Good morning, everyone. Thanks for joining us here at Intuit's Annual Investor Day. I'm Matt Rhodes, Head of Investor Relations and Corporate FP and A here at Intuit. I appreciate everyone joining here in the room as well as folks on the webcast. Wanted to just make a few logistical announcements before I hand it off to Brad to really kick the day off.
One of the things that we'll have going on today are some product demos, the Gallery Walk. So when we get to our break a little later, you'll be able to see QuickBooks Online and some other solutions out there, mingle with some product managers. There's some Wi Fi information in the binders for folks in the room, so you should be able to connect. Most of you have probably seen that. Your TurboTax code is in there as well as some links to actually be able to use our products.
There's a hard copy in there and then on the key drive we gave you, there's a soft copy. So you can actually use that to click on some links and get out there and use some of our products like QuickBooks Online and TurboTax. So I encourage you to check that out after today. Restrooms, if you were able to walk straight through this wall, they'd be right behind us. Best thing to do is go out this door to my left and weave around to the right and you'll see them right around the corner.
So feel free to hit the restroom when you need to. You guys all probably found the food and coffee right outside, so help yourselves to that as well. What I'm going to do real quick is just everybody's favorite part of every Investor Day, real quick read through the forward looking statements. These presentation materials include forward looking statements. There are a number of factors that could cause our results to differ materially from our expectations.
Please see the section entitled Caution about Forward Looking Statements in the enclosed appendix for information regarding forward looking statements and related risks and uncertainties. You can also learn more about these risks in our Form 10 ks for fiscal 2014 and our other SEC filings, which are available on the Investor Relations page of Intuit's website at www.intuit.com. We assume no obligation to update any forward looking statement. The information in this presentation is intended to outline our general product direction, but represents no obligation and should not be relied on in making a purchase decision. These presentations include certain non GAAP financial measures.
Please see the section entitled about non GAAP financial measures in the enclosed appendix for an explanation of management's use of these measures and a reconciliation to the most directly comparable GAAP financial measures. Feel like the old FedEx guy from the commercials there. I just want to give you a quick sneak peek of the agenda. We're going to start with Brad here in a second. Sasan is going to talk about the consumer tax business.
We've got C. C. Morgan, the GM of our pro tax business to share what's going on there strategy wise and some new things that are coming down the pipe. So there'll be some interesting new stuff we're working on in C. C.
Section. After that, this will probably be around 9:45. We're going to have a break. As I mentioned, we're going to have products out here in the hallway as well as some refreshments. You'll be able to hang out for 20, 30 minutes with product managers and check out our products.
After the break, we'll come back. We'll have Dan Wernicoff talking about small business. Neil will wrap it up on the financial side from a presentation standpoint. And if all goes well, we've saved about an hour, a little more time for Q and A this year. So hopefully that will work well.
We'll have about an hour at
the end. Brad will moderate, but then all of the leadership team will be here to answer your questions. From 12 to 1, we're going to have lunch and that's when you'll have a little more time to interact with folks at the Gallery Walk and see the products and interact with all the product managers. Management will be sticking around, so please stick around from noon to 1, grab some food and hang out with us. So without further ado, I'm going to go ahead and hand it over to Brad Smith, our CEO.
Thanks again.
Thank you, Matt. Beautiful tie clip by the way. Looking fashionable this morning. I think he's one of about 4 people who have a tie on in the valley. All right.
Well, good morning, everyone. I want to add my warm welcome to Intuit's 2014 Investor Day. As Matt shared, we have a full agenda for you today, and hopefully, you're going to find what we have to share with you both useful and hopefully encouraging. I will tell you fiscal year 'fourteen for us was an unbelievably exciting year. It was a year where we reached a critical inflection point in our shift to the cloud.
It's also a year where we made several very important strategic decisions that strengthen our position for the future. Our goal today is actually lay out for you the context for those particular results as well as the decisions that we made and then to outline our game plan to accelerate our performance as we move ahead. Now to begin, what I'd like to do is I'd like to look back at a slide I shared with you last year at this time, which defined the change management journey that we were on inside the company. It's a change journey that actually began in 2,008. At that time, we celebrated our company's 20 5th anniversary, but we recognized the external market was in the midst of a pretty significant shift, a once in a generation shift, a shift to the cloud that included mobile devices, global distribution and the early onset of big data.
And at that point, we declared as a company we were going to move from a shrink-wrap desktop software company to a connected services company that was going to embrace social, mobile and global trends. And so we stepped back and we revved up our innovation pipeline. We rolled out 10% unstructured time. We began to implement things like the lean startup and design for delight, and we began to produce a lot of new creative products that worked in a connected services world. That accelerated our customer growth.
It accelerated our top line revenue growth. It expanded our operating margins, and that continued to power through 4 or 5 pretty significant years of good results. But then in fiscal year 'thirteen, we began to notice something. Our momentum had begun to slow. If you plotted our results on an S curve or a growth curve, we were just about here.
Now we weren't out of gas. There was no reason for alarm. But as John F. Kennedy once said, the best time to repair the roof is when the sun is shining. So we stepped back and we assessed internally where were we not fully capitalizing on the opportunities that we see before us, in particular, the cloud and global acceleration?
