world-class experience, northern and southern hemisphere perspectives, specialization, and diversity, diversity of thought, skill, experience. And that's the kind of team I am really excited to lead. It's not just at this level that we've been investing. So at Xero, we have something called the SLT.
You're going to see some of our SLT today when you go to see the demos. That's our senior leadership team. It's about the top 100 people at Xero. So think minus one or minus two from the executive team. These are people who lead key functions, key countries, key regions, key divisions for Xero. And here, too, we have been investing a fairly deep amount to make sure we have the skills and capabilities that we think we need for this next journey. Now, you're going to meet some of these people today. I'm not going to go through all the names, but I'll know that you'll see additions here in places like data science. Eitan Sharon is an example, somebody I worked with. I was an investor in his company when he built a fashion AI company called mode.ai . Eitan went on before that.
He was the founder of Video Surf, a company that sold to Microsoft. Eitan went on to Amazon for the last few years, where he's working on a number of Amazon's AI solutions and customer service. So lucky to have Eitan join us to drive data and AI. Just one example, James Kyd, a longtime Xero who has built the brand that we're so proud of. I mean, amazing to see his creative work. Anthony Drury, you're going to hear about Anthony later today, our new head of ANZ. We've made investments in performance marketing, pricing and packaging, product engineering, payroll. I mean, this is a combination of internal promotions, external hires. But again, the thing I hope you'll notice from this slide is specific capabilities in the areas we think we need to be stronger to deliver the vision we're going to show you.
This top 100 team is where the rubber hits the road in really making some of the things we're talking about come to life. All right, so let's move to our strategy. We call our FY 2025 to 2027 strategy winning on purpose. By that, we mean three key things. First and foremost, not winning for winning's sake. That's not really what drives us. It's winning for the benefit of our customers, creating great experiences for customers. Winning does matter for your customer. Number two, delivering our purpose consistently. We talked about being a purpose-driven company. That applies two ways, of course. First of all, just the purpose of being the most trusted and insightful advisor and partner to small businesses and accountants and bookkeepers. Also, of course, our social purpose. We believe strongly in being a company that makes the communities in which it operates better.
So just consistently living that purpose, making it felt every day in the business. Lastly, we talk about focus. You're going to hear a lot about focus today, purposefully allocating our capital and resources. That, of course, means what you do do, and it, of course, means what you're not going to do as much of. It means there are things, in fact, that have disproportionate value. If you want to be in the business of value creation for shareholders and customers and employees, you really need to be purposeful and be willing to make hard decisions. We think that we are well placed to do that. Okay, we talked about this. Our purpose and vision are enduring, so I don't need to go much further in it.
But if we keep making life better for small businesses, advisors, and communities, we are meeting our vision and, of course, building a platform that every day is more trusted and more useful. Now, this is our aspiration statement. It is not guidance. It's not guidance. It's not time-bound, but it is credible, purposeful, thought of, and we will pursue it as aggressively as we can. That's my commitment to you. We seek to be a world-class SaaS business. We think we can double the revenues of this business and achieve Rule of 40 or greater. It's not an or. It's an and. Lots of people ask me, "Is it an or?" It's an and. It's an and. We think there is an absolute pursuit of being a larger-scale global player when it comes to revenues and, of course, doing that with increasing efficiency.
And as we grow, which we've said before, we think great growth looks like both the number of customers you serve and how deeply you serve them. If you want really profitable growth and really strong growth, deepen your engagement as you're growing your customer base. And so that is the evolution of our business. And we think it's very complementary to the focus of the past and where we're headed. Okay, so I'm going to go into the two key choice sets in our 2025 to 2027 strategy, which are obviously where to play choices and how to win. And where to play, as I've said, we think is actually quite important. It would be very easy to say that all we need to do is just out-execute the next guy. I'm sorry. That's actually not what I believe.
I believe you have to be choiceful in where you play. You have to think about the tailwinds that are headed your way, and you have to think proactively about the moves you can make to get yourself ready when the tailwinds happen and when they're not, keep operating with greater excellence and efficiency as a team. So we think about these as two distinct choice sets, and we're going to take you through both. Where to play. All right, so I just want to anchor on who we serve and who we are choosing to serve primarily and secondarily. So you will note that sole traders all the way to medium-sized businesses and some large businesses use Xero. But who do we design for? Our choice is to design for companies from 1- 20 employees.
Okay, that is what we call the micro and small segment, the segment on which we will anchor for the next three years. Now, does that mean we will never pursue other segments? Of course not. Does it mean other segments don't use our products? A lot of them do. But as we seek to build a company that's purposeful and not play in 6 00 different choice sets when you come to jobs, markets, and segments and, by the way, if you multiply all the boxes and choices we have as a company, it's more than 600, you have to anchor somewhere. So we want to anchor on the customer first. And for us, it's really the micro and small customer. Now, this already represents 50% of the TAM available in SB, so it's an obvious choice. It also is where we see the deepest engagement with our platform.
They, on average, do 6-8 jobs with Xero already. Remember, a job can be as small as data ingestion or setting an invoice, or it can be making a payment. These are all example jobs. But as you can see from the data, we believe that this is the area where, if we design for this, we both have an opportunity to have growth and engagement. We also have the opportunity to continue to have other segments benefit and use Xero. One of the other things you see here is, from a revenue perspective, think companies that are approaching NZD 750 million-NZD1 million in revenue and up to about NZD 5 million. That's where you see enough, I would say, depth of engagement and opportunity for us to really serve them in multiple ways.
That's why some sole traders actually love Xero, too, because we actually, if you are approaching some level of turnover, we really are there to do those four jobs for you. And as your business grows revenue-wise, even if it doesn't grow employee-wise, you'll start to hit some of the same conditions that these employing segments look like. Okay, and on the AB side, again, important to ground in who we think we want to serve and are focusing on serving over the next three years. And that's really small to mid-sized practices. Here, the right benchmark is practices with hundreds to thousands, low thousands, of SBs in their book. Now, again, when you build for these, will you pick up large enterprise practices? Of course, we have large enterprise practices. Some of the need sets between mid-size and large are the same.
What is very true is, once again, the TAM is here. Even as industry consolidation happens, which is happening in the AB industry, when you look at that mid-sized practice, you see a lot of yield. Of course, historically, sole proprietors and small practices have led Xero. This segment in particular, our primary segment, is also very adoptive of technology, digital technology, and looking to keep gain efficiency through the use of technology. All right, so now let's come to the third choice set, which is not or the second choice set, which is not segments, but what jobs? Well, there's a lot of TAM to be had, obviously, serving SBs, something in the order of NZD 140 billion. But all jobs are not created equally. There are three super jobs: core accounting, payroll, and payments that drive NZD 100 billion of the NZD 140 billion in TAM.
So you can try and treat every job as equal, but in fact, SBs use and are willing to pay for these jobs in a way that creates large ARPU opportunities. So how much ARPU? Well, if you were to look at it from an ARPU perspective, core accounting is about half, and payroll and payments is about the other half of the ARPU available on a per SB basis in our primary segments. In the U.S., it's even more, payroll and payments, than core accounting. So here, it's about 50/50 in AU and the U.K. In the U.S., you'll find that it tips over in favor of payroll and payments being a slightly larger share. You can also see the multiplier effect as you go from self-employed to micro, micro to small in terms of the ARPU available.
So this probably sets up nicely where our focus is going to be. Lastly, I want to come to, before I put it all together for you, how we think about all of these things intersecting. I want to talk about markets. Of course, people ask us all the time about whether or not we're going to expand into new markets. You can probably guess where I'm headed. We did an outside-in review, and we did an inside-out review of all the market choices, markets we're in, markets we're not in, available TAM, trends. And we believe it's disproportionately important to choose the markets you serve disproportionately. How many of you know I spent a good portion of my career running APAC and LATAM at Google? Maybe some of you, maybe some not. Thank you, Andre. I know you do.
So I joined that business when it was $60 million in revenue, and when I finished, it was about $2 billion. But the most important point was I had 180 markets. So I had a schooling in portfolio management. And when I started, Google had one product, which was Search, and when I left, we had Display, we had YouTube, we had a lot of other products. So it became a multi-GEO, multi-product, multi-segment, even because we had direct sales teams, and then we had onboard self-serve for smaller. So we had two segments, multiple jobs, multiple GEOs by the time I was done. But at the end of the day, five markets drove my business. So I had this big footprint. I had marketeering, everything you could imagine: China, Australia, India, Japan, Brazil. Moved the whole thing. So we do need to distinguish between our markets.
And what we think and continue to believe is that and I'm not promising you this all within three years, but AU, U.K., and the U.S. are bets that they can be large enough markets to support what I would anecdotally say, "Can this be a billion-dollar market in a reasonable time frame?" And so these three markets, not surprisingly, of course, have that opportunity for us. Now, some will say, "Well, does Canada have the opportunity in New Zealand and South Africa?" And some might over the longer term. But again, we need to be choiceful. We have a lot of jobs we can choose to do. We have a lot of segments we can choose to play, and we have a lot of markets we can choose to serve. What will not work is treating them all like they're equal. The yield is not equal.
So for us, our double down is on our primary markets. We love this portfolio. I love this portfolio. We want this portfolio to keep growing. But when it comes to allocating our CAC dollars and our product resources, we will think about the order and priority of markets. So a little bit about each of these markets. I will say today, most of what you're going to hear today is about our horizontal strategy. So let me preface it. We don't have a U.K. segment session today. I just want to touch on each of these markets, and then you'll hear about the markets in the context of our product strategy and other things. AU is obvious. So our commentary on the AU, it is a large cloud-penetrated market, but it continues to have the opportunity to bring new subscribers directly into cloud accounting, which is great.
We continue to have jobs, even within the super jobs, believe it or not, that in Australia, we could be doing a better job on and monetize further. Payments, as an example, are certainly not fully penetrated. Of course, we think that we have the opportunity in a market like Australia to potentially do more jobs as we have product-market fit in the super jobs. The U.K., of course, continues to be a high-growth market for cloud. It is a market that is still, from a penetration perspective, not at 50% yet. Whether or not they are regulatory tailwinds or not, we are excited about this market. It is an area of absolute investment for us, and we are going to keep going at the U.K. because we believe that we have something really valuable to offer and that people love our product. Then lastly, the U.S..
I talked about the U.S. at the half. There's no new reveal on the U.S. that we have an announcement today. It is as we said it would be, which is this is one of the largest SB markets in the world. You don't need to be number one to build a significant business. I always say to people, when I launched Google in China, we were third in the market. We were never going to beat Baidu. But we found our segments. We focused our execution, and it was my second biggest market after Australia on an absolute dollar basis. Cloud penetration in the U.S. still has a ways to go. There are opportunities for us to be there in a differentiated way. We believe we have an offering that ABs, particularly the CAS segment, loves.
We believe in an offering that is suited to SBs with complex needs to be done, complex multiple jobs to be done. Lastly, we believe our ecosystem is open and a huge differentiator for SBs who want choice. We believe in our position in the U.S., and we believe we need to continue to improve on execution. Yes, we have been behind on product-market fit. Part of focus and clarity is really to know where you want to deliver complete product-market fit and where are you willing to say, "Hey, this is not something we're going to do right now." Okay, let's put it all together. We've isolated the segments we're going to focus on, and within those segments, this is the way we are approaching the next three years.
First and foremost, you're going to hear a lot about it: win the 3x3. This is not winning against our competitors. This is winning for Xero and our customers. That means the three largest jobs, the super jobs, core accounting, payroll, and payments in our three largest markets, AU, U.K., and the U.S., whether it's build, buy, or partner, create a robust experience in those three jobs. Three jobs, three markets. Those are super jobs, so there's a lot of work within those jobs. We want to really create a great experience for customers for. Number two, leverage some of what we've been doing sporadically, but we think we can do a much better job of what we call the embed. If there are other adjacent jobs, think project management. Think, of course, time and attendance here in Australia that we offer through Planday.
When there are, think expense management, think inventory management. In our core markets, we will move to adjacent jobs, and if we're not going to build it, create a seamless experience by embedding key strategic partners so that you can, on the Xero platform, embrace these other jobs, and we can take you on a seamless journey. We call that the embed. Then lastly, of course, our ecosystem and APIs are huge differentiators in leveraging and extending Xero out in the world where we don't have the product resources to build and, quite frankly, want to take advantage of everybody else's innovation. One example you know here is clearly our app store. You've seen our app store, and it's continued to be a really strong extender of Xero. It's what allows a lot of medium and even large businesses to use Xero.
It's also been really helpful for some of our other markets. So South Africa is a market that we're really proud of, growing really well for us. I was just in Cape Town for the first time in December. And it's a market where a lot of the development has been done by the South Africa team using our APIs to extend into compliance products, to connect with the government. And without using internal resources, that team has been the internal user of our APIs just to get their own product needs met. And it's been a phenomenal story for Xero. So we believe the ecosystem and API are really useful tools to still execute a quite focused portfolio strategy and use different levers to grow these different areas, but not trying to all compete for the same resources. Make sense?
All right, so let's move to the how to win. Well, the how to win has four key pillars and then 12 key tactics. So you've heard a little bit about win the 3x3. This is a strategy of execution of the right jobs in the right markets disproportionately. It has some other things in it, which I'll talk about in a moment. Number two, as we talk about levers for growth, some aspects of our GTM playbook are amazing, and we're going to continue to run those. Some things are necessarily going to be new.
If we say we're going to grow subscribers and deepen AR PU or deepen use of our platform, surely that implicates how do we think about deeper penetration of our salespeople talking to their AB partners, whether it's penetrating their back book, whether it's converting customers to Xero from a non-Xero platform, or whether it's helping our ABs figure out how to upsell and cross-sell jobs like invoicing or payroll. So our playbook needs some new additions, and you're going to hear from Ashley and Mike about that. Sometimes people look at this and they're like, "Is it a meat and potato strategy?" That's a U.S. term. I'm like, "I'm vegetarian, but I'm still using it." It's not a meat and potato strategy. It's a focused strategy. So even our bets for the future, we are really excited about innovating. You're going to see some really neat stuff today.
I'm excited about it. I hope you will be, too. But it's focused innovation. It's about what are the things we want to focus on and place our bets on that are what we call win the future. They may or may not yield revenue today, but they are layering the groundwork for tomorrow, and they are layering the markets for tomorrow. So win the future is fairly focused. And then lastly, you heard a little bit at the half about modernization, but it's not just modernization. To operate at the next level of scale, we need some new systems. Now, these can be people systems. They can be our P&T operating model. How do we think about deploying our resources against modernization and customer value? It's our billing system.
How do we make that more agile to affect the kind of strategy we want to affect in things like pricing and packaging? We have to invest in systems at the next level, and we think that helps unleash Xero and Xeros to do what we often talk about as the best work of their lives. Okay, so I talked about the 12 tactics. Let's just go through them. We've talked a lot about the three most critical jobs in the three largest markets. I've also talked about the embed being one part of reimagining the SB journey.
How do we create a magical end-to-end experience from the minute you onboard to the job you might discover, whether it's provided by Xero or whether it's provided by a partner, to going to the ecosystem, to having the data from the ecosystem actually integrate with Xero data to give you more value? What does that look like? We're excited to go start building it. Even for ABs, we have the opportunity to reimagine our product. So ABs love Xero's tools, whether it's practice management, whether it's our core bookkeeping that's a shared view, Xero Green and Xero Blue, or shared views of our bookkeeping product. But even there, what jobs are we going to serve and what jobs are we going to embed?
We can choose where to play and where not to play, but leverage strategic partnerships so that we give ABs a really great companion solution to the SBs they serve. Really, we think a lot about focusing on the AB jobs where the AB and SB are working together. To be clear, as you can tell, this is not an enterprise technology firm. We're playing for the hearts and minds of SBs and their advisors. But of course, we do necessarily build technology for ABs in order to better do their job and serve our end client, our joint end client, the small business. In the GTM playbook, today you're going to hear about product pricing and packaging.
I hope that this gives you some view of how we think about the component parts and the plans and products that people buy through our different channels and helps you think about those component parts. Of course, we think there is a lot of sophistication that most SaaS companies have as they approach a certain scale, and we still need to build in terms of the science of pricing and packaging. We think it's very critical that we move from just onboarding subs to onboarding the right sub to the right product on the right channel. So that implies that all subs are not equal. It implies that you want to be smarter and more efficient as you increase the scale of your business on how you onboard and acquire, through which channel, and for which product.
And lastly, of course, when we talk about ARPU expansion, we're also talking about deepening our engagement and the utilization of our products and the monetization of our products with given existing SBs. In Win the Future, you're going to hear today about AI. You're also going to hear a little bit about mobile. The reimagination of the SB journey can happen on both desktop and mobile, of course. And Diya will argue that increasingly with AI, even more so on mobile. We talked about the ecosystem and APIs as being kind of pretty important to evolve because we think there's more potential to be had there. And of course, we're going to put some of our resources there. And lastly, that portfolio of markets, we're going to keep growing them. The key word here is efficient. We think they are a pretty efficient collection of markets.
And so our goal is to keep growing them and to think about how much CAC dollars we put there. How do we leverage the ecosystem and APIs? And we feel they're a great part of our portfolio. And on unleashing Xeros to win, I think I've touched on all of these, but let me touch on them once more. Evolving our employee value proposition to be both purpose and performance-driven, key strategy for us. Number two, evolving the P&T op model. That's not just modernization. That's things like location strategy. How do we tool? How do we transform the capabilities of our current team? Diya will talk a bit about that. And then lastly, we talked about core enterprise systems, not that exciting, but quite essential as we try and build for efficient growth. You're going to hear next from Diya.
Diya is going to talk about the 3x3. She's going to talk about the future, and she's going to talk about the op model. Angad is going to talk about product pricing and packaging. Of course, we don't let it sit in the sales team. It sits in our strategy and biz ops team, a nice independent place for it to stay. So he's going to talk to you about that. Ashley and Mike are going to give you their perspectives on both our direct and partner channel and also the tools available to us between salespeople and obviously dollars and quantitative marketing. Then Kirsty's going to finish up today, and she's going to talk to you about capital allocation and our views of M&A. So I want to finish where I started. Our purpose is pretty enduring. Our vision, clear. Our aspirations are purposeful. They're credible.