And where do we see assets that no longer strategically fit inside the company? And at that point, I shared with you our decision last year to implement something called Project Bold. Project Bold got the company more narrowly focused on 2 strategic outcomes: 1st, to be the operating system behind small business success around the globe the second was to do the nation's taxes starting in the U. S. And Canada.
We also identified a couple of businesses that no longer strategically aligned with those 2 core strategic goals, and we divested Digital Insight, our online banking business, and health care. And over the last 12 months, we've begun to restructure company, realign the organization and put our investments and resources behind these two key priorities. And the question now is as we've moved from siloed business units and shrink-wrap software to the cloud, how do we perform over the last 12 months? And more importantly, how are we entering this new fiscal year in fiscal year 'fifteen. So I'll start with a look back at our financial results.
I realize this is old information at this point, but through the midst of one of the biggest change management journeys that we've implemented in our 30 year history, We still grew our top line revenue 8%. Operating income was up 7%, EPS was up 10%. But if you adjust for the restructuring charge we took in the Q4 as we finalized the realignment in small business, operating income would have been up about 9% and EPS up 12%. So those are the results that we were able to deliver in the midst of this change. Now when you stack those results up against the financial principles that Neil and Matt and myself and the leaders talked to you about as a way to guide our decisions inside the company, I would tell you that fiscal year 'fourteen was a good year, but it was not an outstanding year.
Single digit revenue growth does not reflect our aspirations nor does it fully realize the potential of our collective assets. With that said, we did knowingly push some revenue into future periods as we leaned into the cloud and moved to subscription services in small business, but we still could have done better. But what I feel really good about is we made the right strategic choices. We made the right bets. We implemented the tough change management, and we exited fiscal year 'fourteen with real momentum that has set us up for an even stronger fiscal year 'fifteen and beyond.
Let me just click down and share with you some of the things we achieved in this past year and some of the areas we're going to continue to work on. I'll start with the areas where we exited with real momentum. Despite all this change in the company, our culture remains extremely strong and vibrant. 8,000 employees define themselves as entrepreneurs. They're innovative.
They show up every day. And for the 13th year in a row, we ranked on the top 100 best places to work, this year coming in at our highest ranking ever, 8. That's important because it's a war on talent in the Valley and our voluntary attrition is 200 basis points lower than our peers in the Valley. Great employees come here, they do great work and they want to stay. And the reason why they want to stay is we build products that matter.
We build products that help the average family make it paycheck to paycheck, and we increase the odds of small business success. Now we shared with you a couple of years ago, we weren't as excited about some of our products. In fact, to be frank with you, we felt our products were starting to look like me too products. So you may recall I shared that a year ago, we took the senior leadership team out, and we followed the leaders of the product companies that we admired. Each one of us followed a CEO and watched how they made their decisions, how they engaged their teams, how much time they spent in products, and we changed the way we lead inside the company.
And the fruits of that labor showed up this year, a new QuickBooks Online, a reimagined TurboTax experience, a pipeline of new ideas coming out of ProTax that Cece will walk you through that we haven't seen in over a decade. We even got Quicken for the Mac out, something that people have been asking for, for years. We innovated in all of our products and we're just getting started. But it wasn't just product innovation. We innovated at every single touch point and nowhere was that more evident than in our Consumer Tax business, where we had a breakthrough marketing campaign, a Super Bowl ad, a complete reimagination of how you do customer support.
And at the end of the day, they expanded the category, they improved their traffic, their conversion, their retention, the net promoter and they took 2 points of share. Now small business was in the midst of some pretty significant restructuring. You may remember last year, we had a 2 sided small business model: Small Business Financial Solutions, Small Business Management Solutions. While we brought them together, we eliminated the organizational themes. We got rid of the Novo's Art model of 2 animals in every single boat and we basically brought them together as an ecosystem.
And despite all that change, we still delivered increasing momentum quarter over quarter. QuickBooks Online exited with 40% growth in subscribers in the Q4 and 150% outside the U. S. And you put a bow around it, it was not only the organic activity and the innovation pipeline ginning up inside the company, we made 10 very important talent and technology acquisitions that accelerated compliance in key geographies outside the U. S.
And added functionality like inventory to QuickBooks Online, which is important for desktop customers to want to move to the cloud. So we have a lot of really good momentum as we came out of the year. At the same time, we still have work ahead of us. As we've leaned into QuickBooks Online as the kernel of the small business operating system, we still have to strengthen our attached services of payroll and payments, both inside and also build it outside the U. S, and we have to improve our developer experience for 3rd party applications.
Dan will talk more about that when he comes up in a minute. We're also transforming the customer care model. I don't know about you, but if you download an app on an iPhone or a tablet or an Android device and it doesn't work, I suspect you don't click on it and look for a phone number. You simply hit it till it jiggles, you hit the X and it's gone. In this world, customers now expect quality built in and answers to be found inside the app and the product.
So we're moving from what had been a desktop software call center model to where care is built in that seldom ever needed. The third thing we're doing is as we're increasingly in the cloud, 35,000,000,000, 40,000,000 of our 50,000,000 customers are using mobile devices and cloud based solutions. We're starting to leverage not only our private cloud but the public cloud of Amazon Web Services. And to do that, we have work we have to continue to strengthen to ensure that we can operate in a highly available environment between those 2 clouds. And last but not least is the operating rhythm.
This is what all of my peers in the valley struggle with every day. And as leaders, we're all learning how to do this better. How do you get the benefit of scale of a large organization while moving at the speed of a start up? Well, we've learned a lot from start ups in the Valley that we shadow as well as Amazon, where we're taking our technology, we're rewriting it into services oriented architecture so that teams and each other's business units can pick up the code from their peer and be able to write to it without the need for a meeting. And so we're starting to increase our operating rhythm and move with more agility at scale.
So you put a bow around fiscal year 'fourteen, I would tell you we exited with really good momentum. We have clarity around opportunities that will take our game to the next level, but we've never been more excited and encouraged by what we see ahead of us. And so what I'd like to do now is shift to the future, and I'll talk about the external market. These are 4 trends that we've been talking to you about for the last couple of years. When you put this together, you have researchers like IDC who say we're in the midst of one of the biggest platform shifts in a generation.
The era of social has changed the expectations of customers. We no longer want to be consumers. We expect to be participants. We choose the news feeds, the ringtones, the apps and the music we want on our devices. And companies that win today not only build great products, their products are platforms that enable the end user to configure it just for them and third party developers to be able to add solutions to make it even better while we sleep.
The 2nd major trend is the era of the cloud. The cloud has eliminated borders, geographic borders and borders between platforms and devices. Customers now expect what Kendall taught us all with continuity. I want to be able to start something on one app on one device and finish it on another and be able to pick up right where I left off. They expect these seamless experiences.
The third is mobile. We've been talking to you about this unbelievably exciting phenomenon where the desktop moved off the computer moved off the desktop to the palm of our hand. Well, now it's moving to our wristwatches, our eyeglasses and our automobiles with big screens. And 60% of small businesses operate on wheels in vans and pickup trucks. Our engineers have to reimagine our products that operate in this new world of mobility.
And of course, the last big trend everyone talks about, which is data, but let me bring in a tangible example home for you on how data works in our space. Today's small businesses need access to short term capital. 6 out of 10 of them get denied a loan because of their FICO score. An average small business has maxed out their credit cards they borrowed from their mom and dad and their uncles and their FICO score is not that healthy. But we have the ability to look inside of QuickBooks, to look at the invoices you sent out the receivables you have coming in and your cash flow.
And our engineers have written algorithms, and we have now been able to match that up with people who are willing to lend to these businesses based upon the health of the business, not the individual's FICO score. And we've been able to get a 70% acceptance rate and $45,000,000 of loans facilitated between small businesses and lenders. It's a huge opportunity for us and we're just getting started. So these are exciting external catalysts that we think give us a tailwind that we've gotten ourselves positioned to take advantage of. Now with all of these external trends, you're always going to have competition.
I would tell you someone said, is it getting harder to run the business because you have I would say, if we didn't have competition, we're probably in the wrong business because that means no one's interested in the space. There's not a big important problem to solve and there's no growth prospects. But we do see a change in the face of competition. We now have product companies that have become platform companies. Salesforce.com, a wonderful example, a great partner of ours that also has a wonderful platform that enables others to build on their technology.
The second is you have the cloud native providers coming out of dorm rooms and garages and countries on some other side of the globe are these companies that were born in the era of the cloud and they're pretty sure that being native to cloud gives them advantage over everyone else. We have to be able to move at their speed while bringing our customers into the next chapter. The third, you have incumbents that continue to reimagine themselves just like Intuit does and you have apps that grow up into more full featured products like Square, who move from a dongle and an audio jack to a point of sale system and now a data science company. And of course, you've got companies that are data innovators like Facebook and Google. When you put all this together, you have a lot of exciting competitive intensity and we fundamentally believe that competition is to be respected.
I often quote Yogi Berra, you don't blow on someone else's candle to make your own candle glow brighter, but it sure makes you get on your toes and make sure that you're playing your best game ever. So these are the external trends. What they've done is they've really narrowed our focus on where we want to make sure we're placing our bets and excelling in execution. And there are 4 fundamental themes. We have to be an awesome product and platform company.
Not only do our products need to be 10 points better in Net Promoter Score, but we also have to make sure they're now open platforms that enable other products to work seamlessly. We have got to lean into the cloud and accelerate global, and that's a lot of what you heard us announcing on the last earnings call as we lean into the next chapter of cloud driven services. We have been and continue to have a leadership position in every one of our categories on mobile, but we're thinking beyond the tablets and the phones, and we're also running experiments on wristwatches and eyewear and thinking about all the other forms of mobility that could impact our customers' lives. And we are doing things with data. You're going to see examples throughout the day to day with and lenders.