We'll pursue them as aggressively as we can. No time frame, no guidance. I'll say it again. But it's very obvious to us that the opportunity exists for Xero to be a world-class, truly world-class SaaS company and one that is much larger in size and also efficient. The priorities for the next three years, we think, support these longer-term ambitions, of course, the 3x3, a winning GTM playbook, focused bets to win the future, and unleashing Xeros to win. Accompanying all of that, over the last year we've taken and over the last six months, we've really rolled out a whole new set of values done in concert with our employees. This is the most beautiful thing about it.
In May of last year, once we were kind of through the restructure, we said to our leadership team, "Hey, do you think our values need a refresh?" Nobody likes to refresh their values every year. Then you're sort of like, "What?" But are they serving us? Are they not serving us? And then we did the same thing with employees. And what came back resoundingly was like, "We love our values, but there are a couple of places we need to evolve." And that came together with the rest of this strategy. And so we think the way we're going to make this all happen is by making beautiful experiences for customers, creating an agile and kind of velocity-oriented company that wants to have velocity and make it happen where it matters, not velocity for velocity's sake.
We believe the human part of our culture, how we interact with each other and how we interact with the world, how we interact with our customers, how we interact with ABs, is a really special part of Xero. And we believe that kind of we come to the world every day together, open, and really, really wanting to think about Xero as one team and one company across all the hemispheres and geographies in which we operate. So of course, we call this aspiration winning on purpose, and we hope you're as excited about it as we are. Thank you. I'm going to turn over to Diya.
Good morning, everyone. It's so great to see so many of you, our investors, out here today and those tuning in from around the globe. As Sukhinder said, my name is Diya Jolly, and I am Xero's Chief Product Officer.
Today, I'm actually going to talk to you about how we 3x3, how we are investing in the future with AI, and how we are going to enhance our product and technology operating model so that we can achieve our future growth ambitions. But before I do that, since it's the first time I'm meeting so many of you, I thought I'll give you a little bit of background on who I am. So I've spent 20 years in product development. Right before Xero, I was the Chief Product Officer at Okta, and before that, I was Vice President of Product Management for YouTube's monetization efforts at Google as well as Google Assistant.
In all these roles, my responsibility was actually scaling our product as well as our product development process so that we could actually grow from a few hundred million dollars in revenue to a few billion. Earlier in my career, I was also at McKinsey and Microsoft. Now, I joined Xero because I was extremely excited by the opportunity ahead of us. How many times do you actually find a company that has such a strong foundation, a well-loved product, a well-loved brand, a strong business, and yet there is so much potential for growth ahead of us? Having been at Xero for almost a year, I am so happy to say that my initial observations are actually correct. Now, if you look at our core product, it's exceptionally well-built. It withstood the test of time for over 10+ years. Accounting rules have changed.
Tax laws have changed. Compliance regulations have changed. We are able to meet those needs globally everywhere. As Sukhinder just discussed, we don't just do core accounting. We actually serve multiple jobs to be done for our customers. We do this globally. If you look around the globe, how many fintech and accounting companies can you say that have actually scaled globally to multiple markets? It's super impressive. Now, one of the things I personally love about Xero is that we're an open platform. What that means is that we have a really robust ecosystem. That allows our small businesses and our accountants and bookkeepers to be able to choose the tech stack they want to be able to do their job when they're using Xero. If you talk to them, you consistently hear from them that this is a key differentiator for us.
Now, the other thing I think you will hear as a key theme today is just how passionate the employees in this company are. I've honestly, personally, never met people this passionate about changing the lives of small businesses and accountants and bookkeepers. Everyone here gets up every day to do that. And that just really infuses you with a sense of mission as a company, as an organization that really propels you to do the hard and difficult things. Now, if everything was working great and we had no opportunity ahead of it, it would be absolutely no fun. So where are the opportunities ahead? So for one, I think, look, I think we can actually double down and focus on building for our key segments and key markets a lot more. This doesn't mean that other segments and markets don't use us.
When you're building and designing product, you make hundreds of decisions during design and development. If you make those decisions consistently, at the end of that, what you're going to get is a world-class product for your target markets and segments. I think we can do that a lot more. I also think we can create more seamless and delightful end-to-end experiences. This is another theme you will hear throughout and throughout my presentation for our end-to-end customers. This is normal for any company that gets big. Your product gets bigger, your surface area gets bigger, your tech stack gets bigger, your product teams get bigger. How do you ensure that all of this ties together in a better way for your end-to-end customers? This allows you to deepen adoption. It allows you to cross-sell. It allows you to upsell.
One more theme you'll hear throughout is experimentation in data and analytics. We have a wealth of data with our customers. We know what they like and don't like, both qualitatively and quantitatively. How do we double down on experimentation to be able to prove and disprove our hypothesis of what they like and what works for them and what we should build? Again, this is a great tool. All leading companies use it for deepening adoption, for cross-sell, for upsell, et cetera. Another thing that Sukhinder actually talked about was modernizing, right? Today, you launch a product, and the tech is old. That's how fast tech moves now. It just does. And so if you're in a successful tech company, you know that you have to modernize continuously while innovating continuously. And I've been through this.
I've done this at Okta, and I've done this at YouTube. I know how impactful it can be. That's another thing I think we can do more of and go deeper in. Then the final opportunity for us is augmenting our leadership team with strong domain experts. We have a stellar team, but there are areas like AI, areas like experimentation, areas like being able to modernize certain parts of our stack where we can actually infuse a bunch of talent. We have the ability, given our brand, our reputation, the customers we serve, to do so globally. We're going to continue to do that. Now, strong foundation, lots of opportunity. You saw the company strategy. What does this mean for what we are going to do from a product perspective?
How do we bring this to life in the next 5-7 years? Our vision as a company is to be the most insightful and trusted small business platform. We think there are four key elements that we need to double down on to make that happen. One is, obviously, we want to be the most powerful accounting platform for our customers. That's a given. We want to be the best accounting platform that our small businesses use, that their advisors, accountants, and bookkeepers use. As a small business, you want to be able to run your business and grow your business without having to worry about accounting and tax jargon. We want to make that possible.
The second area that we want to double down on is being able to use automation and intelligence to be able to create magical end-to-end experiences for our customers. What this means is we use automation to complete the tedious, time-consuming, repetitive tasks for our customers. We use intelligence to actually be able to deliver personalized insights to them and their advisors so that they can actually make better business decisions. All of this is possible, and we want to be able to get there. We have the customers. We have the data. We have the technology to do this. Now, one of the things that I think is underappreciated is just how important Xero is to our customers. We hold their financial data. We're not just an accounting company. We are their operating system.
What this allows us to do is, given the robust ecosystem we have, it allows us actually to be able to take that ecosystem and create embedded experiences, whether they're deeply embedded, lightly embedded, and expose those experiences at the right time for our customers and then be able to use data and intelligence across apps to be able to make them make better decisions. I'll give you an example. A customer that uses Xero and uses HubSpot, we should be able to use your CRM data to be able to tell you how important and valuable this customer is. If they're overdue on a payment, should you charge them a late fee, or should you not charge them the late fee? Where do you have better LTV? What's going to serve you more? It's experiences like this that we want to build in the future.
And then finally, this one's close to my heart, and it's one of the reasons I joined Xero, is that accounting hasn't been reimagined for a long time. I'd argue that the last time it was reimagined was when Xero reimagined it. But now, with AI, all the innovations that happened with AI, I think there's an opportunity. If you look at accounting, if you look at all other apps, sorry, they've all gone mobile. Accounting, because of the amount of data entry and reading required, hasn't really gone mobile. But if you look at the innovations in generative AI, I believe we finally have the ability to take Xero to where our customers are, whether that's mobile or the apps and surfaces they're on. And I'll talk a lot more about this. OK, so as you can see, our product vision tightly aligns with and supports our company strategy.
So instead of just talking about this, let me actually talk to you a little bit more about and give you a few examples of how we're making this vision and the strategy come to life. OK, so win the 3x3. I think if you're going to remember anything after you leave today, it's the words "win the 3x3." As Sukhinder said, this means we will focus on the three most important jobs for our customers: core accounting, payments, and payroll in Australia, the U.K., and the U.S. And we're going to build stuff ourselves, and we're going to deeply embed capabilities with our ecosystem partnerships to bring these experiences to life for our customers. So let's talk a little bit about how we're doing that. Now, let's first talk about core accounting.
OK, core accounting provides you functionality where you can actually manage your books, you can understand the health of your business through reporting, and you can file your taxes. As you all know, Xero actually has an extremely strong bookkeeping and tax product, and we're globally known for it. But the problem is that these accounting rules, industry standards, regulations all keep changing all the time across in every country. So we have to keep continuously evolving and deepening our offering. Now, in the last year, we made a significant amount of progress in deepening a number of our capabilities. I can't walk you through all of that, but I'll walk you through a couple of my favorite examples.
So the first most important job that you do in core accounting is you have to reconcile your financial data or reconcile your cash position with your transactions in your accounting system. OK, this is called bank reconciliation. I'm sure you guys know about it. To be able to perform bank reconciliation, you need accurate line-by-line transaction data from your bank into your core accounting platform. You can take your bank statement PDF, sit there, enter it manually, which is exceptionally tedious. Or you can do what Xero has done. We've actually made this capability electronic. We connect electronically to banks, and we upload the capability. But that doesn't explain how difficult this is. Being able to connect electronically to banks is actually extremely localized. In Australia and New Zealand, there are a few banks. We've connected to these banks electronically over time. In the U.K., there's Open Banking.
So what that means is that we can use that protocol to connect to almost all the banks in the U.K. But when it comes to the U.S., it's exceptionally challenging. There are 4,000 financial institutions. Every single one of them has their own proprietary protocol to connect to and extract data from. And believe it or not, many banks don't even have the ability to allow you to electronically connect. So we've been focused over the last year on trying to improve the coverage and quality of bank feeds in the U.S. market. And to do so, we've done a couple of things. To improve coverage, we've deepened our partnership with Yodlee. And we've also partnered with Flinks. Now, these are aggregators that have spent years 10+ years, decades, building connections into banks.
So what they do is they either write into their proprietary protocols, or they use credential sharing. What partnering with them allows us to do is it allows us to get an extremely cost-effective way to get coverage of all the long-tail banks. Now, we've also been working on upgrading the quality. To do that, we've established direct feeds. Whether we establish these direct feeds ourselves or we use the direct feeds Yodlee and Flinks does Flinks have established. So I'm extremely proud of the team to say we went from 20 direct feeds last year to 600 direct feeds in the U.S. this year. That is a tremendous achievement by the team. OK, so what about the banks that just cannot provide you an electronic feed? We don't want to leave our customers hanging there.
So what we're doing is we've built capability whereby, in our Hubdoc product, you can email your bank PDF, and we will automatically, using OCR technology, extract the transactions. It takes 35 seconds. That's it, 35 seconds. This is in beta in the U.S. and Canada with a number of banks. And it'll be rolled out to the rest of the banks in the U.S. later on this year. OK, so that's on the bank reconciliation bank feed side. I'll give you another example in core accounting: tax. Everybody knows tax is very localized. And we've been hard at work deepening our tax capabilities across all our key markets. The U.K. has had a bunch of tax changes this year. And so we made tax law changes. And so we made a bunch of improvements to Xero Tax. We've improved company tax or corporate tax. We've improved personal tax.
We've improved VAT. Just done a bunch of work there. To give you an example of the kinds of things we've done, we've made it much easier for accountants and bookkeepers to be able to file personal tax on behalf of a sole trader that has earned foreign income or income from trusted estates. It's now super seamless in the way they can file it. We've also introduced a tax manager. This is a product that was extremely well received by our accountants and bookkeepers in the U.K. And what it allows accountants and bookkeepers to do is it allows them to see all the taxes that are owed by a client: company tax, personal tax, VAT, et cetera, across all their clients in one page in one place. And they can essentially know if their clients are behind on their obligations and can help correct them.
So, super powerful tool. You can see the status at a glance, save a ton of time, be able to manage all your clients. In the same vein, in the U.S., we've released automatic sales tax capabilities. What this means is that we've actually partnered deeply with Avalara. The U.S. has 10,000 different jurisdictions, each with their own sales tax laws. They're constantly changing. We used our partnership with Avalara to deeply embed an advanced sales tax management workflow within Xero. Now our customers don't have to leave Xero or manually calculate their taxes, report on their taxes, file their sales taxes. It's seamless. We've also introduced a new W-9 tool that provides a centralized way for our customers to be able to collect and store W-9 forms. Think about employers and employees.
This allows them to be able to be compliant with IRS obligations without a bunch of manual work. Now, these are just a couple of different examples of what we've done in our core accounting space. What I am really excited by is we had set ourselves a goal to tremendously increase our launch velocity across products so that we could add more value to our customers at the beginning of this year. As you can see, we've delivered a significant number of enhancements. These are just a tiny fraction of what we've done. Looking ahead, we want to be able to continue the strong momentum. There are three areas we're going to focus on. We're going to focus on deepening and strengthening our U.K. tax capabilities. There's more we can do there.
We're going to obviously continue to support localizing the bookkeeping and compliance needs for our U.S. customers. And then we're going to also start building bulk tools and insights for both our small businesses and their accountants and bookkeepers. OK, so that hopefully gives you a great idea of what we are doing from a core accounting perspective. Now, the next part of the 3x3 is payroll. OK, as Sukhinder pointed out, payroll is an important ARPU lever for us. If you look at payroll, Xero has its own payroll product in Australia, New Zealand, and the U.K.. And in the U.S., we partner with Gusto. Xero Payroll is used by both our small businesses as well as our accountants and bookkeepers on behalf of the small businesses. And in the last year, we've launched many global and local enhancements to round out our payroll product.
So let me just walk you through a couple of these right now. The first thing we've done is we made it much easier for our customers to set up and onboard to payroll. When you think about a payroll product, it actually requires a ton of manual information to be uploaded about the employer, about the employee, et cetera, to set it up. So any payroll is known to be harder and more time-consuming to set up. And users tend to make a bunch of errors. What we've done is, through experimentation, through feature enhancements, we've been able to identify the areas that are hardest for our customers. And we've made it much easier for them to be able to onboard and reduce the number of errors. The other thing we've done is we've enhanced payroll in Australia.
We found that our customers end up making a bunch of errors when they're trying to apply leave management to contractors and casuals. This is because the leave compliance regulations for contractors and casuals are actually pretty complicated. So we've put in automation to be able to prevent this from happening and make it easier for them. We've also used our algorithms to be able to tighten our risk and fraud controls for superannuation for our customers so that they're better protected. On the U.K. payroll side, we have actually made it easier for our new customer to Xero to transition from another payroll provider. They can download their information from another payroll provider, upload it to Xero, and they get set up automatically. We've increased support for salaried employees with non-traditional work hours. We've also built tools to better help our U.K. employers manage employee pensions.
Again, this is just like a smattering of things we've done in payroll. As you can see, once again, we've significantly increased our momentum in adding customer value on the payroll side. And in the future, we definitely want to continue this momentum. We're going to focus on three key areas. In addition to making it easier for employers to set up payroll, we want to make it easier for their employees to onboard to payroll so that they can check their status and get paid. We also want to be able to apply more and more automation and intelligence to things like Payrun so that we can reduce errors and make sure that our small businesses are able to do the tasks they need. And then we will focus on Xero Payroll in the U.K. to deepen it for more complex needs.
OK, the final part 3x3 is payments. Payments are incredibly important to our customers. It's also an important RPO lever for us. It's incredibly important to our customers because our research shows that one-third of small business owners actually cannot pay themselves because they have cash flow problems. You can imagine the importance of this for our customers. Now, our payment solution consists of the ability for a small business owner to be able to invoice their customer for the goods and services they've provided. It also includes the ability for them to be able to connect payments digitally on that invoice. It includes the ability for them to upload their bills to Xero and be able to pay their suppliers based on those bills.
Now, over the last year, we've made a number of improvements to our payment products to be able to strengthen the foundations of our payments offering. On the collecting payments side, we use a number of payment service providers, so PayPal, GoCardless, Stripe, et cetera, that we deeply embed within our workflows to help our customers get an end-to-end seamless experience. Our research has shown that our customers that use our collecting payments product actually get paid up to twice as fast, which is pretty incredible. Now, over the last year, we've run multiple experiments to be able to make it much more intuitive and frictionless to set up Xero Payments for our small businesses. For example, an experiment that we ran that was super successful was, let's say you have Xero and you have a Stripe account.
Now, instead of, and let's say you want to use the two together, instead of making you reset up a Stripe account, go through KYC again, you just click a button, you connect us to your Stripe account, and we connect everything together. And you're done. Obviously, our customers loved this. Qualitatively and quantitatively, it was clear to see that. Another example of an experiment we ran that was super successful is in setting up bank accounts. When you set up a payment service provider, you have to say, "Look, this is the bank account I want the payments deposited in." Now, entering your bank account, entering your password, all of that is so tedious. You know what? You've already set up your bank accounts at Xero. So what we do is we actually autosuggest from your different bank accounts which ones you might want to set up for collecting payments.
You click OK. You're done. Your bank account is set up. As I mentioned, we ran many, many of these experiments. I'm only talking to you about a couple. The feedback that we've received from small businesses has been tremendous. We can see it in the quantitative experimental data. We can see it in the qualitative data. In addition to removing friction for small businesses, we're also removing friction for their customers to pay online. If you get a digital invoice, how do we make it easy for you to pay if that invoice was from a Xero customer? Now, if you look at this invoice here, you can see how easy it is to know who you're paying, what you're paying for, how much you're paying, and then just click the pay button. You're done, right?
So we have evolved this over the last year, experimenting with different elements, experimenting with different formats to see which formats work the best for our customers' customers. Now, that's on the collecting payments side. The other side of the coin to collecting payments is, how do our small businesses make payments to their suppliers? So it's making payments. Making payments is also extremely important for our customers when it comes to their cash flow. We already allow customers to electronically upload their bills using Hubdoc so they don't have to do this manually. Now, over the last year, we've been hard at work providing the capabilities for our small businesses to be able to pay their suppliers without leaving Xero. Late last year, we launched our U.K. Bill Pay product.