It's a huge opportunity for us and we're just getting started. So these are exciting external catalysts that we think give us a tailwind that we've gotten ourselves positioned to take advantage of. Now with all of these external trends, you're always going to have competition. I would tell you someone said, is it getting harder to run the business because you have competition? I would say, if we didn't have competition, we're probably in the wrong business because you have competition.
I would say, if we didn't have competition, we're probably in the wrong business because that means no one's interested in the space. There's not a big important problem to solve and there's no growth prospects. But we do see a change in the face of competition. We now have product companies that have wonderful example, a great partner of ours, but also
has a wonderful platform that enables others
to build on their technology. The second is you have the cloud native providers coming out of door The second is you have the cloud native providers coming out of dorm rooms and garages and countries on some other side of the globe are these companies that were born in the era of the cloud and they're pretty sure that being native to the cloud gives them advantage over everyone else. We have to be able to move at their speed while bringing our customers into the next chapter. The third, you have incumbents that continue to reimagine themselves just like Intuit does, and you have apps that grow up into more full featured products like Square, who move from a dongle and an audio jack to a point of sale system and now a data science company. And of course, you've got companies that are data innovators like Facebook and Google.
When you put all this together, you have a lot of exciting competitive intensity, and we fundamentally believe the competition is to be respected. I often quote Yogi Berra, you don't blow on someone else's candle to make your own candle glow brighter, but it sure makes you get on your toes and make sure that you're playing your best game ever. So these are the external trends. What they've done is they've really narrowed our focus on where we want to make sure we're placing our bets and excelling in execution. And there are 4 fundamental things.
We have to be an awesome product and platform company. Not only do our products need to be 10 points better in Net Promoter Score, but we also have to make sure they're now open platforms that enable other products to work seamlessly. We have got to lean into the cloud and accelerate global, and that's a lot of what you heard us announcing on the last earnings call as we lean into the next chapter of cloud driven services. We have been and continue to have a leadership position in every one of our categories on mobile, but we're thinking beyond the tablets and the phones and we're also running experiments on wristwatches and eyewear and thinking about all the other forms of mobility that could impact our customers' lives. And we are doing things with data.
You're going to see examples throughout the day today where data has eliminated the need for data entry in a lot of our products and more examples like the small business financing I gave you a few minutes ago where we're delivering breakthrough benefits for customers they could have never got on their own without the help of data. Now this is exciting. IDC looks at this and they say, wow, once in a generation, 1 third of the market leaders will be displaced in this particular transition. But I will tell you, for those of you who followed the company for the last 30 years, platform shifts and competitive intensity are not new for Intuit. So here's a quick Uncle Brad story time, 30 year history that I'll share in less than 4 minutes.
For those of you who know the story, Scott Cook and his co founder, Tom Prew, had 47th mover advantage. There were 46 other software packages in the space we ran when they launched Quicken, but they had a simple vision, not to out feature someone, but to out simplify them and do a better job at solving the problem. They figured that a picture of a check on a DOS screen would lead millions of people to figure out they could type faster than they could write and they launched Quicken. And with 47th Mover Advantage, they became number 1. And in the DOS era, we had a very strong market position.
We exited the DOS era with 150 employees. We had a little over 1,000,000 customers, dollars 33,000,000 in revenue. We went public in the early '90s and our stock price was outperforming the NASDAQ. And then came the first big ice age, shift the windows. A lot of people said, said, uh-oh, this could be problems for a company in Mountain View because there's a company who's marketing Windows.
They currently at that time had 25% of all the software apps were actually owned by Microsoft and they moved into our space multiple times, a half a dozen times. But our team stepped back and reimagined our products in a Windows based world. We got sharper in new business opportunities like small business and tax, and we moved through the Windows era. We accelerated our customer growth 5x. We reached 1,000,000,000 dollars and even with the dotcom crash, we still outperformed many of the peers in the NASDAQ.
Then came the shift to the World Wide Web, and this moved us from what had been 1 or 2 competitors in retail who could afford the shelf space like we did to dozens on the web. The barriers to entry were gone. And they not only launched online versions of the product, they came out with new commercial ideas like free federal tax. That has to destroy the TurboTax business because they're going to give away tax software for free. But we launched online versions.
We also adopted a free model. And we were able to move through this web era, increasing our customers 10x during this period of time, achieving $3,000,000,000 in revenue and again outperforming peers in the market. Well, now we're in the next era, the era of the cloud with social, mobile, big data implications. And I can tell you, we are fully energized. And we are up on our toes, not back on our heels.
We began this journey in 2,008. We have the talent, we have the product pipeline, we have experience of how to adapt and evolve and bring customers into the future, and we have a game plan. For the last 2 years, we have been on our products, changing our approaches to innovation, realigning the organization and ultimately putting it all together as a one end to a strategy, an ecosystem where the whole is bigger than the sum of its parts. What I want to do is I want to walk you through this concept. We call it the alignment triangle.
It's our company strategy. The reason why I'm going to walk through it briefly is because it's going to set the context for the other leaders who also have an alignment triangle and it shows every employee in the company what we're solving for and how we're going to measure success. Okay. So here it is. The alignment triangle starts with why we exist.