And with that, we became the first small cloud accounting platform in the U.K. to provide the ability to pay your suppliers without having to leave your accounting system, right from within your accounting system. This means that Xero customers that are now using a U.K. bank that supports online banking or Open Banking can now conduct their entire accounts payable process within Xero. The feedback from customers has been tremendous. OK, you thought I was going to stop now, huh? OK, so one more. Then I will. OK, so we're also pushing the boundaries on innovating with our payments technologies. Now, e-invoicing is one such technology. So e-invoicing allows a business to digitally send an invoice from their accounting system into their customer's accounting system, where it registers as an e-bill.
Now, think about the time small businesses spend chasing lost payments, chasing lost invoices. This removes all of that. You have a digital trail from the time the invoice is raised to the time the invoice is paid. So we believe, while it's an emerging technology, that e-invoicing has the potential to become a global standard because of these benefits. We've invested in e-invoicing. We acquired Tickstar in 2021. We registered on the international Peppol network. We are today the largest provider of e-invoicing in Australia, New Zealand, and Singapore. In November, we also launched e-invoicing in the U.K. and became the first small business cloud accounting platform to be able to do this. OK, the teams have done a fantastic job of basically strengthening our foundations for our payments product. We plan to continue this rapid pace of delivery for our customers on payments.
The areas we're going to focus on is we're going to continue to reduce friction more and more for small businesses. I personally believe that you can never do enough in these areas. We're going to provide more and more ways to pay for their customers so that they have choice and flexibility and that it's easy for them to pay. Then, given the amazing amount of feedback we've received on U.K. Bill Pay, we are going to actually enhance and deepen our U.K. Bill Pay product. Then finally, I'm extremely excited to announce today that we have just signed a partnership with bill.com to build a U.S. bill payment solution.
This partnership is a great example of how we will not only build product ourselves, but we will leverage our strong ecosystem and partnerships to be able to deeply embed capabilities within our products to win the 3x3. Now, BILL.com is a leading financial institution in the U.S. They actually focus on small and medium-sized businesses. And they help them with accounts payable, accounts receivable, spend, and expense management. They have over 5.8 million network members in their network. And those members either get paid or pay using BILL.com. So what does that mean for our customers? What that means is that if one of our small businesses in the U.S. actually uses a vendor that's on the BILL.com network, all they have to do is click pay. And the supplier is paid.
This new partnership is extremely exciting because, just like the U.K. Bill Pay product, you can now perform your entire accounts payable process within Xero, all of it. Very exciting. Now, instead of constantly talking about how exciting it is, let me actually jump into a demo and show you how seamless this experience is. OK, so for the purposes of this demo, let's say I am a business owner. I own a business called The Corner Cafe. I've already connected bill into Xero. Now, I have three urgent bills to pay. I want to pay them using my bank account. The first thing I have to do is actually upload these bills to Xero. I can do them manually. Again, very tedious. I don't do tedious stuff. So I'm going to just forward this to Xero.
I'm going to forward my PDFs over to Xero. OK, so let's go to my email. We're going to automatically send bills to Xero from my email. So let's imagine that I jump into my email and forward the bill to Xero. I can now see the bill I forwarded from my email is in my drafts tab. If I click on the bill, I can see the attached bill. Now, I'm going to click approve. In the awaiting payments tab, I can see all of Corner Cafe's outstanding bills. Because I've already set up BILL.com in Xero, I can see which of my vendors are in the Bill network. When I select a vendor that is in the BILL.com network, all their details are automatically connected to my bill.
This includes information about how the vendor wants to receive their funds, regardless of whether it's a check, ACH transfer, or card payment. I'm going to select the three I need to pay today and click make payment. I have two options to pay these bills. I can pay by manual batch payment, where I can download a CSV file and upload to my bank account. Or I can select pay by BILL.com. I'm going to go ahead and select pay by BILL.com. Here, I can see a summary line for each of the bills I've selected. It shows an estimated arrival date to indicate when each vendor will be paid based on their preferred payment method and the total payment amount which will be debited from my Bank of America bank account.
If I choose not to pay a bill, I can simply click on the trashcan icon to delete it from being paid now. If multiple bills were owed to the same vendor, I can toggle the group by payee, which will consolidate all bills to the one vendor into a single payment. Here, I have the option to change my payment method for these bills from ACH transfer to pay by card. But I'm going to continue and pay with my bank account and click pay. I just paid three bills to three different vendors in a couple of minutes and without leaving Xero. What has also really been game-changing for me in using Xero's Bill Pay solution with BILL.com is that I was able to use my preferred payment method and ACH transfer.
And each vendor received the funds in their preferred way, whether it was ACH, credit card, or other. On this payment confirmation page, I can see my payments are on the way to each of my three vendors. BILL will take care of paying my vendors and inform them that the payment has been made. And I'll get notifications in Xero about the status of my payment. I already have my electronic bank feed set up. So I can also reconcile the bill payments I've just made. I navigate to accounting, click on bank accounts, and click on reconcile three items. Product delivery and how we're going to use that to win the 3x3. Now, the thing I want to talk to you about is, how are we going to win the future? We're laying a few different bets. And Sukhinder talked about this.
But the one I think we should talk about today is artificial intelligence. Now, Xero has been built harnessing the power of technological shifts and using that to make lives easier for small businesses and accountants and bookkeepers. We did it with cloud. We did it with automation. We believe that the new advancements in AI, even though they're early on, have the capability to do the same for our small businesses. So we're investing heavily here. Now, Xero is not a stranger to AI. We've been using AI in our products for a very long time. We use it in Hubdoc that I talked about. We use it in bank reconciliation. We use it in cash flow forecasting and expenses all over the place. And what we do is we actually use machine learning models to build AI agents, which we call domains of intelligence.
We connect them to our products like building blocks. We have different domains. We have domains that are devoted to understanding financial documents. We have AI agents that are devoted to understanding how you can predict future patterns from historical data and trends. We have AI agents that actually help you codify transactions for accounting purposes. What we do is we build specialist teams around these AI agents and domains of intelligence so that they can continue to deepen and enhance the capability of these models and keep on delivering more and more value to our customers. Now, if you look at it, our AI agents already save our customers a tremendous amount of time. We are going to continue to invest more and more in these capabilities so that we have more and more domains in the future.
What's also interesting is that this large collection of AI machinery that we have, it's actually very predictive in its precision and its behavior. So as we started experimenting with generative AI, what we are doing is we are using this foundation of AI we have, of models and machinery we have, to be able to lay guardrails on the output of the generative AI models. What this allows us to do is it allows us to keep our generative AI models grounded in truth so that we can continue to be the most trusted small business accounting platform while still being able to harness the power of this new technology. Now, if you look at our AI strategy, it's focused on three key elements. The first is in automating and streamlining repetitive and time-consuming tasks so that we can give time back to our customers.
The second is in delivering the right insights to our customers at the right time so that they can make better business decisions. And then the third is using the power of generative AI and large language models to introduce conversational interfaces so that you can actually now take accounting to where our customers are, the devices they are on, like mobile, and the apps and surfaces, email, WhatsApp, voice, et cetera. Now, to give you a flavor of how we're bringing each of these elements to life with AI, let's go through a few examples. We've talked about bank reconciliation. You can imagine you saw three items I reconciled. Usually, small businesses have 20, 50, 100 items they need to reconcile. Going in there and manually reconciling all of this is extremely tedious. So we put our AI agents to work.
What we do is we actually auto-populate and propose matching for you at a very high precision. So all you have to do is just click OK. And you're done in minutes instead of the hours it would have taken you. Our customers absolutely love this. On the Hubdoc side, our Hubdoc product is powered by OCR technology. I talked to you about how you can just actually be able to upload bank statements. It extracts your transactions. I showed you in Bill how you can actually send a bill in the BILL.com demo, how you can actually send a bill over to our customers. It's all powered by OCR AI technology. We talked about one or two bills in the BILL.com example. Any small business gets 10, 20, 30, 40 bills every week.
So this is extremely powerful and valuable for them to be able to use this technology. These are just a couple of examples. We have many such examples. And we're working on deepening them and expanding them every single day. OK, on the delivering insights side, moving gears, on the delivering insights side, we want to use AI to be able to deliver the right insights for our customers at the right time so that both our small businesses as well as their ABs can make the right business decisions. One example of this is our Xero Analytics Plus product. Now, Xero Analytics Plus helps small businesses be able to understand how their business is performing. And it also helps them be able to predict what to expect in the future. It's powered by AI.
It provides the ability to provide cash flow projections for up to 90 days. We do this based on our AI agents understanding more about your business via the information we have on you in Xero. We know that small businesses struggle with cash flows. What they've told us is that this is really helpful for them to be able to spot opportunities to increase their cash flow as well as to be able to mitigate risks. What our ABs tell us is that this is an amazing tool for them to be able to have deep, valuable conversations with their clients. Now, as we continue to enhance our AI tools, one of the areas we're going to double down on is being able to provide more and more insights to our customers.
OK, there is no AI conversation today that you can have if you don't talk about generative AI. It's not possible. We will talk about generative AI. We've been experimenting with generative AI for a while now. We launched it in Xero Central, which is our customer support portal, so that we can provide answers to our customers in conversational language. We also launched an onboarding setup guide as a chatbot within our core product so that customers that are new to Xero can actually learn how to use Xero. And/or if you're using a new feature in Xero or a new capability, you can actually have a conversation with the chatbot to be able to understand how to use it better. Now, because of our experimentation and our experience here, we believe that conversational interfaces and generative AI have the ability to reimagine how accounting is done.
And it has the power to bring accounting to where our users are. So how are we bringing all this to life? Well, today, I'm extremely excited to announce to you a new product that we're working on called Just Ask Xero, or JAX. JAX is a smart and trusted companion for small businesses and their advisors. It automates tasks. It delivers personalized insights. And it helps our customers be able to reclaim their time back. Ask Xero to raise an invoice, pay a bill, edit a quote. And what it'll do is it'll do that for you. But it will also follow on with intelligent suggestions like, do you want to apply a late fee to this overdue invoice? Not only can you do that, it also delivers personalized insights rapidly, so your cash flow projections, et cetera.
And then it recommends to you what you should do to help fix the situation. For accountants and bookkeepers, it's a great tool to be able to, again, deepen their relationship with their small businesses and be able to provide them valuable advice and be able to do this in a much more collaborative fashion. OK, once again, instead of just talking about JAX, because I think it would be much easier to explain the power of this to you if I actually did a demo, I'm going to step into a live staging environment to show you what the product will look like when it's released. And hopefully, the demo gods are going to be with me today. OK, I'm going to pretend that I am a small business owner who. So let's open up Xero.
Here, you can see that I can click this button to open up the JAX chat interface. I can access JAX from anywhere in Xero. It will proactively encourage me to ask questions. So today, I'm going to ask, how much money am I owed? Because I'm always thinking about my cash flow. JAX is now gathering the financial information from my Xero account and tells me that I have quite a few outstanding invoices. It asks me if I want a summary of the largest unpaid invoices. I'm going to ask for that. As you can see, it comes back with a quick and clear overview of my biggest unpaid invoices. It then asks if I want to resend those invoices. But I can see there's only one overdue invoice. So what I really want to know is, what was it for?
Wow, that's a lot of money due. Obviously, it's an important customer. I should check if they generally pay on time or not. OK, let's view the payment history, JAX. JAX tells me that it's from a customer that has always paid late. So given this pattern, JAX suggests that I apply a late payment fee to their current invoice. I'm going to do that because I want to try and break this pattern of being paid late. I have a business to run. JAX has now applied a late fee to their latest invoice and offers to draft an email to my client for me. I'm going to ask it to do that. OK, the email draft is now ready with the updated invoice attached. I can review this. Or I can just get JAX to send it straight away.
I asked JAX to send the email to the customer. All done. That was so quick and easy. Now, as I'm leaving the house, I get a call from another client who I'm working with. She needs a change to her quote. She wants three extra power sockets in her living room. Because I've been chatting with my son and already have WhatsApp open, I quickly asked JAX to update the client's quote with the extra power sockets. As you can see, JAX comes back and confirms the quote has been updated and offers to send the updated quote to the client. Since I'm in a rush, I confirm that, yes, I would like that. JAX confirms that the updated quote has been successfully sent. That's another task sorted.
Once I complete the job at my client's house, it's time to send the invoice, which I would normally do when I'm back at the desk that evening or on the weekend. But with JAX, all I need to do is open my email and find the conversation where we discuss the details of the job in the quote. I can then forward the email to JAX by typing create invoice. JAX then takes that conversation and transforms it into a draft invoice in Xero. And because it's a new client, JAX also adds their detail as a new contact. One less thing for me to do. I get an email back from JAX with a link to the draft invoice, which I can open to review. I can then send it to my client. And I can do all of this before I've even left the job site.
I now have my evenings and weekends back. My client has the invoice straight away and can pay in a way that best suits their needs. As you can see, JAX can perform a range of tasks and provide deep insights for our customers wherever they are. You've just seen the three ways it can do that. This is just the beginning. In developing JAX, we started with focusing on invoices, quotes, and collecting payment areas since it's so critical for our customers to get paid. Over time, we will broaden JAX to be able to support other areas of our product. We have very high-quality data. We're extremely lucky to be the custodians of our customers' data. They've entrusted us. This is why, in 2020, we introduced our company-wide data use policies.
And these policies guide our behavior in every form when we use this data, whether it's technological innovation, whether it's product development, whether it's partnerships and acquisitions, including AI tools. Like all our other products, our AI tools are going to adhere to the same high standards of security and privacy that our customers have come to love and expect from us. And we will continue to secure our data and maintain our customers' data and maintain our responsibility as a trusted platform for our customers. OK, we've talked a lot about what we've built in the past year, the velocity we've achieved, and what we're going to focus on going forward. But how have we done this? And how are we going to continue to do this? So I'm going to spend a few minutes on that before I end.
The first area that we're focusing on is being able to build a world-class product development machine at Xero. Companies at our size and scale need to design and develop products in a different way. As I've mentioned, I've done this a few times in my past. This involves upleveling both our skill sets as well as our operating model. The second area we're going to double down on is modernizing while delivering customer value. We need to be able to continuously modernize while continuously delivering customer value. I've seen the impact of this at both Okta and at YouTube. Let me give you a few examples of what we've done here. Over the last year, we've made a tremendous amount of improvements in upleveling our product and technology operating model to ensure that we can build world-class products for our customers.
First, we've established a cross-product planning and delivery process. So what this allows us to do is it allows us to look across our whole portfolio and make strategic decisions across the portfolio. And it allows us to allocate capital to the most important places. We also have established a delivery process where we check in on milestones every six weeks so that if any of our teams are blocked, we can all be able to help them unblock. Now, these are processes you'll see at every large company that has achieved global scale. And they help you keep innovation going for your customers and value delivery going for your customers. As your product starts getting bigger and more wieldy, your tech stack gets more complicated. Your organization gets bigger.
The other area that we've doubled down on in the last 12 months is establishing regional product leads and product teams for our three key markets. We first piloted this structure in the U.S. It's one of the things that enabled us to change the number of direct bank feeds we have. You've seen how successful it is and launched sales tax. We then launched it to the U.K. late last year. We're going to roll it out in Australia before the start of our fiscal year. Finally, we've invested heavily in data analytics and experimentation. We've formed a centralized team of experts that pair with our product and technology teams to be able to help them design and develop experiments and to be able to analyze them. Now, on the modernization side, we're following an approach followed by all successful companies.
First, we are using deep data and analysis to understand the top two to three bottlenecks in our system. And for these bottlenecks, we are forming small tiger teams of our most skilled engineers and empowering them to be able to go upgrade the technology so that we can increase our developer velocity. Now, just like any other product delivery, they report back on their deliverables. They have a goal. And they report back on their deliverables every six weeks so that we can make sure that they're advancing at a fast clip. Secondly, for the rest of the product, we are following a more balanced approach for modernization. As we develop customer features that actually add value to our customers, we also upgrade and modernize our technology.
All of this allows us to actually be able to align modernization with where we want to innovate based on our company strategy. What I want to do now is give you an example of how we've achieved success through this methodology and modernization. This example is on Xero Payroll. Xero Payroll has been in the Australian market for 10+ years. Over that time, the needs of our customers, as well as the technology required to meet those needs, has changed significantly. Now, for us to continue to innovate, we really wanted to be able to upgrade the technology so that we could make it easier, faster, safer to change the code base. But we can't really stop delivering customer value. They expect that from us. That's why they pay us. How do we do this?
We also had the complication in payroll of it being a heavily localized product. So there were a number of local development teams that were also dependent on the main code base. So we formed a new tiger team to take ownership of this project. And it was a cross-functional team of engineers and product experts. The results from this experiment or the results from this project were incredible. They started by tidying up the code base. And they ended up removing 50% of the code base that was unused. Imagine the decrease in cognitive load on our payroll developers. And imagine the speed up in performance when you actually deploy the code base. It's fantastic. They also broke up the payroll monolith into small services, microservices, where each service was focused on a single function in a single region.
What this does is it gives our regional teams a ton of flexibility to be able to innovate and move the product forward for their own regions. They reduced the time it took to deploy the code base from over one week to being on demand. They took the time it takes to set up a test environment to test any enhancements you're launching from multiple days to just under 45 minutes just using a Slackbot. They did all this while they were launching customer value. This is a fantastic example of how leading technology companies modernize and how we're going to continue to modernize going forward. OK, what's next for our operating model and modernization? We've done a tremendous amount last year. We have a tremendous amount to do. It's always an evolving process.
We're going to continue to balance delivering global features as well as delivering localized features for markets using our regional teams for our large markets. We're going to continue to bolster our talent in specific domains like AI, experimentation, et cetera. And we are going to actually follow a much more deliberate location strategy so that we have teams that are working on the same product and projects co-located and in similar time zones so that they are able to get the maximum efficiency. And finally, we're going to use the same approach as we did with payroll across our entire code base where we need it to modernize. So at the beginning of the year, we had set ourselves a goal to drive much greater velocity of value delivery for our customers. And you've seen just some examples of how we did this today.
I'm extremely proud of the team to say that they have significantly increased how much value we've been delivering for our customers throughout the year. I feel extremely optimistic about where we're taking things. I'm extremely excited about the impact this can have on Xero and our customers. Thank you for listening. Don't forget to check out the demos over lunch and meet the teams that are actually working on all of this.
All right. Welcome back, everyone, and to everyone that's following us on the live stream. I hope you enjoyed the product demonstrations this morning. We've got the afternoon shift. We're going to keep the energy levels up. Hopefully, you promised me that as well.
So just to recap what we're going to do this afternoon, I'm going to cover product pricing and packaging as a key tactic of how we look to increase usage and growth. Kirsty will host a fireside chat with both Ashley and Mike to give you a sense of their background. And then both of them will talk you through the go-to-market overview. And of course, we have Kirsty to close out the day around capital allocation. So product pricing and packaging. Diya and Sukhinder have both talked to you about the jobs to be done. There's super jobs. There's jobs within that. And what product pricing and packaging is all about is how we bring those things together for our customers. What do we price for them? And how do we tier that so they can meet their needs as they grow with Xero?
It's a critical lever to help us drive growth moving forward. So really, the objective of this is all about helping our customers find the right plan for their needs as quickly as possible, which in turn will help us as Xero grow up long term. So what I'm going to cover for you today is a little bit about how we price pricing and packaging today, how this does influence product mix, which we've talked to you a lot about, is a key focus for us moving forward. I'm going to give you a case study of how we use one of these levers, bundling in particular, to drive adoption and growth for our customers and then the benefit for Xero. And lastly, a little bit about our priorities moving forward.
If there is one thing I want you to take away from this, it's that I hope you have the confidence that we do, that this plus the other levers that Ashley and Michael will talk to you about is a key set of levers we can use to drive product mix and long-term ARPU growth. So like Diya, I haven't had the benefit of meeting many of you. So I'm just going to give you a very, very quick background. I've been at Xero for almost three years now in a range of roles, large around strategy and operations. Prior to that, I was at Deloitte, where I spent many years doing corporate strategy for a lot of ASX-listed companies all around the world, including telco, media, and tech companies.
While I was there, I set up a venture fund for Deloitte, one of its first in-kind investing in B2B SaaS companies. Interestingly, we invested in some ecosystem partners of Xero, where we learned more about this business. Then when I had the fortunate pleasure of being able to join Xero, I took that opportunity. And like many of you have heard about our executive team and the people that work at Xero, the reason you come here is such a purpose-driven company. So I'm excited to bring my skill set to this company and really make an impact on small businesses around the world. So more importantly, let's get back to product pricing and packaging. Like everything at Xero, we start with the customer first. So up here on screen, you can see the customer segments that Sukhinder talked about at the start of the day.
I will also talk about 2 new entities that you can see up there, but I'll come back to that. You can see the segments that we focus on, our primary segments, our secondary segments. At the bottom, you can see the different types of jobs that they do. These are illustrative. It's not surprising, I'm sure, to you, as Sukhinder mentioned at the start, that as they become more complex, larger businesses, they take up more jobs. In the middle segment, you can see our primary segments. They typically do anywhere between 6-8 jobs. What we mean by jobs is you can see that at the bottom there, so whether that's bookkeeping, reporting, filing their taxes, payroll, and analytics as they scale as a company. These jobs really are what they need to run their business and stay compliant.
These are the same jobs our ABs help our SBs do as a key part of their role as advisors to small businesses. So I'll come back to the two categories you can see on here that we didn't cover as a customer segment. The reason they're not a customer segment is they're really entities that most small businesses use anyway. So they're not mutually exclusive. So if any of you know small business owners, of which I know many, they might run their business using our products. And then they might have their personal tax returns that they also want to file. They might have a property portfolio that they use. They might have their children's tax, parents, et cetera.
So those non-operating and non-trading entities, as we've given you some examples, are critical jobs that also need to get done for them if they're trying to manage their whole business and their wealth. ABs, if they are also serving small businesses, need a product to be able to meet those needs. So our job at Xero is to make sure that we can have a product set that allows both small businesses and ABs to meet their customers where they are. On the next slide, I'm going to talk to you about how these get packaged together. So you can see there are two types of plans that we talk about: Partner Edition, which are highlighted in green, and Business Edition, highlighted in blue. Those Partner Edition plans have less functionality.
They're simple, and so they're well-suited to those entities I just talked to you about if you simply want to file taxes. Or they're also pretty well-suited to simple and some complex sole trader entities. I will talk to you on the next slide a little bit more about what's in them. If you look at the Business Edition plans, as I talked about, you can see that they span up that customer segment. So what's in those plans are the different types of jobs that need to get done as a business scales with the complexity of their needs. So on this slide, let me just talk to you a little bit about Partner Edition and Business Edition plans and which channels they can be purchased through. So first, Partner Edition plans. These are only plans that our partners, our ABs, can purchase.
Then we have Business Edition plans, which both our partners can purchase on behalf of a small business customer, or a small business customer can come directly and purchase through Xero.com. What we've got here is a simplified view, and we're using Australia as an example. All around the world, the plans have slightly different names. They might have slightly different features. But we're keeping it simple so you get a sense of what's involved and included in all our plans. So I'm going to start with Partner Edition plans. As I said, these are really plans that only our partners can purchase, and they're designed for them. The Ledger plan you can see there, pretty limited functionality, but allows partners to be able to really help customers file their taxes, stay compliant.
We also have cash books, which starts including bank reconciliation, which is an important tool that you saw Diya talk about when you have high-volume transactions. These are critical plans, as I mentioned, to help an AB serve their whole customer base and for an SB to be able to meet all their needs. They do have limited functionality, and so you can see the price points there illustrate that compared to our business edition plans. If I talk to you through the business edition plans, as you can see, we have a range, and they move up in terms of price points. We've got a sense of the functionality there. Again, this has been simplified. You can go on our website and see all the detail if you'd like. But you can see that largely, it scales with volume. More invoicing is allowed.
You can pay more of your staff. But you can see at the very end as well, things like Analytics Plus, we bundle in because they're key things that more complex businesses like to be able to understand about how they're operating. As Diya mentioned, things like cash flow forecasting. PE plans are a critical part of our structure. I just want to emphasize that. They're often also used by accountants as they start helping digitize a practice. So when we go in and we start talking to them about Xero, sometimes they will start their journey with us on PE plans, testing Xero, seeing whether it helps, how it digitizes their customer base. And then over time, they will graduate those customers onto BE plans where it's appropriate. As I said, it's a very useful plan for other needs that an AB has.
If we look out to the market, and I'm just going to focus on BE plans, as I said, PE plans are relatively unique to Xero. BE plans, all our competitors offer similar functionality. So when you look at this slide, you can see that we have a range of prices, as I showed you on the previous. Depending on the functionality, there's a different price point to suit different SB needs. We've also plotted, on average, where a Xero BE plan lands in that spectrum. And what you can see here, again, it varies by functionality in the product. But we are pretty competitively priced in our different key three markets. The last thing I want to talk about where we are today, and then we'll start shifting focus, is how this shows up in our channels.
On this slide, you can see that 70% of our subscribers go through the partner channel, a key channel that you already know is critical for us. 30% go through the direct channel. On the partner channel, you can see the mixed shift between partner edition plans and business edition plans. This is a point in time, and this always changes, as I said. When customers come on board, they might start on a PE edition and then graduate to business edition. Obviously, direct customers can only buy business edition plans, so it's 100%. You saw the different price points, so you can obviously see our blended APU when you take this product mix is a blend of both the PE plans and our BE plans. As I said, our job now is to think about how we get customers onto the right plan for their needs.
Obviously, as they're trying to run their business, BE plans are more suited to that. And as we graduate to them to BE plans and to more complex BE plans, we obviously have the ability to shift ARPU. So I'll talk to you a little about those types of levers that we have available. Price is a pretty obvious one. You already know that we raise prices as appropriate. I just want to talk to you a little bit about how we think about pricing. We think about pricing for value. Diya talked a lot about the time that we save customers, whether that's an SB or an AB. So we take that into account. We take into account the features that we give them and the value that that delivers. And then we take into account market dynamics.
As I showed you earlier, we take into account how we're positioned compared to our competitors and what's an appropriate willingness to pay for our customers. Packaging and bundling, I've talked to you through a little bit about that. Picking what we put in our bundles is really important. Picking what we allow customers to add on is equally important. We think this is an important strategy to make sure that what we put in those plans are the right things our customers need to be able to run their business and stay compliant. Product ladder, again, I showed you that earlier. The important thing is the tiering we put into our plans. How do we make it really easy for a customer to find the right plan to meet their needs as they grow in complexity? What's an easy upgrade path for them through that journey?
The easier we make it for them to get onto the right plan, the easier that it is for them to solve their business problems and for us to be able to realize value from that. And then the last thing, merchandising. What do we mean by merchandising? Obviously, how we display those plans is critically important. Where are they displayed? What features do we talk about? In which order do we put them in? There's a whole science behind it, and I'll talk to you a little bit about that. Again, our job is to make sure that we present these plans in a really efficient and effective way for our small business customers and our ABs to match them to the right plan. So as an example, we've been doing a test in the U.K. where we have a plan selector tool.
Rather than a customer having to think through which of the features which is most suited to me, they can answer a few simple questions and get matched to the right plan. It's very early, but we're seeing some positive results. As I said to you at the very start, I'm going to give you a case study of how we use one of these levers and how it effectively drives adoption of our platform and then the financial benefit to us. So on here, you can see a chart. Roughly around 2011, we purchased a product called Payc ycle. We then took that product, got it fully featured, and then we bundled it with our business edition plans up to a certain tier of employees that you could pay where it was included. Any more employees, you would then have to add on to pay more of your employees.
You can see when we bundled it, that high increase in adoption for our customer base. What we're equally proud of is that sustained adoption, showing that it drives value for our customers and that they see value in that product. You can also see the difference between in Australia when we bundled it versus New Zealand and U.K. where it's an add-on. Now, to be fair, you also heard Diya talk about the fact that we are still doing some work on the U.K. product, for example, to improve product-market fit.
So both things are equally important, but it gives you a sense of how using a key tactic like bundling to meet our customer needs is an effective way to help them move up to the right plan and, as I said earlier, drive ARPU, which you can see that we have payroll subscribers have a higher LTV versus non-payroll subscribers. They have lower churn, higher revenue, higher ARPU. And Sukhinder mentioned that you saw the growth curve of Australia when STP came along and we had payroll bundled. When all small businesses and their accountants and bookkeepers needed to help them comply with a key regulatory event, having it available in the right plans meant it was a very easy process for them. And you can see that in the sustained adoption of the product. So shifting gears to what's next.
As Sukhinder mentioned, pricing is a science, or as I like to say, it's an art and a science. Most SaaS companies do have dedicated capabilities to focus on this specifically, and that is what we are doing now. So you would have seen earlier in the slide presentation, we've hired a pricing expert, Tony King, who not only has the benefit of being an expert in pricing in SaaS but also accounting software. So we're very lucky to have him on board, building a team around him. And you can see that it's a pretty consistent theme using data to start thinking about pricing as a science. The art is the experimentation. We're all human beings. You can model these things to the nth degree. How we show these things to our customers, how people behave and respond to merchandising, and how they visualize pricing is critically important.
I'm sure you see that as a consumer. It is both those things, art and science. As a result of using that, we will look to optimize merchandising, as I mentioned, matching SMBs to the right plans. Equally important, helping our ABs match SBs to the right plan. A simplified product ladder. I've shown you our current product ladder. We're always going to look at how we create that simple and intuitive upgrade path for our customers. Finally, of course, value-based pricing. I've talked to you about that. What is the value we deliver to our customers? For what features and in what market dynamic is critically important? To recap, this is one of the key levers that we have as part of our next winning go-to-market playbook.
It's an important one because it helps customers find the right plan for their needs effectively, helps our advisors match our customers to the right plan effectively. And if we do that effectively, as I said to you, I want you to leave with one thing, which is the confidence that we can then shift product mix using the levers I've talked about and, in the long term, drive increased LTV and ARPU. So thank you for listening. Appreciate it. And now I'm going to ask Kirsty to come up and host a fireside chat with Michael and Ashley.
Let's hope I'm not sitting underneath the drip. Really, really excited to be able to introduce you to Ashley and Mike. And it's really to give you a bit of an idea and get to know them a bit more. If I start with you, Ashley, maybe we could just start with, could you let everyone know a bit about your background and why Xero?
Sure. Happy to. It's nice to meet you all today. Thank you for coming. I'm Ashley Grech. I have been in financial services or payments-enabled SaaS for the past 20 years. I love payments. I had the benefit of getting to build out new revenue motions in new territories for JP Morgan, as well as in the wake of new acquisitions, always with an ecosystem of products and services. But perhaps more relevant to Xero were my almost five years at Square, where when I joined Square, it was predominantly known for a single product, which was the dongle at farmers' markets and salons and whatnot. It was well-known in the micro-merchant space and had one sort of primary territory in the U.S.
And fast forward over that time, it grew steadily to, well, I got to be part of building repeatable and predictable revenue motions as they scaled to dozens of products, entered multiple geographies, scaled beyond micro-merchants to SMBs, mid-market, and eventually enterprise, and opened up entirely new revenue channels for the business. And so that time was, well, it was a really great, so it was a ton of fun. We did a lot of experimentation. We had to segment and re-segment our customers along the way. So you can sort of squint at it and see why I am so drawn to Xero and why I'm here. Kirsty and I were talking earlier about what makes you pick a company. And I had said to the team here as well, look, you can choose a few different paths or look for a few different things.
One is you look for a great product. And one, dare I say, as a Chief Revenue Officer, one that sells itself. The second is you can aim for a great team, a corporate culture that you love, an executive team that you want to work with, and a leader that you want to follow. And the third is you see great opportunity ahead, new markets available, new products to sell, new channels to open, new segments to go after. And it's totally defensible to select a company on just one of those things. And many do. They pick a great product with a so-so corporate culture, or they pick a great culture. But when you find a company that has all three of those things, you join them. And here I am.
We're lucky to have you. Thank you.
Thank you.
Mike.
Thank you. So I joined Xero in October. As Sukhinder said earlier, I've been here about 120 days. I spent four years before that at Uber, leading performance marketing across Uber's businesses globally, all of Uber's businesses. It was an interesting time to be at Uber. When I got there in 2019, Uber was essentially a collection of local businesses. And over that four-year period, really moved to being much more of a global business where we were kind of getting the value of scaling across all of those different markets. And the work that we did in performance marketing was one of the first areas where we were able to prove conclusively that thinking about and going after these opportunities globally rather than a more fragmented local way actually pays off. And so that experience is directly relevant to why I came to Xero.
But just finishing up on my background, before Uber, I was at Tripadvisor. I was there for about eight years. Most of that time, I was also leading performance marketing. And I was as well leading the work that we were doing for our brand media and media optimization. And before that, I spent almost a decade as the CTO and co-founder of one of the first companies that was doing online personalization. So that was a company called ChoiceStream. Our customers were a mix of media companies, so companies like Comcast, DIRECTV, AT&T, and also retailers, so Zappos, Tesco, were all customers of ours. The common thread across all those different areas is that they all involve disciplined and data-centric marketing. And it was marketing in different forms.
But one of the things and one of the areas, I think, of big opportunity at Xero is to really think and understand how we get more value from using the data that we have and applying it to the marketing decisions that we make. As far as why I came to Xero, probably first and foremost is the business is really poised to scale right now. If I look sort of globally across the markets that we're in, if we look at our opportunity to get our customers more deeply engaged, and the kind of work that I've done in the past, I think, is very directly relevant to that. And so there's a lot of opportunity for impact. Second reason is the team that I get to work with, very strong management team. And the third is the product. We have a very compelling product.
Our customers are passionate about it. That greatly improves the likelihood of success. Very happy to be here.
Do you see now why I was excited to introduce you?
Mm-hmm.
So, the next question, and maybe, Mike, it's a little bit unfair, seeing it's been 120 days.
Yeah.
But just be really interested to understand your early observations. What have you been focused on in those first couple of months?
I spent a lot of that time getting to know the team, getting to know the business, some of the areas of opportunity that we will be going after. This is just really the highlights. First of all, I'll start with the sort of foundational work. I talked a little bit a few minutes ago about data. There is a lot of opportunity for us to get more from the data that we have and use that as a foundation for doing better optimization, for doing better measurement. That sort of underpins all the different opportunities that I'm about to explain. One of the important areas is becoming best in class, thinking about what we can do globally versus what we previously have done more either regionally or locally, and how we basically use that to our benefit as a global company.
So if we make an investment in, and I mean investment, by the way, more in focus and in resources than I'm talking about in terms of dollars, in building our competency in search, for example, search engine marketing, say, all of our markets should benefit from that investment. We shouldn't be doing it such that only the U.K. benefits or only the U.S. benefits. And so shifting that balance of what we do globally versus what we do more regionally or locally is one of the areas of opportunity. We're in the midst of a restructuring that will enable us to do that. A second area is marketing to our existing customers relative to acquisition. So if you look historically at our marketing efforts, they've been very focused on acquisition, on acquiring new subscribers. If you look at our revenues in any given period, it's exactly the opposite.
They're primarily driven by our existing customer base. So there is an opportunity to increase our focus, increase the resources that are working on things like upselling and cross-selling, and increasing utilization of our product, which should drive churn down. All of those things are, I think, big opportunities. We'll be going after them. Those are sort of the highlights.
Thanks, Mike. Ashley?
Love that. Gosh, I think I've been now here for six months. I've been lucky enough to visit a number of our markets. I live in San Francisco, visited Canada, the U.K., spent some time in New Zealand. I moved here for six weeks and got to be in the Australian market firsthand. I focused my efforts around two key well, most importantly to meet, our people, but two key areas of work and my own jobs to be done during that time. The first was to get to know the team and to organize the team for success and add some capabilities in there, which you'll hear a little bit about in my next presentation.