Our purpose began 30 years ago when our founder Scott Cook observed his wife struggling to balance the family checkbook and he said there has to be a better way. And at that moment, an idea for a product called Quicken came to life and a mission for a company called Intuit was born. And for 30 years, this is why we've gotten out of bed. These are the words our employees think about it as eliminating poverty and increasing the odds of success for small businesses where 1 out of 2 fail in the 1st 5 years and our goal is to make that entrepreneurial dream a reality. That's our mission.
Now our mission is backed up by a very strong culture, a culture that is values based. For 30 years, our values have existed. If you had to summarize it, we want to be a 30 year old start up. Everybody in the company is a founder. Everybody in the company is an entrepreneur.
Everybody in the company has the ability to improve products and come up with new ideas that we will commercialize and go to market. In addition to our values, we have clarity around how we assess our performance. This is how the Board assesses my performance. This is how every one of the 8,000 employees' performance is assessed. We want to make sure we're creating an environment where the world's top talent can do amazing work.
We want to make sure that we're delighting customers better than rivals in ways that matter most to customers. And we want to make sure that we inspire confidence in our long term growth, so there's a better return on our stock price. What's important here is you're going to see 1 3 year goals. I think most in the room are aware of this, but the top Senior Vice Presidents, the top 20 leaders and myself, our comp is tied to 3 year plans. Those plans are revenue, operating income and relative total shareholder return.
So we get compensated for delivering over the next 3 years, not the next 12 months. And we take these very, very seriously. Now those are our mission, our values and our goals. We also have a game plan we shared with you last year. This is our strategy.
This is how it all fits together. We're very clear about the customers we serve and in which geographies. We are a small business and consumer company. And since their most trusted advisor is the accountant, we serve the accountant as the linchpin of this ecosystem. For small business, we're focused around the globe right now.
We have 4 prioritized countries, but we're actually having customers buy our products in 190 countries. And in tax, it's currently Canada and the U. S, but we're running experiments in other countries to see if we can solve tax problems elsewhere as well. But that's who we're serving and where we're going to serve them. We're also clear about our strategic goals.
I talked about these a few minutes ago. We want to be the operating system behind small business success and we want to do the nation's taxes in the U. S. And Canada. That's why the apostrophe is after the s.
Now when you step back and say, well, what problems are you solving? Well, for small businesses, as I mentioned, 1 out of 2 fail in the 1st 5 years. 2 out of 3 fail in 10 years. They struggle to be able to have enough time to serve their clients and enough cash flow to pay their bills. They use 18 different applications to run their business and increase their odds of success and none of those applications work together.
But they share 2 things in common. They have to get money from somebody and they have to pay somebody money in, money out. That happens to be the core functionality of Small Business Accounting and QuickBooks. So we declared that we were going to be a platform, not an app. The kernel of an operating system that does money in and money out that will allow all 18 different apps that small business uses to flow in and out of QuickBooks and increase their eyes of success.
That's what we call the operating system. On the side of tax, it's very simple. In the U. S. And Canada, 6,000,000,000 hours are spent every year across from someone giving tax information or sitting in the software and paying it in.
Why do people put up with the pain of $6,000,000,000 Because for 70% of them, the biggest check they get all year is their tax refund. Our vision is to eliminate $6,000,000,000 of tax prep, so you never have to do anything for your tax return to be done and get you to the money much faster. That's the shared vision that Sasan and Cecile will walk through. That is our strategic focus against the customers we serve and the way we try to build durable competitive advantage is that our products have at least a 10 point higher Net Promoter Score. They're now increasingly platforms that enable the contributions of end users and software developers and we're starting to use data to do things like small business lending that I mentioned earlier.
That's the strategy. Our mission, our values, our goals and our strategy are backed up by 5 simple priorities. These are the things you're going to hear the leaders talk about today: aggressively leaning into the cloud expanding into new geographies outside the U. S. Getting all the data out of all of our products inside of Intuit to make this taxes are done vision become a reality move away from these separate business units and small business into a unified small business profile where we actually help you buy additional services, and then ultimately reroute all of our technology into services oriented architecture like Amazon did so we can move at the speed of a start up.
Those are our 5 big priorities. Any company that has operational rigor has a way of measuring it. We've got a set of metrics that Neil and I review every 2 weeks with all the businesses inside the company. But when you put it all together, you walk the hallways and you stop by any employee's office or their desk or their cube, they all have this up because this is our common purpose, this is our game plan to win and this is how they know their work lines up with the company. It's our 1 into it strategy.
Now I'll wrap up by simply saying that when you get to the end of the day, Neil's going to pull it all together for you and share a little more information about what we started to foreshadow on the earnings call. This is a game plan that we have so much confidence in that for the first time we've given 3 year outlook and expectations. It's a plan that we can already have greater visibility into that's accelerating cloud adoption, increasing our footprint and customer adoption outside the U. S. The predictability of our revenue is going to be such that 73 percent of our revenue will be recurring cloud based services by fiscal year 2017.