The second was just to get under the hood, really understand the levers and what drives our business today, understanding who are our customers, what are the things they care most about, are we talking about them, how do we reach them, how are we performing in building pipeline across each of these ways of meeting our customers, and so just really deeply understanding those levers. You asked a different question. You asked observations at that time. To not repeat what Mike had said, I think just you seeing the two of us sitting here is perhaps one of the key it's tied to one of the key observations in that there's a lot of opportunity for specialization. It's why I'm so excited to work with Mike, because you can hear from what he's saying, he's really passionate about specializing and improving our marketing engine.
And similarly, I am very passionate about sales and channels. And so that opportunity for Xero is we're a representation of that. And I'm truly excited about that. Another observation is customers really love the product. And that's hard to do. Nobody's excited about software, to be honest. Customers are not excited to use software. But they like using it. That's been pretty fantastic. And the third is, I think there's still opportunity ahead to build new channels. And while that is a longer-term bet for us, I'm very excited.
I think the thing that's really amazing is that we're seeing the connection between the experience that you've had before Xero and then the opportunities that you're now seeing within Xero as well. Excellent. You started to actually touch on it, Ashley, but just this is a bit of a different model than we had before. We used to have one Chief Customer Officer. We now have both of you here, revenue and marketing, separately. Is there anything else you sort of want to add around how you are working together, other things around maybe any of the specialties that you're able to do within the revenue area?
I know Mike has a lot of thoughts on this. I will say that what's been nice already is that Mike and I are building shared targets across the customer lifecycle, so from acquisition all the way to retention and growth. We are building both shared targets but also shared practices along the way.
One thing that I would call out and this is really just an example, I think, of ways that we can sort of benefit from collaborating more closely is around the lead generation that we do. Again, I'm just picking an example. But it's a particularly important one. Today, when you look at what we do in terms of acquiring partners, a lot of our marketing is with Google, with Meta, where we're acquiring leads.
There's a lot of opportunity for us to do a better job of working my team working with Ashley's team to understand the quality of the leads we're acquiring, which ones are the good ones, which ones are not as good, sending the right data signals back to Google, for example, or to Meta, and telling them what constitutes a good lead, what constitutes a bad lead, doing a better job of paying more for the good ones and less for the ones that are less valuable to us. All of that, I think, will result in us being a lot more both efficient and effective in lead generation. It's just one example of how if we kind of by separating these functions and getting more specialization and then working together collaboratively, where I think there's a big opportunity for us to go after.
Excellent. Thank you. And just finally, Mike, we've had sort of conversations before around the unique opportunities that you see in Xero with both the accounting and bookkeeping partnerships but also the small businesses and just how we work together concurrently on that. Maybe you could share your views.
Sure. And you're going to hear more explicitly about this from Ashley in a few minutes. But from my perspective, there's sort of two sides to it. There is the value to Xero. And then there are the values to our customers, both the partners and the SMBs. So on the value to Xero, by marketing both to partners and to SMBs, each basically increases the likelihood that we'll be successful with the other. So each time we bring a partner on board, that increases the likelihood that there'll be a bunch of SMBs that will come on. The more SMBs that we have, the more likely a partner will be to be interested in us. And so by focusing on the two concurrently, we create this kind of virtual cycle. And you'll hear more about that from Ashley.
From the business's perspective, I think it's quite obvious that if both sides are sort of speaking the same language and using the same tools, then their lives obviously are going to be much easier. And so the two are actually not only complementary to each other but I think sort of drive opportunity for us as a business. And that is something that I think we do uniquely well.
Excellent. Well, thank you both very much. Look forward to hearing both of your presentations now.
Thank you.
Thank you.
All right. Good afternoon, everybody. As I said before, I'm Ashley Grech. I have now been here for six months. I'm the Chief Revenue Officer. Today, you'll hear Mike and I talk a little bit about Xero's go-to-market approach as a whole. We'll discuss our partner and our direct channels, both of which are valuable to Xero. We'll share the levers we have in each of these channels and the opportunities ahead in each of them. One of the key things I've been focusing on since I joined is building new capabilities and organizing teams to focus on meeting the needs of their unique countries and markets. I've promoted Peter Koteras to lead our global revenue operations and strategy role in order to build more systems, processes, and tooling to provide to our various teams.
Within the global revenue ops team, I've created a new global head of sales operations role led by Kyle Wakefield, who led sales ops functions at New Relic and RingCentral. We've also added some key hires. This week, this very week, we introduce Anthony Drury to our business overseeing Australia and New Zealand. He brings multi-country payments and SaaS experience across multiple channels. We've expanded Alex von Schirmeister's role and scope across the U.K. and emerging markets, which include South Africa, the EU, and Asia. We've promoted Kate Hayward into the country manager of U.K. role in order to support the execution 3x3 strategy. she reports to Alex. The goal is to arm these experienced leaders with the support they need to focus and win in each of their markets.
I will start with a brief overview of our revenue motions today and how they relate to how our customers want to run their business. We have small business customers that want to do it themselves. Some want to do it together with a professional like their accountant or bookkeeper. Some want work done for them completely by their ABs. The do-it-yourself customers are met through our SMB Direct channel, SMB Direct Motion. They use Xero without a connected partner. But for those who want to do it together, they have either been referred by or directly requisitioned a Xero account by their AB, which we call partner-attributed and partner-originated. Finally, those businesses who prefer to rely on their ABs to do it for them, complete jobs to be done for them, they show up on our partner wholesale motion.
In the partner wholesale motion, these partners here purchase bulk subscriptions that are used to connect with and receive ledger information from their customers, which is a key motion in helping those partners get started on their digital transformation with Xero and making it much easier for them to operate with their customers along the way. Not only can our users choose their preferred path that's right for their business, but customers also have the ability to, on their choice of complexity and modularity that you heard about from Angad earlier, add their own apps from our app marketplace to customize their experience. On the next slide oops, sorry. On the next slide here, you'll see how this translates into value for Xero. Both of our direct and partner channels are valuable opportunities for us. The chart on the left shows the TAM revenue is similar in both channels.
We've shared quite a bit this year about our desire to support a better product mix, which doesn't mean a departure from our prior motions. We estimate that nearly half of the addressable market is tied to SBs that use an AB. Of course, this varies by market due to nuances in customer preferences as well as market characteristics. But on the right, where we've highlighted three focus markets, Australia, for example, represents a much higher TAM of value connected to SMBs that use an AB, while in the U.S., more SBs want to do it themselves and then aim to do it themselves. The U.K. sits right about in the middle. The partner and direct channels, as you heard Mike say earlier, they drive and reinforce each other.
Acquiring partners brings their customers to Xero in the form of ledgers and cash books, but also when they invite their clients to sign up for Xero accounts directly in order to fully operate together on Xero, on one platform. Success in the partner channel leads to more of that do-it-together motion that I talked about before. But partners also influence the adoption of ancillary products for their SMBs, such as invoicing and payroll. Similarly, SMBs that join us directly. They grow on Xero. They bring more SMBs to us and eventually their ABs as well. The more SMBs use and love Xero, the more likely their ABs are to join us too. As Xero's overall brand awareness grows, partners say it's easier for them to refer and propose Xero to their SMB clients because they've already heard of us.
So this is an important flywheel for sustainable growth. Now, a little bit about our partner channel and our sales teams specifically. Our sales teams, our sales motions, work well for us today. We hear a lot of partner love. And you can see this from our high NPS scores that Sukhinder talked about earlier, which have averaged over 50 over the past few years. This is because we have teams that meet our customers every step of the way in their Xero journey, from when they're exploring Xero and getting to know us to when they're onboarding and establishing their practice on Xero, and finally, when they're ready to grow and use our additional offerings. This is a win, love, grow motion. Our customer support team follows the sun so that our customers always have somewhere to go for help along the way.
More tactically, marketing and sales efforts drive leads through performance marketing, brand marketing, and partner events that some of you have attended, like XeroCon and roadshows. This brings new ABs inbound to discover and learn about our product. We have teams in every region who qualify, win, onboard, and help new ABs get up and running. We also have growth-focused teams that pick up the baton and assist accountants and bookkeepers in bringing their clients to Xero and finding the best products to serve those clients. And finally, over the course of the customer lifecycle, our customer support team serves both ABs and SBs as they navigate and use our products. You'll hear more in a few slides about my priorities for growth across this lifecycle. As Sukhinder said earlier, we're focused on both acquisition of subs and leveraging those relationships to cross-sell, upsell, and retain.
We've also aligned our commercial structures to support those goals. To acquire, we have digital and event marketing targeted at partners. As I mentioned earlier, we have inbound and growth teams. We have a robust information platform called Partner Central that guides our partners through onboarding and beyond. In terms of deepening relationships with our partners, we grow with our customers over time through our relationship management model. We educate and provide accountants and bookkeepers with tools that allow them to requisition or refer their clients to the right Xero subscription for them. Finally, we reward long-standing relationships through our rewards program. I wanted to share a case study from this year on how we've evolved our pursuit of a targeted segment versus the broader approach that Xero has historically taken.
So as Sukhinder said in the first half of 2024 results, we've been focusing on the client advisory services segment in the U.S. I will say it all starts with great product. Our product-market fit has improved across bank feeds, sales tax, and U.S.-specific reporting. But this, in turn, supports our go-to-market execution. Our U.S. sales teams have targeted leads and opportunities with CAS practices. We train those sales teams with new lead lists, new scripts, new marketing assets in order to focus on this segment. As a result, we're already seeing double the conversion in these partners. And because CAS firms are predominantly advisory and insight, they provide advisory and insight for clients, their use cases are weighted towards business editions. As a result, we're already seeing a corresponding lift in BE mix in our partner efforts. I will say it's still early days.
However, this, particularly, as we see it as a long-standing digitization journey with cash practices. But it does serve to show that an increased clarity on our target partners, we can design effective go-to-market motions to drive better conversion and better product mix in the partner channel over time. There's always an opportunity to get better, though, always an opportunity to continue to iterate and drive more growth. So I'm focusing on four key efforts. One is a deeper investment in partner acquisition, both through partner-focused performance marketing to drive demand, investments in outbound prospecting, and SMB onboarding. Number two, we will align our segmentation and sales models to our core segments we outlined in the three-year strategy and align our sales team coverage against those segments for greater yield.
Three, we see the opportunity here to evolve our sales incentives and our partner programs to reflect an alignment with volume and getting the right customer on the right product, which will support mix. And lastly, we'll focus on standing up new dedicated sales motions, customer education, and processes to drive cross-sell and upsell in our partner base. We believe this will assist ABs in bringing their clients over to Xero and helping them discover the total breadth of products we have to offer them. I've shared how we meet customers where they are and where they want to be. You've seen how both partner and direct channels are valuable to each other and to us. You've heard about our partner program. Sorry, you've heard about our partner channel and how we can grow with ABs and through them as well.
You've heard some of my future plans for increasing acquisition and value. Now, I will hand it off to Mike to share an overview of marketing and direct channel acquisition. Thank you, everyone.
Thank you, Ashley. So as Ashley said, we believe there is a lot of value in the direct channel as well. I'm going to be talking to you a little bit first about the way that we think about marketing and the levers within marketing as a way of creating business impact and value for Xero. I'm going to talk about the specific channels that we the marketing channels that we work in and how we work there. I'm going to talk a little bit with it through a case study, a recent example of how we've started to apply some of the data-driven methods that I've been talking about. And then I'm going to give you just a bit of a look forward into what's next.
First, I just want to comment, as others have, that we're bringing some new skills into our leadership team and calling out just a few of the people here. Francesco Pittarello is new to Xero. He'll be joining us from Uber and Faire and Rocket Internet before that and very, very deep background in performance marketing, lower funnel specifically. Adam Roberts, we're bringing together all of the data areas. So this is data science. It's analytics. It's various types of insights that we do. We have a product called XSBI, which is small business insights, very data-centric about how we sort of mine our data that we have internally for the and create a product that we can then use for governments and media. All of that will sit under Adam. John Coldicutt will be leading partner marketing. This is a new focus area for us.
We're pulling together all of our partner marketing efforts. I guess the other one I would highlight is Vladka Kazda, who will be leading our customer engagement efforts. I talked a little bit earlier about the fact that we have an opportunity to do a lot more with our existing customer base. Vladka will be leading those efforts. I'm going to sort of frame these different levers that we have in terms of the marketing funnel. When I talk about the marketing funnel, people refer to upper funnel, mid-funnel, and lower funnel typically. Upper funnel is an audience of people who aren't necessarily explicitly in the market for, in our case, accounting software right now, but who might be at some point in the future. It's a group among whom you want to create some level of awareness.
When they are at the point where they might start thinking about buying, you want them to think about you, basically. A lot of the world refers to this as brand marketing. This is an area where I think Xero has historically done quite well and where there still is opportunity, though, for us to be a bit more disciplined in terms of how we measure and how we optimize so that we can get even better at it. That's kind of the upper funnel. As you move down, people start to think about making a purchase. And so in our case, it's about, OK, I might need accounting software. I'm not quite sure I need it right now, but I might need it in a month or two or three. That's typically referred to as mid-funnel.
Our regional marketing teams are working both there, well, actually across the funnels. They have sort of two jobs. One is that we are still a regional business. At the end of the day, we think about what we do in terms of the different markets that we serve. So their job first is to negotiate the commitments that we're going to make as a marketing team, as a service to the business, essentially, for each of those markets, but also to look at local opportunities. In the U.K., for example, Making Tax Digital, which was referred to earlier. I think Sukhinder had mentioned it. That is highly relevant. In our case, it's a tailwind. But we want to take advantage of it. From a marketing perspective, you want to create custom campaigns. You want to integrate it into your other campaigns.
So the regional marketing teams that we have are designed basically in this structure to really sort of maximize the value we get from those local opportunities as a lever. Moving down the funnel to lower funnel, this is basically when people are ready to purchase. These are people who are actively shopping. We want to be best in class at basically closing the deal with them, getting them to choose us. First, there are a number of steps that they typically will go through. First, they'll sign up with us. Then they'll start a trial. Then they'll actually buy a subscription. In each of those areas, there are opportunities for us to talk to them, to market to them. So we have structured our team so that they map to these different areas of the levers.
Then finally, once we have them as a customer, there are opportunities to deepen that relationship, to get them more engaged. Underpinning all of this, as I said earlier, is the sort of data science, the analytics, and the insights. You can't do any of this very effectively if you don't have an ability to kind of see the effect of the changes that you make. You want to be able to see what works, see what doesn't work, and do more of the things that work. If the things that don't work aren't working, fix them or stop doing them, one or the other. How does this translate into the actual marketing channels that we use? We think about them in kind of two groups. We think about free channels. Examples here would be CRM. We send emails.
We send text messages. We have other ways in product that we can communicate with our customers. SEO, so this is sort of trying to get Google to display our pages as high as possible in organic search rankings. That's another free channel. And then we have paid channels. These are essentially the ads that we buy, so search engine marketing, so buying paid search ads. Social, Meta is a big channel for us. Across all of these paid channels, promotions and offers are something that we can incorporate in our ads. So a promotion for us generally is going to be some form of a discount. And I'll be talking the case study that I referred to was specifically about some testing we did around promotions and offers to optimize them. For our existing customers, we also have free and paid levers. But they're a little bit different.
CRM is the primary one in terms of sort of how do we deepen those relationships. And then on the paid side, it's mostly about whatever offers we choose to give them. If we want to incent, for example, our customers to use our payments product, we might give them a discount at the beginning. What form does the discount take? How long do we give it for? All of those kinds of things. So one thing I want to also touch on that relates to this is efficiency, because this question comes up all the time. And there are sort of two parts to efficiency. There is efficiency as a choice. And then there is efficiency as a competency. And I want to just talk for a second about both of those things. So efficiency as a choice is a business decision that we may make.
Generally, we'll make it for a given business area in a given market. So it might be for partners in the U.K. or for SMBs in Australia, just when I talk about sort of business area and region. In some cases, we're going to want to be very aggressive because we have tough competition. We want to make sure that consumers are aware that we're there and that we're sort of in the fight. In other cases, we may have less competition. We may choose to be less aggressive. So you can kind of think of when I talk about efficiency as a choice as a dial that we can turn up or turn down. Then there's efficiency as a competency. So what do we get for what we spend? That is something that we can control.
My team's job is to become as competent as we can be, as efficient as we can be at getting as much as possible for every dollar we spend. So examples here, ad creatives. A high-performing creative can get you twice as much as a low-performing creative for every dollar that you spend, the keywords that we choose to bid on in our paid search, how much we choose to bid, how do we target people. All of these things will affect what we get for what we spend. And so that's the other side of efficiency. And I just want to encourage you guys, as you think about efficiency, to be clear in your own mind about which part of that you're talking about.
My team's goal is to be as good as we possibly can be on the competency side and to give the business choices in terms of how they use that dial. There'll be times when we're going to want to turn that dial up. And there'll be times that we want to turn that dial down. In each case, we want to get as much as we can for whatever it is that we choose to spend. So let me just give you an example of the kind of opportunities that I talk about when I'm talking about data and optimization. So this is just recent, the last few months. Since I came in, we started to run a series of tests on the discounts that we offer consumers in order to get them to buy. This is an area that's highly competitive.
Our competitors are very aggressively offering these kinds of promotions. We've been offering them on and off for years. Some of the things that you would want to understand there are, if you're giving a discount, what form does the discount take? Are you giving them a gift card? Or are you giving them a discount on the price? How much? Is it 25% off, 50% off, 75% off? How long? Are you giving it for three months, five months, six months? All of those things will influence how much conversion you get and then how much you have to pay effectively in the form of revenue foregone for that conversion. Baseline for us has been, generally speaking, we don't offer promotions. Then when we need to, we offer them.
This just gives you a sense of sort of what happens in a situation where we essentially use our best judgment. The unoptimized offer is that middle bar there. You see, as you would expect when you offer a promotion, that conversions increase. When you go and you run these tests and you try and understand more deliberately what the relationships are between the amount of the offer, the form of the offer, all the things that I mentioned, you can actually do much better. You see the step up in the conversion that you get.
On the right, this is a very interesting point that you all should understand is that it pays for us to be very disciplined here because the cost of actually getting a consumer to buy is much lower with a lead that we already have, basically, than it is if we would try and go out and acquire new people in paid searches, the example here. In fact, it's only a tenth of the cost. And so being both smart and aggressive with promotions is something that makes a lot of sense. And this is something that we learned just by doing this kind of experimentation and measurement. Sorry, I'm trying to oops, sorry, wrong button. My apologies. OK, so what's ahead?
Just to translate this all into what are next steps, I've only been here for four months but have had lots of opportunity to see where we should be investing. So we've been talking a lot about partner marketing. So this is what we're referring to as B to AB. I talked before about how we can improve lead generation. Lots more opportunity there. Thinking about how we decide what to spend and where to spend it and making that model more dynamic and driven by what we get for what we spend. So there's a whole framework that we will be building around that. And that represents pretty big opportunity. Centralizing in the areas where we think that there is benefit from doing things globally, I talked about this a little bit earlier, investing more and optimizing with our existing customers.
This is for cross-selling, for upselling, for increasing utilization. And then again, underpinning it all is the data work and the technology that drives it. So those are the key areas, just looking back at the last four months. And I certainly am looking forward to going after all of these opportunities. So thank you, guys.
Can I get my notes in the middle? OK, so what a load we have covered off today. You've heard about our strategy and how we can continue to refine our focus. You've had so many different demos and hearing all about the product. You've met some new capabilities that we've got. You've heard about the multiple levers that we have to be able to really continue to grow. Also, you've heard about how we're adapting our culture. All of this sets us up for a very exciting future. I'm going to demonstrate that the health of our balance sheet provides optionality for us. We also have a very disciplined approach to capital allocation. I'm going to share the way in which we think about M&A and the learnings that we've had from our experiences.
So here are our key internal metrics, which we use to monitor our success. Now, this is obviously in addition to our standard financial reporting. And as you can see there in green, the Rule of 40 is our primary measure. Now, as you're all aware, that is growth and also free cash flow margin. And then if you look down at the next level around revenue, there's been conversation today around balance. And so ARPU and net subscriber additions are the first two metrics we've got there. Now, our blended ARPU is the way in which we're going to be able to see how we are going with those levers that are about increasing ARPU, so for example, moving our subscribers up through the product ladder or attaching other jobs to be done. Net subscribers, pretty sensible metric there. And that has our gross subscribers, obviously, with the churn.
OPEX ratio, that's a guide for us to be able to see how efficiently we are driving our cost base. Now, we gave guidance for this year around being around 75%. We're still very comfortable in being able to deliver that. The next metric, LTV to CAC. LTV to CAC is a great metric because it actually includes four. You've got your ARPU, your churn, your gross margin, and then obviously CAC. And as you've just heard from Mike, we'll be working really closely with him and also Ashley around where we want that dial to be because different markets, different opportunities, you're not necessarily always just driving for the higher number. Then finally, you've got revenue per FTE. Now, our workforce is our largest cost.
And so therefore, we're looking to ensure that we are always driving a higher level of productivity, which really links into that performance culture that we are also driving. Our really healthy balance sheet, combined with strong free cash flow and capital management, is there to support our growth. Now, you can see on the left-hand chart there, we have the cash balances up until FY 2023 and then also showing the first half of 2024. Now, we finished FY 2023 with about NZD 1.1 billion. By the end of the first half, we were sitting at NZD 1.3 billion. The only debt we have on our balance sheet is our convertible note. And then if you see the improvement with the blue line of our free cash over the last few years, you can see that amount just improving all the time. And so FY 2023, we had NZD 102 million.
Then even just with the six months of FY24, we exceeded that full 12 months to NZD 107 million. Now, I just wanted to be able to remind you of a few things about the convertible note because it comes up a bit. It does expire in December 2025. It is for $700 million . It is at zero coupon, which means that we have no cash interest associated with it. At the time of settlement, we have the option of either doing it in cash or in shares. On this slide, we show that with our cash on the balance sheet and with the free cash that we're generating, it gives us options to be able to support the growth. Now, our aim is to maintain a strong balance sheet so we can support our strategy and also have optionality for M&A.
Now, it is really important that you see that light blue box under the available capital because it is important for us to really work towards our aspiration with the Rule of 40. We're also aware that we could return capital to our shareholders. But we believe at this time, the best use of our capital is to reinvest for growth within Xero. We've got the choice about whether or not we spend in CAC or in product development. There's been a lot of conversation around how we can go about allocating our CAC cost. And within product, we've got the choice of building it ourselves, partnering, like that very exciting BILL announcement that we were able to make today, or buying with our M&A. Now, we do have a principle-based allocation to capital.
What we look at is a very, very tight link to strategy and then also what is going to provide the best return to our shareholders. We have a long-term model that links straight into our strategy. For capital allocation, we'll be focused in the long term and dynamic in the short term and measured throughout. With our disciplined approach, you can see there, we'll be investing 80% into those first three buckets of 3x3, a winning go-to-market playbook, and focused bets to win the future. Now, with CAC, obviously, we've got the long-term model. But in that short term, while we're being dynamic, we've heard Mike talk around sort of moving the dial. An example that I can share with you around when we did this was if we think back to when we had FIFA.
We always knew it was going to be a really good opportunity in Australia. We probably didn't know, and probably many of you didn't either, that the Matildas were potentially going to go so well. That opportunity grew. What we wanted to do was to move some of the CAC to really ensure that we maximize that opportunity, that growth opportunity that we were seeing in Australia. That's a good example of just how we changed that dial. Now, with product, you also heard Diya talk around the way in which she reviews her teams on a six-weekly basis. That's really with the focus linking into the strategy. With that link, it ensures that we really have that connection between the product-market fit and the roadmap. Of course, these two things need to work together, product and CAC together.
This then ensures that we invest the CAC at the right time when the product in market is there to support the growth. So rest assured, we are very disciplined and also adaptive in our capital allocation. M&A has been part of our success. You can see some examples up there of it. We have seen success where the acquisition is for a critical core product need. An example of that if Instafile or Paycycle, which we've spoken about this morning as well. We needed a payroll solution in Australia many years ago. That was something that was a critical core product need. We've also seen success where it is for critical needs of our customer segments. Our WorkflowMax is a great example of that as well.
When we acquired WorkflowMax, it was effectively to help us build the practice management toolset of XPM that we have today. Where it is best in class technology. Now, Diya spoke to you about e-invoicing and the way that Tickstar helped us with that. So that's a really good example of where best in class technology has been really successful for us. And then where we've been able to add it into the core. So Hubdoc is a good example of that. That is really driving small businesses into code-free accounting. And so Hubdoc is such an integral part of that combined core need of an SMB. And then when it's been simple to integrate. Now, while the majority of our M&A has been successful, as I've just shared, there have been some that have been less so.
This is really where we've gone outside of our core product or where the product development required has been too high in opportunity cost. So we have assured we have learned from this. We've integrated these learnings. And we have a very clear criteria now for M&A. So when would we consider M&A? When it is very closely aligned to our 2025 to 2027 strategy, which also includes that 3x3. Where it is best in class technology. When it's simple to integrate. And then also potentially, when it is best in class, maybe for a new market or in a new segment. So in addition to refining our process, there are five factors which support us as well. So we have focus. You've heard today a lot about our focus strategy and then also that focus strategy having an incredibly tight link into our capital allocation. Xero is larger.
We are now generating free cash flow. That opens new opportunities for us. You've seen some of the capabilities and experience that we've added today. As Sukhinder was saying, we've added it not just at the XLT level but in areas through the business. Our platform now also is more easily able to embed and bundle. As I said, we've also learned from the past M&A that we've done. We've learned that really, it should be around solving critical core products, solving solutions for critical core products or segments, that it's best in class, easy to integrate, and that we should keep it simple. With all of that, it gives us confidence in our ability to continue to use M&A programmatically. I would like to reiterate our outlook statement. As we say up there, we expect our OPEX ratio to be around 75%.
I'm standing here today really comfortable in our ability to be able to deliver this. I'd also just like to remind you that, and Sukhinder brought up the long-idle subs, following the removal of those long-idle subs just at the very beginning of the next financial year, that will increase our ARPU by 3%-5%. To wrap, I would just like to go through our long-term aspiration statement, which isn't guidance. Please do remember to read all of the footnotes there. We have set ourselves the aspiration of doubling our revenue and delivering the Rule of 40 or greater. On that very high note, I would like to pass back to Sukhinder to recap. Thank you.
All right. Thank you for sticking with us through the day. I know we've asked you to hold your questions. We're going to get to them right now. I hope you still have energy to ask them. We're excited to be able to chat with you more free form. But to recap, and I hope this is what you've gotten from today, or I trust this is what you've gotten from today, the message we wanted to leave you with is fourfold and pretty simple. Number one, we have a strong track record. As I said, I always feel privileged to be here, to be able to lead Xero, and to inherit this kind of history. I don't take it for granted. None of us do. It's a wonderful starting point. We've consistently delivered. We believe we can continue to do so. Number two, focus, focus, focus.
If you take away nothing else from today, it's about the clarity of the next three years, about trying to drive the allocation of our precious resources in a thoughtful way, thoughtful over the three years while being dynamic and agile within each year, right, to drive the best yield and returns across the portfolio of choices we've made. Number three, that we've turbocharged the capabilities for this next chapter of Xero. At multiple levels of our organization, we've taken the best of Xero talent as we have and promoted from within, recognized capabilities, asked people to take on new responsibility, and bought in also new talent from across the world with diverse capabilities and shared values to really, really help us unlock these new levers and evolve some of our motions. And lastly, that our aspirations are very high. Our aspirations are to be world-class.
Our aspirations are to grow in absolute size and to do so with increasing efficiency. Our aspirations are to both grow the number of people we serve and the depth with which we serve them. We believe that those are really exciting aspirations for us as Xeros, for our customers, certainly, and for you as our shareholders. We really, really are excited to take this journey with you. We want to be in an open dialogue with you. We believe we have a transparent and open culture here at Xero. We believe we operate with transparency and collaboration with our customers. And we love to be in the same relationship with our investors. That's the way we want to operate in all dimensions of our business. So thank you for spending the day with us. We really appreciate it.
At this point, we're going to let the whole management team come up and take your questions. All right. How do we do this? Is this right?
Diya, next to you, yeah.
Thank you. We'll now begin the Q&A. We'll open the floor to questions. We'll be taking questions from those of you in the room and those of you on the line. When asking a question in the room, if you could please wait for the microphone and then introduce yourself and your company. If we can keep it to one to two questions to start, and we'll see how we go. Let's start in the room. Start over here with Eric.
Thanks very much. I'll start with two then. I didn't want to be the person that asked this. I guess on the doubling revenue target, you've got that out there now, Sukhinder. Obviously, you've got a sort of three year revenue CAGR in your KPIs as well. I'm not going to ask you for a date. But.
Good thing.
Does the law of large numbers kind of feed into that? Because I'm just thinking the market's expecting your revenue to decelerate quite heavily in year one. Even if you kind of hit that in four or five years, you're still going to have to do a high teens to 20 revenue CAGR, I would have thought. So is it easier to hit bigger numbers upfront?
I'm not going to speak to the timing or the time frame. As we noted, that is a long-term aspiration. It's not an FY 2025 to 2027 time bound. But it's something we'll go after aggressively. And we believe it's in our reach. So we won't comment beyond that on the staging of our annualized growth rate. But thank you for the question.
Had to try. Moving to Kirsty, it's really good to see that you've got a revenue per FTE target there. Just comparing it, I guess, to someone like Intuit, they might be doing over $1 million of revenue per FTE. Sage might be doing $400,000. You guys, I think, are in the high 200s. To improve that, is it purely about doubling that revenue? Or is there something you can do with the denominator as well?
Well, I think it's both, isn't it? And if I don't talk specifically to people, but I talk about the fact that we've now said that our aspiration is to get to the Rule of 40 or greater. And that is going to be a mix of continuing to have a decent revenue and then also looking at what efficiencies we can drive through our cost base. And so with the performance-based culture, with the fact that we removed 15% of our workforce earlier this financial year, we're certainly looking at the number of FTEs as well. So it's going to be around ensuring that we're increasing the productivity of every FTE we've got, plus also ensuring that we are continuing to grow the revenue.
Thanks.
Thanks Tom Beadle here from Jarden. I just had a couple of questions on the U.S. So I might ask them both because they're probably interrelated. Just firstly, just given the complexity of the U.S. market and the fact that you've had to partner rather than build certain capabilities, I guess, how does that impact your economics there relative to your other markets? It obviously seems to be structurally a lower ARPU market. And you're probably paying away a bit more to your partners over there as well. So maybe one way to think about it is, how does gross margin per customer look in the U.S. versus, say, Australia or New Zealand or the U.K.? And then the second question just on bank feeds. Obviously, that growth there's really impressive, I thought. But to what extent was not having those bank feeds in the past holding you back?
What does having those 600 feeds, I guess, allow you to do now that you may not have been able to do in the past?
Got it. So why don't we divide that question into three? I'm going to ask Diya to talk about bank feeds. I'll talk about the economics of when we partner versus when we build, particularly with an example like a bill. And then, Kirsty, you can take the gross margin question.
Mm-hmm.
Okay. Diya on bank feeds.
So on bank feeds, look, there are multiple ways to ingest bank feeds. And the easier we make it, the more happy we make our customers. And the easier it is for our customers and our accountant and bookkeepers to do their job. So it's a huge time saver. And yes, we have deepened it. We've gotten feedback. We've gotten tremendous feedback on the deepening. And as Ashley pointed out, it's something that our ABs tell us. And they are telling their customers.
With regard to economics of when we partner or embed, remember that there is obviously in the U.S. ARPU stack, if you will. Interestingly, one thing Angad talked about is actually in the U.S. ARPU stack, there is more yield in payments. And there's more yield historically in payroll versus the comparable AU and U.K. markets. So first of all, just dollars of available ARPU, when you add up the three super jobs, is bigger in the U.S. This is point one. Point two is, BILL's a public company. You can look at their own economics on what a BILL pay customer is worth. They publish it and talk about it, right, because there's both in their own economics, they'll talk about the subscription model as well as their transactional model, right? They scale on two dimensions. We're not going to talk about the economics of our partnership.
But clearly, when we move something from the ecosystem into our core stack like a white label, we expect better economics than in the ecosystem, right? And then we're thinking about the cost of our build, the opportunity cost of our build. And as you know, BILL pay in the U.S. is a sophisticated product, right? So what we know is that there's a virtuous cycle if we can increase our ARPU stack in what we can reinvest in CAC. And we also know generally what BILL pay is valued at in the U.S.. And it's a lucrative area in the U.S. in particular if you look at the economics of BILL pay. So I won't, again, not to share economics. But I think whenever we do an embedded partnership, we look to capture more economics than we would in an ecosystem deal.
Number two, we think about how that is added to our ARPU in all markets and in markets at different penetrations, what that allows us to reinvest as an example, even in CAC. That's the way we'll think generally about embedded partnerships when we allow others into our stack and how we think about the yield and the benefit.
And then as far as gross margin and whether or not when you have a lower ARPU, that therefore means that you have a lower gross margin. Now, I'll talk about gross margin being the cost of CCS. And then in case it was actually about the cost base, then I can also mention about CAC as well. Unfortunately, it's not just as easy for those of you who are wanting to model to go, if the ARPU is lower, that means that because the serving of each subscriber is X, it means that, therefore, your margin's going to be lower because of the fact that if you have, say, for example, a direct subscription which has a higher ARPU, you are having to serve that one particular subscriber.
If you have a number of subscriptions at a way lower ARPU through a practice, you're not having to have the same sort of support model because you're supporting the practice, not every single one of their clients. And so that means that our gross margin is blended. It's fantastic blended gross margin. But it's not just as simple as saying, the U.S. has lower ARPU, so therefore, the margin is going to be worse. So that's the first around gross margin. If you look at the full sort of operating margin, as we were talking about, there's dials, there's different LTV to CACs. And so you do have a different fully baked P&L for each of the different regions. We were pretty open back at the half around the amount that we have been directly investing into the U.S..
At the moment, it is a negative cash generator for us, but not by huge amounts. In time, we would expect that all of our regions change their cost profile and change their profit or loss status. That allows us to be able to continue into other markets, other newer markets.
Great. Thank you.
Thanks for taking questions. My first one.
Sorry.
My first question is just on cross-sell and upsell. I think you've kind of talked through a lot of the key levers that you have over the medium term, pretty big opportunities in payments, payroll, etc. But in the next three years, how would you rank them in terms of where you actually see the most realistic upside? Is it migrating partner additions up to business? Or is it payments or payroll? How do you think about that?
Sure. Well, first of all, I think today we showed you the different levers in the business. We're not here today to provide guidance on the stack rank of the levers. First and foremost, just to be clear, we think there are several. But I think you've heard the word experimentation a lot today. So there's some motions that are more certain and are evolutions and some motions that are new. And so I think our job as a team is to experiment and find the yield, right? But I think overall, as you probably learned about Xero, it is an evolution for us to be thinking about kind of deeper usage and deeper penetration. Historically, we've been focused on subgrowth, right, the volume growth. And we've also used, I would say, bundling as maybe the primary strategy.
What you're hearing today is, look, there were a number of different strategies. There were different levels of maturity within Xero. Overall, we're early. I think the key for all of our teams, if you're in pricing and packaging, if you're in the partner channel, if you're in the direct channel, is they're obviously, as you can see, lining up their capabilities and identifying some of the motions that are new. I'll be holding them accountable, obviously, to experimenting and driving those motions in their various areas. I mean, this is always the nature of it. You have an 80% hypothesis and a 10% hypothesis. But what we're looking to do is drive with focus and intention multiple levers in the direction of that value plus volume, right, as being a strong business. Anything else anybody wants to add?
Yeah. I'd like to just add a piece here. We talked a little bit about segmentation earlier. We're lucky enough to serve accountants and bookkeepers and small businesses. Even within an accountant and bookkeeper's practice, the types of customers they serve, they have their own specializations. One of the areas that we're really seeking to learn is what's the best product for the different types of customers that we serve. There are many axes of experimentation that we're hoping to pursue. But our most important guiding principle is right product, right customer.