And while we do have a transition year in this current 12 month period because of our change to our accounting practices to a ratable revenue model, we're going to be exiting with 2016 and 2017 in the mid teens growth and ultimately a company that's on track to get to $6,000,000,000 $5 in EPS with margins that are better than they would have been on our current pace and course that we had been on. So I'll begin where I started. We have reached the inflection point. A lot of the tough slogging, the restructuring, the divesting of businesses, the reallocating resources into the cloud and global are now in our rearview mirror. And we exited the Q4 with increasing momentum and we are excited about what we see in front of us in fiscal year 2015.
That's our game plan. And with that, I want to hand it over to Sasan excuse me, actually, I'm going to be bringing up Mr. Yes, Ghidardi, right? The next one up. So Sasan Goodarzi is going to come up and talk to you first about what we're doing in Do the Nation's taxes and he'll be followed by C.
C. Morgan. So thank you very much. Strap in. We're going to have a good day.
I'm trying to look like you, boss. Good morning. So I'm going to do 3 things in the next 20 minutes that I have. One is just to do a look back to what we said we would do last year and how we did. The second is to talk about the future.
And then lastly, we'll end up talking about our outlook. So this time last year, one of the things that we talked about is that we have half of North America that comes to our website and that we have a huge opportunity to improve conversion and to retain our customers. And what we said we would do is that we would innovate at every single touch point on every single device. Single touch point on every single device. And so when you look at our results in the U.
S, we did have a good year. And as category champions, we grew the category, we increased our share, we increased our customer count, we increased net promoter, we increased our retention, and overall, we feel good about the start to our multiyear journey. And when you look at our results versus our rivals and in two dimensions, both share and net promoter, you can see that we put distance between ourselves and others. Now when you look at our results in Canada, we have far higher standards than the year that we delivered. Although we improved across every category except share, we feel like we can have a far better experience for our customers.
So those are the facts and the figures. Let me just step back and talk about overall how do we feel about the year? What do we feel good about? And where do we think we have room to improve? First, I'll start by talking about the fact that we said we would innovate at every touch point for our customers.
Starting with TurboTax Online, we actually increased our conversion by 7 points and that's never been done before. We increased our product conversion by over a point, which reversed a 3 year decline. And we're there for our customers when they choose to call, but customers that are doing their taxes online expect to be able to get help online. So we innovated with our self help. And we in fact reduced contact by 25 points and improved the experience.
We also felt very good about our go to market plan. We had a campaign that you heard Brad talk about, which is the year of the you. You know you better than anybody else, so therefore you can do your taxes and that very much resonated with consumers. We also had a very aggressive game plan to take share and we did just that. And for the first time, we actually focused on a product lineup across many different dimensions that would deliver a far better experience, and we were successful in doing that.
And last but not least, we actually felt very good last year coming into the year about our talent. And I got to tell you, I feel so much better now than even this time last year. We grew and developed our existing talent. We added some awesome talent. And we're far more prepared for the innovation we need to drive for our customers.
So that's the stuff that we feel great about. When you look at where we need to improve, as we talked about last year, it was the start of a multi year journey. And with that as context, we did a great job driving traffic, but the 7 point conversion improvement in tt.com is only 25% of our traffic. 75% of our traffic comes from other landing pages, news articles and we have a huge opportunity to innovate at every touch point where our customers contact us. The second is because it was the start of a multiyear journey, our product innovation was too narrow, and we feel like there's a huge opportunity for us to continue to improve.
And then last but not least, we focused on responsive design in mobile last year, and our engagement grew by 300%. But where we have an opportunity is our native apps. And you can see here that there are certain things that are off the screen. And when you don't deliver an awesome experience on the tablet, as Brad talked about, the patience is very low. So we have a huge opportunity to improve our mobile experience.
And as I talked about earlier, we have a huge opportunity to improve our position in Canada. As the category champion, we need to have a position where we increase our grow the category and increase our share. And we didn't do that in the last couple of years. And so we're very focused with a few leadership changes that we've made, very excited about the opportunity that we have in Canada. So we feel overall very good about the start to our multiyear journey.
And if I go back to where I started a moment ago, when you hit the total key, on every dimension of innovating at every touch point, we feel like we increased conversion, we increased retention, we increased net promoter. But net net, although we're very happy with the progress that we've made, we have a long ways to go. So that's a little bit of a look back as to the last year. A good start, but we're very excited about what we can do for our customers as we look ahead. And on that note, let me now talk about the future.
First of all, let me start with a goal that Cece and I have set. We've set a goal for both of our organizations that we will do 50% of the nation's taxes in the next several years. And as Brad talked about, the way we will do that is to focus on what customers care the most about, which is my taxes are done for both accountants and consumers and focusing on how do we put more money in the pocket of consumers. And for accountants, how do we actually help them grow the clients that they serve and increase the wallet share of their clients? So what I'm going to focus on is what are we going to do in the consumer tax business to grow the category and take share?
And C. C. Will come up here and talk about what are we going to do to serve accountants. And one thing that we're very excited about is what are we going to do together to never lose a customer? So let me first just hit on a couple of external trends that we're actually very excited about.
1 Brad already talked about, which is the low income folks. 70% of folks in the U. S. And Canada live paycheck to paycheck. And over 70% of folks can't actually raise emergency funds.