Then just one more question on the U.K.. I noticed a lot of the new trials and product experiments that are happening in the U.K.. Any comment you can make as to whether this puts you ahead of your competitors? Or is it a function of the competitive intensity in that market?
We love the U.K.. We are, I hope, if anything comes through, it's that we, as a leadership team, have our stacked rank priorities. You're hearing some of them today. And that means that we want to aim our efforts in areas that matter most. Now, sometimes, as an example, people will choose to experiment in a really small market because it doesn't matter at all, right? Or it's a great place to learn. It's a test bed. New Zealand, for many companies, is a test bed for people like Facebook, Meta now. But I think if you see a lot of focus on the U.K., that's deliberate.
Yeah. And I'd just also, if I could just add that from an experimentation perspective, your bigger markets are the ones where you can usually run a shorter test and learn more, basically. So there will be a biased testing in the bigger markets over the smaller ones. You have to run a longer test. You get more noise in your test results.
Yes. To get scale of results.
Okay. We might maybe jump up the front. Oh, go for it. Go for it, [Kane.]
Sorry. Thanks, Nicole. Just a couple from me as well. Just I suppose the language around Rule of 40, Sukhinder, I mean, you've taken it from being a useful measure to, I suppose, having formal aspirations to deliver Rule of 40 or greater.
I know. It's nice progression, isn't it?
Is that obviously signaling a much greater confidence in the outlook of Xero and being able to hit those metrics? Or just trying to understand what's changed that language? I mean, is it the body of work you're presenting today? Is there specific callouts that have changed since you first introduced that?
Yeah. I mean, clearly, there's a difference between saying it's a measure and saying it's a thoughtful, credible aspiration. So I think you can see come through the work we've done on our cost profile. I think you're seeing here our continued excitement about top-line growth levers. So I think it's just maybe a measure of our intent to say that it's an aspiration. And you should take it as a meaningful statement but not guidance.
That's helpful. Mike, maybe one for you. I mean, you're talking about marketing and high-performance marketing to get the best bang for your dollar. Is there any comments you can make around the efficiencies of the teams in ANZ where obviously the CAC metrics are a bit better than the international teams? It's obviously a lot feeds into CAC. But do you think the marketing efficiency is a difference?
A couple of things I would comment on there. One is, and this is not Xero specific, but in general, your lower funnel marketing is going to be more efficient in countries and markets where your brand is stronger, which is generally going to correlate to higher market share, basically. There's a logical reason for that. It kind of intuitively makes sense that people will recognize you when they see your ads. They're going to be more likely to click on your ads. They're going to be more likely to buy. That is why you do the upper funnel marketing. It's a benefit of doing it. In terms of why Australia is relatively more efficient than a more competitive market like the U.S. or the U.K., that's a choice we make.
There's nothing fundamental other than the strength of our brand, basically, that makes Australia more efficient. What we're trying to get to is now, there are idiosyncratic things because to some degree, we do things differently in Australia today because all this work has been done sort of region-first. We're moving to a global-first structure. When we do a global-first, once we figure out the best way to do it, we will be doing it the same way everywhere. I don't think that's the major factor at the moment that would explain the difference in what you would see in the U.K. versus Australia. It's our choices that we make, I think, that are a bigger factor.
Thanks, guys. Thanks for the presentations.
Hi. This is Sriharsh from Bank of America. Two questions from my side. One, some of the product enhancements you talked about were super impressive: the automatic reconciliations, increase in bank feeds, improvements in payment integrations, all of that. I was wondering, how does that position Xero in the U.S. versus your competitor? Does it allow you to compete more effectively? Or is it a completely my question maybe is, what positioning are you aspiring in that market? Is it a more open ecosystem versus a closed ecosystem? So something in those lines. Second, could you talk a little bit about how you've changed your product investment planning and maybe the impact and efficiencies in the future? So it looks like you're going to be more focused 3x3 opportunity. how does that compare to two or three years back?
How should we think about that?
Okay. So it sounds like there's two questions in there. One question is on our competitive positioning in the U.S.. And the second is on product planning and its implications. So with regard to the first, at the half, we noted what we believe our positioning stands is in the U.S.. And it hasn't changed, right? In a highly competitive market where you have, obviously, a large incumbent, your job is to figure out what is your point of differentiation or value to your customers. And as we stated then, number one, we believe the CAS segment of ABs. Number two, the SMB segment, particularly the small SMB segment that has more needs or jobs to be done, really values, I would say, the artistry and the beauty of the Xero product.
Number three, that open ecosystem in a market where there is lots of choice of fintech apps, the ability to take Xero and pair it with we might do a deal with BILL. But the reality is you can still pair it with Milio or Ramp if you want. You can choose Gusto. Or you can choose ADP. You can choose any variety. In a world where the other choice is increasingly closed and we continue to be a place where you can mix and match, that is our positioning. I think it is very complementary to, 3x3 kind of focus we announced more globally today. Diya, do you want to talk about product planning and anything else to say on the U.S.?
No. I agree with you. I think it's our open ecosystem. We lean into that. Making the product better overall appeals to more of our customers and our customer base. But going back to that, I think Sukhinder covered that point really well. I think going back to the product planning, what I would say is it is more focused. Like I said, an area of opportunity for us is to be pretty clear about the target segments we're building for and being able to build for that. And I think that has given us more focus. And again, in product development and design, that does help you produce a much sharper and a better product for your target customer segments and markets.
The only reason we were able to increase the bank feeds by that much is because we said we are going to focus on U.S. bank feeds versus bank feeds across the globe for every other country. So I think the velocity you're seeing or the acceleration you're seeing and the depth of product building you're seeing, at least through my presentation and the demos, is because you're focusing. You know the target segments you're focusing on. You know the target markets you're focusing on. And you know what you're trying to build.
I would say there's one other factor in the velocity of our product and technology besides focus that we're seeing, which is I just want to speak to it: technical depth. Diya is a world-class product leader. She has technical depth. Right now, she's over both product and our technology organization.
Just a follow-up.
Yeah. Just to finish that thought, though, even having her lead both right now leads to velocity and clarity in product planning, right? Pushing the next level of our product and technical leadership teams to have technical depth, it matters. If you want to build a great product, technical depth in product and engineering matters. We're investing in that too.
Has the composition of that investment team, product R&D team, changed? Are you hiring more people in the U.S. versus other markets previously?
Honestly, we have world-class people here. We are hiring.
People in the U.S.
We are hiring people in the U.S. and here. We're hiring people everywhere. We are looking for domain experts. So we are neutral where we find domain experts. And I'd say we have a bias to hiring them in the southern hemisphere if the expertise is there because this is where most of our teams are. And everything I pointed out, stuff on payments, I think we are an amazing payments engineering leader. The stuff I pointed out on payroll, that was done from here. So I do think we have tremendous, tremendous technical capabilities here. And yes, you know what? Where do you go in the world to find generative AI talent right now? Unfortunately, it's on one coast in one country right now because it's so new. So we go there, right? But in general, I don't think it is a region-focused strategy.
It is a global strategy of getting the right talent and the best talent where we get it.
Thank you.
Hey. Paul Mason from E&P. So two from me. The first one, I just wanted you guys to touch on payroll a bit deeper and a couple of angles. So you called out a little bit about maybe needing more product-market fit. But the bigger callout in the presentation today was how different Australia's pricing structure is where it's bundled versus the rest of the world where you have it as an add-on. And so I was wondering if you could maybe.
Touch on why that historical difference was there and whether that's just a basic pathway to actually getting more of that. Or you think there's something in the way that you haven't sort of touched on that means it's more complex than just copying Australia. Then the second one was just on Partner Edition plans. So I'm really happy to hear that you guys are really focused on payroll and payments. It's something I've been wanting for a while. The Partner Edition plans have this problem, though, where the SME doesn't use the product, right? And so I was hoping you could maybe talk on sort of your strategy around converting those Partner Edition plans to actually touching the product and then having that upsell opportunity, so.
Angad, do you want to start?
Sure. So I think if I repeat them, make sure I got them right. One was around payroll and why we haven't got that.
Bundled.
Bundled in other markets. Then we'll talk about partner edition to BE. As Diya mentioned in her presentation, yes, we do have things that we need to work on in our payroll product in the U.K. and a little bit in New Zealand. That's, as you just heard, as an example in the U.S. around bank feeds, focus matters. So it's not that there's something fundamentally wrong. It's been a choice set around how we've gone broad. Now, we're going to focus on those different markets. Our job now is to focus on getting the product where we think it's appropriate, then looking at, again, the customer needs. Is it the right thing to bundle? Different markets have different needs.
If we do look at something like the U.S., it's a very different market dynamic to Australia around how much an AB does payroll for their customer. The U.K. has a similar market dynamic that we need to take into account. First, get product-market fit. Then look at the right bundling strategy for adoption. As I mentioned, between PE and BE, I think it's important to note PE plans serve a purpose. They serve certain segments really well. Our strategy is not to say, "Look at that chart and get everything from PE to B." That is not a reality. That's important to understand. Is it true that there are some customers on a PE that could be on a BE to run their business? Absolutely.
Our job, through both pricing and packaging, but as you heard between Mike and Ashley, use those levers, whether it's directly talking to an AB and helping them understand their book and taking them on that journey, whether it's talking through the direct channel and helping them understand through lifecycle marketing to bring those people on that journey. So it's not an instant switch. It takes time. And again, it's not that whole book because those PE plans serve a really important purpose.
I want to add to that in terms of what drives conversion. You heard Angad today talk about pricing and packaging. I spoke a little bit about incentives, both on the partner program side and sales incentives. And the third thing is motions, new sales motions. And when you start pairing those three levers together, not any one of them is going to solve for what you're describing. But if you start to layer them, we have a much greater likelihood of really understanding our customers and making sure that they get to the right product. Thank you, Paul.
I feel bad for Bob. He sent us handouts at the very beginning. Okay. Sorry, Bob. I feel like you were question number two. We're on.
Just a couple of questions for me. I mean, maybe firstly, just on the cost base. So we reiterated that guidance for 75% this year. I think it was a little bit higher in the first year. So everyone's expecting that really strong improvement in the second half or first half to second half. We've obviously seen a lot of products potentially being launched this year as well. I imagine it'll take a bit of time for these products to actually convert into new subs and pricing. So if I think about the profile of your cost base into maybe next year, does that imply it could plateau a little bit rather than continually delivering that operating leverage we've seen this year?
Great question, Bob. Not one I can answer. But a great question. Just to confirm, it does mean that the second half has to be lower to ensure that we get to that around 75%. And I suppose all I can do is just reiterate that within our long-term guidance that we spoke around at the half, we are continually driving effectively efficiency through the business all the time. And with our aspiration being around hitting the Rule of 40 or greater, it is a big focus for us. But also, we want to really make sure that it's very clear that we're doing it in a really balanced way because ultimately, we want to ensure that we're investing enough to grow. But we also want to do it at the same time looking and really caring about that efficiency drive as well.
Yeah. Okay. Cool. Maybe just on the generative AI side, I've obviously seen JAX, which looks really cool. Maybe just using it internally for your own cost efficiency, is that something that you guys have also explored in the product and tech team? Is there opportunities there?
Yeah. I can take that. We are running multiple experiments. And we are looking at various different ways, whether it's assisting engineers with coding, it is making designing easier, it's helping understand code that's super old, like the payments code, etc. So there's a multitude of things we're doing there and experimenting with.
There's also on the marketing side, I would add, there are opportunities there. So SEO content, for example, which is often sort of long-tail content. We're exploring using generative AI basically for creating some of that content. There will be opportunities going forward, we expect, in things like ad creatives for both image generation and also for copy. Again, we're thinking about how to do things globally. And so there will be opportunities, we think, to leverage it to do better and perhaps more localized. But all of those are exploratory right now.
Thanks.
Okay. If you'd like to move to take a call.
From the phone lines. Operator, can we take a question from the phone line, please? Thank you. If you wish to ask a question, please press star 1 on your telephone. Your first question comes from Nick Basile with CLSA. Please go ahead.
Good afternoon. Thanks for the opportunity to ask questions. I have two. The first one is a bit of a longer one on product-market fit. I think there was a couple of comments on improving product-market fit in the U.S. You've talked about the 600 direct bank data feeds. I'm just interested, how much coverage of the U.S. market do you think you have from a proportion of total bank accounts? Did you pass through any kind of tipping point? And then as far as those bank reconciliations are concerned, do you think that you now more or less have leveled the playing field with Intuit or others in that market? And then also still on product-market fit, I think the Avalara Open Data was launched about six months ago. Can you comment on any first impressions or feedback you're getting, say, improving NPS or other metrics?
And then I'll just jump to the second one as well on go-to-market. Sorry. Can you hear me?
Yeah. Yeah. We hear you.
We can hear you.
Yeah. Sorry. On go-to-market, you talked a lot about focus on existing customers. When we think about the increasing focus on marketing and customer success to drive growth in that existing customer set across the product ladder, can you help us understand the proportion of customers that you think can be lifted from the lower tiers to the higher-paying tiers over the next three years? I think, for example, some of the jumps between tiers are as much as 25%-100%. So just interested to understand how that plays to the doubling of revenue over undefined time frames here.
Got it. Why don't we have Diya answer the questions about bank feeds, bank rec, and Avalara towards U.S. product-market fit? Let's start there.
Yeah. Okay. So on bank feeds, we actually cover all the 4,000 institutions. Coverage comes, as I mentioned, at different quality levels based on what we're able to do to connect to the bank. So if you use credential sharing through Yodlee or Flinks, quality is different than if you use a direct bank feed. So for a very long time, we've had coverage across all the 4,000 institutions. It's a question now about increasing the quality of each of those. And when I talk about going from 20 to 600 bank feeds, that is essentially increasing the quality. We're never going to have 4,000 direct feeds because it doesn't make a whole lot of sense. We're going to cover the top banks. And we're from a volume market share perspective. And we're fairly close after this year, actually.
On bank RAC, we have been working on bank reconciliation, making bank feeds better, helps with our bank reconciliation. There are a few more features that need to land that will land sometime in the next in FY 2025 that give us the flexibility to make our bank reconciliation even deeper. But in general, I think we are doing a great job there. For Avalara, the feedback has been very strong. I don't remember the CSAT off my head. But it's in the high 80s. And the feedback has been really, really strong in the market for six months. It's one of the things that our ABs tell us has been extremely useful. It's one of the things we hear back from Ashley's team in the U.S.. It comes up through all of our feedback when we do UX research, etc. So it's done really, really well.
Coming to your second question on how much yield there is, look, we don't release, and we didn't today, obviously, the number of subs we have on each plan, right, as between the different types of BE edition products and PE edition products. So we're not going to share that. But if we shared, it would probably give you some sense of the opportunity at each move. What I will say, though, on balance, of course, is that if you just think about the number of subs on PEs in total to BEs, that is sort of the widest swath. And then within BE, obviously, there are big jumps in price. But the relative number of people in the entire book that are on Xero Ultimate, as an example, is a much smaller number. So that probably gives you some sense for where the upgrade opportunities are.
They exist across the ladder. They're just at different magnitudes. Some are easier. Some are harder. Again, I think Ashley said it well. Our job isn't to just make one big move. Our job is to layer moves, experiment, try, go after it different ways, figure out what resonates to get that ultimate aim: right customer, right product, right time.
Can we might be back to the room to Suraj?
Thanks. Last two questions. First one, Sukhinder, just following up Eric's question on that doubling revenue growth target. So you put the target in without a timeline. I'm just wondering why you mentioned that because the market's already got that in, I think, by FY 2029 or something. So are you trying to send a signal, "Listen, revenue growth can actually be a bit faster. We think there's more opportunity here"? Just wondering why you even mentioned that in the first place.
Sure. I measure it because I want to say something about the size of our aspirations overall. First of all, we just think scale matters. Just scale. Number two, at the half, I remember getting lots of questions about whether our intent was just to pursue absolute efficiency. And I was like, "No, no. We are focused on top-line growth. It's just to signal our intention, our focus." Put a statement out. Put a statement out there. Again, just to maybe signal the degree to which we care about top-line and absolute scale as much as we care about efficiency. That's it.
Got it. Thanks. So second one, just in terms of following up Nick's question, you have that slide, I think slide 84, which shows I think your products are skewed more or your current portfolio is skewed more towards the start-end, right? So if you look at your addressable market, you've got the two focus segments of jobs to be done. Where do you think it should be? I'm not saying because you have your addressable market and your customer base, right? Where do you think it should be? Should it be more towards the ultimate end? Not that you should upgrade them. But naturally, this is where your customers should be based on where you focus.
I think we're showing that more to just show you illustratively where our skews are today and where our segment focus is. And so I don't think you should take anything more from it than that. I'm not kind of guessing. I'm not here to guess whether or not we're 5% off, 10% off, 50% off, more to just say to you, "This is how we're looking at the market. These are how we're looking at the jobs. We still think there's opportunities to think about our product ladder overall and how people seamlessly move." And that's just what we have to work with today as a starting point.
Can I ask a quick one on U.K.? Just one quick thing. Just on making taxes, the next phase is ITSA, right?
Yep.
Looking at your focus customer base, that's not there. So should we be thinking ITSA is not really a driver for Xero in the U.K.?
Well, it's interesting. I mean, so obviously, we have phase three. I think Diya and Angad both touched on two things. There's who we design for. But there's also the need to just make sure we have coverage for our ABs across their portfolio. So ITSA is a major event. And as such, we will think about how we make sure we're ready for ITSA. That is important because it's important to our ABs. And it's important to just having coverage, right? So I think we think ITSA is relevant. That doesn't detract from who we will, on an ongoing matter, design our products for and where we have the most, I would just say, engagement opportunity. So we're just very clear on where will we make where do we make all our money and get all our engagement?
Of course, we are aware and want to be attuned to market tailwinds and the needs to have coverage of the market at a basic level for our ABs.
Okay. We might go back to the phone lines, please, operator. Thank you. Your next question comes from Rohan Sundram with MST Financial. Please go ahead.
Hi, team. Can you hear me?
We can. Thanks, Rowan.
Thanks for the opportunity. Appreciate it so. I have a couple. First one is around M&A and going back to your comments earlier, Kirsty. Sorry if I missed it. But maybe if whoever wants to chip in, do you feel you can get to that aspiration organically? Otherwise, I was just keen to understand how important a role M&A plays in that aspiration.
So the aspiration—I mean, if you think around both sides, I suppose, of the aspiration, doubling the revenue—we haven't said what time frame it's in. We certainly have the opportunity of being able to double our revenue organically or with an organic, depending on the time frame. And similar for the Rule of 40. I think what's important is that when it comes to a product roadmap, we have three different choices. We can either choose to build it. We can choose to partner. Or we can choose to acquire. And so therefore, today, we've been signaling that it has been something that we have used in the past that has been successful. And from a programmatic perspective, we will definitely look at opportunities as well in the future.
Yeah. I think as we talked about—sorry, just to finish up. As we talked about winning solutions for customers and you've heard the other term today is velocity, if to get to better solutions faster, it implicates M&A. Programmatically, we will use it. We've used it historically in the past. It's been successful when you look at the principles that have worked for us. So I think it's really about principle-based M&A. But programmatic, certainly. If we see the opportunity to accelerate winning for our customers, we'll take it.
Wow. Thank you. That's helpful. I get a lot of that. In light of the aspiration, I appreciate there's no time frame around it. In the targeted M&A that you look at, would you be looking at something that's not just a incremental revenue story but something that also has some sort of free cash flow profile to it as opposed to something that might take three years to come good or can you tell you how would you be thinking about that?
Do you want me to? I'll start. And then you can continue. So I think that broadly speaking, when I think about successful M&A and think about the principles we talked about, supporting the core strategy, keep it simple, best-in-class capability, I think in some ways, what I observe sometimes when I look at M&A more broadly, not just in the context of Xero, I see two classes of companies. Number one, you sometimes see teams and products that are early but best-in-class, right, like PayCycle. I wasn't here when we acquired it. But I imagined someone smart at Xero looked at it and they're like, "That's a great payroll product. Let's take it early. And let's integrate it early." And that turned out to be a good bad, right? That PayCycle wasn't generating a lot of revenue.
But luckily for us, we got it, tucked it in quickly, and went away. And so when you find those best-in-class capabilities, often that can come early. And there, it's product tuck in. And then at the other extreme is best-in-class often comes with market leaders, right? And there, obviously, we will be looking at a lot of different things, right? If you're looking at best-in-class capabilities, there, it doesn't just mean product. It might implicate how good the management team is, where they sit on Rule of 40 or what have you versus us. And often, I just say the trick is to M&A to do sometimes in the middle where it's not best-in-class capability. And so hopefully, that just gives you a steer in how we think about it. Either way, I think we want to use the principles.
I think we run into the question of whether or not they are Rule of 40 positive or whatever when we look at the second class, which is companies that are market leaders but are also quite sizable, which is different from companies that are small and, quite frankly, likely losing money but have best-in-class capability and a best-in-class product which we can attach and drive distribution for.
That's helpful, Sukhinder. Thank you. If I can just please sneak in one more. It's a quick one. It's basically for anyone in the room that's well, basically, for Sukhinder or Diya, anyone in the room that's been at both Xero and Google is, how would you compare is it possible to compare the culture of Xero today to, say, a couple of years ago? And how would the culture now compare to that of Google from your experience?
Got it. Do you want to talk about how the culture of Xero compares to the culture of Google? Diya has been there much more recently, maybe in the last five years. I've been there. I was there 10 years ago.
So it's hard to compare the cultures. But I'll tell you what stands out about Xero. What stands out about Xero is that, one, it is a very, very mission-driven culture unlike anywhere I have ever seen. And that makes people go the extra mile for their customers, at least from a product perspective, in a way that I haven't seen in any other place I worked at. The other thing that I think I really like about Xero is there's this entrepreneurial capability where even if you don't know something, people go and figure it out. So a bunch of the engineers that essentially may or may not have done modernization the way it was done went and studied it, talked to people, and then given two or three leaders that have done it, you could just propel them to do all of it.
So usually, you see people in companies without necessarily talking about Google per se. You see people, at least in a bunch of companies in the Bay Area, that have more experience but necessarily, I think the entrepreneurial spirit and the ability to learn and grow is very, very high here.
The one thing I can say and obviously, my time is more dated. But at Google, I was always at groups that were starting. So I was first in Maps. And that was quite entrepreneurial. And then I'd say when I ran APAC and LATAM and I actually would say this is more similar to Xero than the rest of Google. When I was running APAC and LATAM, it was a portfolio of markets where we were categorically winning, like Australia, and categorically losing, like Korea, where we had 4% market share. And that never changed. And so one of the things I actually appreciated about my time at Google, which I don't think is the average Googler's experience, is I had a messy portfolio. It wasn't all winning all the time. And that teaches you a different bunch of skills.
I remember for those of you who've ever heard of Bill Campbell. Bill Campbell was a Google board member but ran Intuit early, early on and then was a coach to Steve Jobs and Eric Schmidt and a bunch of other CEOs in Silicon Valley. But he used to roam the halls and coach us as executives. I used to complain all the time. I'm like, "Man, my job is really hard. In the U.S., they just make money hand over fist." And I'm like, "I have markets where they don't [audio distortion] , but they want to enter China." And I'm like, "I've got to convince them to." And he would just say to me, "Be happy to be in the part of Google where you get the dirt underneath your fingernails. It teaches you what business looks like outside of Google." And that's definitely true.
So here, we have dirt under our fingernails pretty proudly. We work really hard. We're going to keep working really hard for our growth. That's the way the world works. It doesn't all come easy. And I was trained in the part of Google where it didn't all come easy. And I actually appreciate that.
Thanks very much.
Thank you. I've just got one quick one. With the convertible note expiry in 3Q of 2026 and scale matters, as you say, Sukhinder, so we're looking to double revenues, do we think there's going to be a change to capital structure post that convertible note rolling off? Can you self-fund growth? Is there an attitude to do so?
Yeah. So I mean, we're currently having conversations with the board just around our capital management structure, not only just sort of what we're going to do in the more sort of short to medium term with the current convert but then what the shape of our balance sheet should look like longer term. I mean, as I said, we have a very healthy balance sheet at the moment. And also, we are now in a position and as we continue to really drive that Rule of 40 or greater, we are only going to be generating more free cash flow, which gives us huge amounts of opportunity. So I suppose unable to really give you the shape of that capital management plan but just be rest assured it is something that we are actively having conversations with th e board at the moment on.
Sorry. It's Eric C hoy from Barrenjoey again. Can I ask a question about BILL? So obviously, they used to be partnered with Intuit. And they've got 470,000 SMB customers. So I'm just wondering if you've done any work on how many of those subs are specifically Intuit customers today that aren't Xero and therefore they're an opportunity to kind of cross-sell into that base?
It's a good question. Obviously, the deal we announced today is not about our cross-sell into their base. It's about their embedding in Xero. But we do have data, obviously, first of all, on what customers we already share. But I would just note that the deal we announced today is not about our cross-sell into their base.
It's about actually coming forward in the journey because all the customer research indicates that people make their choice of accounting system before they make their bill pay choice. So when we sat down with BILL, and obviously we're excited to work with BILL, we think they're a great company. I've known Ren`e f or 20 years. He's a tremendous CEO and founder. But when we talked about the biggest yield opportunity, we were obviously looking to fill a core job to be done. But the reality is we're trying to intersect the customer when they're making a core accounting decision, which is historically, and data would show, long before they make a bill pay decision. So it's about catching them, catching the bill pay opportunity first. So it's really not about today's deal. It's not about cross-selling to their base.
Makes sense. Just an observation that that install base looks quite significant versus your U.S. system.
It does.
Yeah.
It does.
Can I ask a follow-up one just to Ashley? Obviously a lot of the, the future yield upside is gonna be about upselling, as everyone else has commented on. And there's some charts in the pack that kind of shows a touch under 50% is, is partner addition today. And I think, Ashley, you mentioned because of the focus on CAS, you've seen some early wins just migrating up to that, the, the BEs instead. So maybe can you just talk about the early signs that you're seeing and what you've done to drive that?
Sure. I mean, I am an optimist, yes. But I, I see tremendous opportunity across both acquisition and deepening the relationship. And so you'll see varying degrees of that in different markets. The U.S. is a great market example where there's a ton of acquisition opportunity as well as that sort of cross-sell, upsell, and penetration opportunity. You know, we see we see that across several different markets. Just some insight about, the CAS segment overall. We, we're re we're recognizing through that that we have, we have an opportunity, a continued opportunity rather, to serve accountants and bookkeepers in a market where it's very SMB-focused, if that makes sense, right? You might have seen on my slides that, that curve of, in the U.S., there are more SMBs that choose to do it themselves. That is a very sort of entrepreneurial spirit, like the desire to DIY.
The one thing they'll turn to their accountants and bookkeepers for are highly tedious or complex jobs but also advisory. And so it's really connecting what it is that SMBs want and what it is that and how ABs want to develop their own practices. So you're starting to see those connect there.
Thank you.
Is that helpful?
Yes.
Thank you.
Hey, thanks again. Paul here. So just, this is probably for Diya. In terms of the, payroll modernization, and you sort of if I've interpreted it right, you said you've taken an old architecture and moved it to microservices. And I think you made some comments about, like, the core code base of Xero not being on microservices yet, but I'm not 100% sure you said that. So just clarifying. And if you did say that, could you maybe tell us about, like, is there an active program to sort of get the whole code base there and is that something that's gonna happen, like, you know, in the next, like, two years or so? Or is that something that's, like, a really long-term project? Cause and the reason I ask is 'cause usually people that get there, your R&D efficiency goes through the roof all of a sudden, and you can release daily instead of, like, quarterly or whatever.
We do release daily. Okay. I will, that's a great question. So, first, we have a mix of monoliths and microservices. The code base wasn't developed 10 years ago. It was developed over 10 years, which means different parts of the code bases are in some are extremely modern and some, like, literally rewritten six months ago, and some, some are older. Like, the payroll one was older. So that's one thing I'll say. And, the second thing I'll say is there are lots of tech companies that have a mix, and they don't need to go change their monoliths because the monoliths are small enough, and they get deployed frequently enough, and they're easy to change. And it's, it's the right structure for that code base. So the one or the other isn't better.
It just depends on what the code is and what it's doing. In payroll, we wanted regional flexibility, so we did it. That made sense in that case. In terms of converting our whole code base over, like I said, it depends on the function, and it depends on what you're trying to do. A lot of we have done a lot of modernization work over the last couple of years. We have more to do, and we will continuously do it. I don't think you ever get done with this. I mean, the microservices, as you add more features, grow bigger, and then you have to break that down again in a company that's successful, right?
So over time, we are going to continuously balance modernizing and innovating, and we're gonna say, "Here are the parts of the code bases that make sense as a domain, to logically sit together, and it should be this big, and, and here's what it doesn't," and we'll do that throughout our code base. Payroll was just one example. I think a lot of people think, like, it's a one-and-done, or there's some big, big, big overhaul. And I just have never seen that work in practice. You're continuously developing. It's continuously becoming bigger or smaller.
Yeah. I would say a couple of things to add. First of all, if you're a tiny SaaS company and you were built over the last five years entirely on other people's as-a-service engines, yes, it's possible to have, you know, P&T as a percentage of revenue be astonishingly small. You know, sometimes you see, like, people who are built in a world where there's billing as a service, and everything is as a service. And so the amount of code you build to deploy, right? But the average company that's 17 years old is not that, right? I think the one clear choice we're making first of all, Diya's noted quite pragmatically that she doesn't believe in Big Bang. But the clear choice we're making is to modernize while delivering customer value because the option to not do that is a way higher opportunity cost than a P&T percentage that comes out slower than we would like.
Like, we're not gonna miss the customer opportunity because of the cost of modernizing. So I don't think you believe in that path anyway. But the reality is.
No, I don't think any company has survived trying to do that. There is not one company that survived that.
Particularly our age and our complexity. But the reality is we also just live in a world right now where we're focused on adding customer value and tackling the different parts of our code base that need to be modernized by modernizing first where there is customer value that we wanna unlock at the same time.
Yeah.
As opposed to just saying, "Hey, we're gonna stop innovating for customers and just go deploy a whole big set of engineers here." 'Cause quite frankly, the opportunity cost in our business is high. Like, it's top-line growth. It's market share. It's, penetration with customers. And so I think we're just taking quite a pragmatic approach.
Yeah. And I think you'll see developer velocity continue to increase, which was your question, based on the approach we were following. You could not have done the launches we talked about today if developer velocity wasn't significantly increasing.
Thanks so much, Sandy. Diya, can I just follow up Paul's question? Because the R&D spend, the P&T spend has been a very topical, right? So you had this future of Xero program, I think, Fox program that you had. So are you saying that previously the approach was, "Let's modernize Big Bang," and now you're just becoming more focused, and it's more towards innovation, modernize as you go? Can you just clarify that, whether it was Big Bang before and you're taking a different approach?
Yeah. I think, in the Fox era, it was much more about a Big Bang, and a much bigger bang. And I'm not saying we're not like, we're not might not do 1 or 2 small pieces where we have a bunch of skilled engineers. But really, the way what we're focusing on is you can do this as you innovate and drive customer value. They are not in, in, conflict, number 1. Number 2, if you really want to, successfully be a successful tech company over many years, microservices is one innovation. There's gonna be another one tomorrow. There have been 5 in deployment with CI/CD, etc. So you have to continually do it, and you have to build that muscle. So yes, it is a change in philosophy.
Yeah. And Sukhinder, in terms of the super jobs and the six key jobs to be done, do you think Xero needs to own them in those three markets? I'm just thinking, you know, looking at the U.S. Gusto for payroll, you're not owning them, right?
Right.
Secondly, do you need to be best-in-class for those super jobs? Because there's a view that Xero, you know, does till here and maybe, you know, Expensify is the best expenses, right? So just two parts. Do you wanna, do you need to own them, those super jobs, and do you need to be best-in-class?
First of all, I think on the super jobs, you need to be seamless to the user. Okay? So when you say, "What is the importance of the being able to complete those jobs on Xero? However we provided them, I think to the user, it needs to be a great experience." Because that's, that's their need set, right? And then, of course, there's ARPU attached to fully servicing them, right? So if you fully service them within the platform, it's different than servicing in the monolith ecosystem, right? Not only is that not maybe the best user experience, it's also not a full monetization opportunity. So I think we wanna capture the full user value, a seamless experience, and the full monetization opportunity. Now, you make the right point, which is in the U.S., there are many of these jobs that have been completed.
Quite frankly, that's true around the world, right? There's a reason we chose to partner with Avalara. And I think many of you, few of you, have been with Xero far longer than I have and know that at one point, we attempted to build sales tax on our own. And the cost of building it versus the, you know, versus the length of time it would take and the complexity, we just at one point said, "It's time out. Let's do Avalara." So I think in the U.S., more than many places, we will have either a partner or build choice, and it will be a more critical choice. 'Cause to your point, that customer knows what good looks like, having been serviced by so many fintechs. So I think this will be where speed to market, you know, might be, partner choice.
But I think it's not like a partner-like choose-your-own-adventure. It's no, no. We're gonna create a seamless experience with you within Xero, you know, across that SB journey. So I think you have to complete the jobs insofar as the customer is expecting a full experience on Xero. And we are gonna expect to monetize that more fully, because it's important to the customer. It's an important job for us. How we service it can still be a choice.
Okay. We might go back to the phone lines, please, operator.
Thank you. Your next question comes from Nick Basile with CLSA. Please go ahead.
Oh, thanks. Just one more for Michael. It was a fascinating slide on the impact of your experimentation on promotion. Just interested, can you give us a practical example of what an optimized offer looks like versus unoptimized? And just interested sort of what response from competitors you've been seeing when you start to drive higher conversion. Have you seen any pull away for a period of time from segments?
Su.
thanks.
Yeah. Sure. So, Su, you can think about it. There's not a sort of a right or a wrong answer to that question. It depends on what your goal is. So in other words, at certain times, we're likely to be to want to be more aggressive, and at other times, we're likely to wanna be less aggressive. And so our goal is to really understand what we get when we're more aggressive, what we get when we're less aggressive, what we forgo if we move from one to the other. So in general, in a competitive environment, what we learn from this is we wanna be competitive, you know, which is kind of, like, intuitive. You know, and so and frankly, like, in a few instances, we had not been as competitive as we could be. And so we, as a result of that, have become more competitive.
I realize that may not be the most satisfying answer, but the reality is, you know, it depends on what you want. General trends that you see, as you would expect, is if you make a bigger offer, then, you know, you get more conversions. That's not terribly surprising, but it costs you a bit more, you know? And so, the form of the offer, all of this is still in the works, so I don't wanna really be very specific. But let it suffice to say, we learned a lot about the different choices that we have there, and we can be more deliberate in making them now.
Great. All right. I don't think there's any more questions in the room. We're finished on the phone, so we'll hand it back to you, Sukhinder.
Sure. Well, first of all, again, I would like to just say thank you to all of you for taking the day. As you know, this is our first-ever investor day. We were really excited to put this material together, basically pretty hot off the presses with our own board. I hope you can sense the conviction we feel about the plan we're pursuing. Oh, as I said before, we would love for you to share in that excitement. We have it. We believe it provides a clear roadmap for you to how we're thinking about the business and the capabilities we need to grow. And as I said, we are looking forward to your feedback, would love to be in a dialogue with you always, about what you think we could be doing better, where you see improvement, as we pursue kind of this next three years.
I also wanna say, and this is really important, of course, not just a thank you to all of you, a real thank you to the Xero team, Nicole, Alec, our brand team. I mean, you know, we have teams here from the U.S. who've been working on demos. We've had teams that have been driving to make JAX reality, not just for you, but for our own business. It's just been an amazing, amazing effort from our team and sort of the best of Xero. So I hope you saw some of that today. And real thank you to Alec and Nicole for making it happen. So thanks so much.
We're done.
All right. We're done.