So we feel like we have a huge opportunity to serve the low income segment. The second is self employed. Over 40% of the folks in the U. S. Are freelancers.
And we think together, both Cece, Dan and I have a huge opportunity to focus on the self employed segment and solve problems for them in ways that they never imagined possible. One of them is one of the biggest pain points that they have, which is around taxes. So there are a number of external factors that we're very focused on that we believe can accelerate growth in the business. And we have a good starting position. We play together in the 2 growth segments and we have the number one position.
But when you look at the categories, 1, you can see that in the last 4 years, we've actually grown the do it yourself category, while assisted has gotten smaller. But we think this is just the beginning because there are 8,000,000 folks that go back and forth between assisted and the do it yourself category. And we believe that we actually control our own destiny. So if I talk to you a little bit about what we talked about last year and just a moment ago, we have half of North America that comes to our website. And you can see, although we improved in every dimension this year, we drove more traffic, we compelled more folks to log in, we had more folks that actually filed their taxes with us and we increased retention.
Very happy with the start, but look at the opportunity that we have. In fact, the other dimension is that for customers that come to us, there's almost 300,000,000 contacts with whether it's self help or picking up the phone and calling us. And we believe that we have a huge opportunity to engage at every moment to be accretive to their experience. So with that as context, let me talk to you about what we're going to do. I think the most important thing to remember out of all this is what Brad talked about earlier.
People actually hate doing their taxes. The thing that they care about is their life. The thing that they care about is having enough money to put food on the table, enough money to buy clothes for the kids, enough money to write that check for the elderly parents or grandparents. What they care about is their life. And what inspires us is actually what's important to people, which is not taxes.
And therefore, our vision is to make tax prep obsolete. It's to save $6,000,000,000 where people spend doing their taxes. It's to deliver $350,000,000,000 of refunds and put it in people's pockets, which is the thing that they care about the most, the largest paycheck of the year, and deliver together, Cece and I, 173,000,000 accurate returns in the U. S. And Canada.
Now the way we will do that is threefold. 1st, the taxes are done. No work, no effort, no risk and responsive to the person. What we learned and proved in the last year is that there are folks that are willing to just confirm their information and hit refund and get their taxes done within 3 minutes. And there are those that want to see every bit of detail of how their taxes got done.
And we are taking the burden of innovation to deliver that experience for those very different types of consumers. The second is to focus on delivering more money beyond the refund. We ultimately want to be the place where folks see us as the largest paycheck of the year, far beyond the refund, a place where we can change people's lives. I'll give you an example of what we did in the last year, the Amazon refund bonus. The essence of it was, if you chose to put your refund on an Amazon card and if you put $1,000 on the Amazon card, we increased your buying power by 10%.
So in essence, you had $1100 to buy what's important to you at Amazon. That's an example of the type of innovation that we are working on to put more money in people's pockets because we want to focus on getting taxes done so that what folks see is an opportunity to change their lives. And last but not least is this whole essence of unleashing the network and the wisdom of data that we have. One of the things that we proved this last year is that consumers are willing to use their tax data to avoid filling out information on applications. And 3rd parties are interested to pay for that information so they can improve their conversion.
I'll be light on examples here until we have products and services that we're going bring to market and that we can prove to you what the opportunity is here. But what excites us is not only changing the face of this franchise by getting taxes done and focusing on more money, but to go beyond taxes. And the way we will measure that is very similar to what Brad talked about we focus on at the company level. 1st and foremost, it's creating an environment where employees can do their best work and attracting the best. And second, one of the things that we put in place is delivering the customer benefit that we're delivering, which is taxes are done and more money.
We're measuring ourselves relative to how much which is taxes are done and more money.
And we're measuring ourselves relative to how much money are we putting in the pockets of consumers beyond taxes. And we believe by doing
that right, we will grow the category, we will grow share and ultimately deliver on our commitments to you. So to achieve this, we've got 5 big priorities. In order to get taxes done, 2 things have to be true. We have to have access to all the data, your personal information, all your forms, W-2s, 1090Xs. And we have to have a technology platform with the capability to minimize and eliminate the questions that we ask and deliver personalized experiences.
That's what those 2 first priorities at the top are. 3rd, the continuation of the journey that we started last year, which is acing the end to end experience. There's actually no silver bullet, but an opportunity to improve the experience from tt.com all the way to when you get self help. Our 4th priority is the innovation that I talked about, which is delivering more money, and we're focused on delivering 1 of our first products this year. And then last but not least is winning an ACA.
Every customer this year, including all of us in this room, has to ultimately prove that we have insurance. And for those that don't have insurance, they're going to get penalized. So that is a headwind facing us because it's more information that somebody has to fill out when they're doing their taxes. But we are inspired by the complexity and we believe that we will innovate in ways this coming season that will deliver for all of our customers. So those are the 5 priorities that we are focused on to achieve this strategy.
Now what I want to do is just take a quick moment and focus on the technology platform that we are building that allows us to minimize the number of questions that we ask. Now let me just add context for you. If you think about the funnel, every question that we ask that you don't know the answer to when you're doing your taxes or every question that we ask that is not relevant to you is dilutive to your confidence. And it's a reason drop off and choose to go to someone else to do their taxes for you. And so what we are doing is building a technology platform that allows us to use data to deliver very personalized experiences for you.
What I'm about to show you very quickly is to show you the guts of how it works. So you're not going to see a pretty UI, but this is just this is not what our customers will see, but this is to give you a frame of how it works. Now, I will show you CHEP deductions. So if you have children, one of the biggest tax breaks is claiming your child. So let's go to the demo.
Okay. So I'm going to talk about Jocelyn very quick and James. In this case, Jocelyn is a new customer. And what in essence, what Jocelyn is trying to do or the parents are trying to do is can I deduct her with a tax break? And in essence, I'm going to run through the questions very quick because for you, the questions aren't important.
But what's important is what you see at the bottom. We would typically ask 25 questions, whether you're a new or existing customer, to see if you can get this tax break. And so let's start with answering some of these questions. Are you a U. S.
Citizen? Yes. I'm going to blow through this very quickly so the questions aren't important. You can see what's happening at the bottom. For every question that I'm answering, questions start getting eliminated.
Does the child live with you? You can see so far, I've answered 6 questions and 5 got eliminated. Are you the child's parent? Can somebody else claim them? The other parent have the right to claim them.
You can see what's happening. 10 questions answered and 15 were skipped. So it's personalizing the experience to the individual. And remember, that's critical because the more we can deliver personalized experiences and ask questions that are relevant to you, the more accurate the return and the more personalized the return. Now let me just show you for a returning customer, James, so we know who you are.
And remember, the more data we get about you, even if you're a new customer, the less questions we can ask. In this case, the software already answered 16 questions without the customer doing anything. And we only asked one question, which is we see James turn 19, one question and the experience has been delivered. Again, what's awesome about this is the focus on asking questions that's relevant to the customer. And in fact, this year, our entire ACA module is built on this.
And the reason that's important is the speed in which the government is continuing to change the laws, tell us the forms that they're going to use, we have the capability to move at light speed to build an experience for customers that is very relevant to them. If we can switch over. All right. So as Brad mentioned, we all have a set of metrics to help us measure how we're performing against each of the priorities, and we feel very good about the targets that we've set for each of these priorities. And so this culminates into our alignment triangle.
I think the thing I would reinforce here is the same comment Brad made, which is about 40% of the work that we do in CCG to deliver for TurboTax customers actually gets done outside of TurboTax because we rely on 8,000 folks across the company to actually do the work that we need to do to deliver for our customers. And what that means is the speed and the pace of innovation and the ability to leverage 8,000 employees and the clarity and the connection that we have with CC and I, Dan and I, Tayo and I and the whole organization is allowing us to move at a speed that we never imagined possible. So this is to just give you a preview of our go forward plans. We're very excited about the opportunities of the future. And so let me now talk about the outlook.
As I mentioned, CC and I have set a goal to do 50% of the nation's taxes. And this gives you a view of how that breaks down. We're assuming IRS growth will be about 1% a year. You can see the assumption that we have in terms of growing the category. And by the way, this year, we went from about 35.5% to 37%.
So this is very doable bold, but doable. And then last but not least, together, we feel very good about increasing our share that would get us to the goal that we've set collectively for our organizations, which is to do half of the nation's taxes. And then this is the outlook that we've communicated to you, which is starting with an assumption that IRS returns will grow at 1% as category champions will continue to grow the category even in the face of ACA, increase our share and when you know the revenue outlook that we've given you. But ultimately success for us is to actually grow customers faster than revenue. So just to step back and wrap up.
Three things I want you to remember. One is we really do feel good about the start of our multiyear journey, but it is a multiyear journey. And as excited as we are about our progress, we think we have lots of room for growth and lots of room for improvement. Secondly, our vision is to make tax prep obsolete and focus on what's important to our consumers, which is why our strategy is to get taxes are done, more money in people's pockets so we can fundamentally change their lives and then leverage data to deliver breakthrough benefit to grow the franchise beyond taxes. And last but not least, we think if we do that right, we can fundamentally change people's lives and deliver on our commitments to you.
So with that, I'm going to bring up Cece, and she's going to talk about what we're going to do to deliver for accountants and what we're doing together to never lose a customer.
Good morning, everyone. I'm looking forward to sharing with you the pro tax story. So there's about 650,000 professional tax preparers that I'm going to refer to as pros and they spend about 1,000,000,000 hours, yes, 1,000,000,000 hours every year doing just 2 manual tasks, collecting data and documents from their clients and then inputting that data into the tax software, arguably the 2 least value add activities that they do. Now if I took $100 an hour times that 1,000,000,000 hours, it would be about $100,000,000,000 in potential lost income because they're doing these 2 manual tasks. And then if I bring it back to the individual pro level, it's $140,000 per pro and that's the problem that we're focused on solving.
So we spent last year defining our solutions and beginning to build out those solutions while we ensured that we delivered on our plan. And I would characterize last year as a good year. You see at the top of this chart the total number of returns that was done, which was up about 1% across the U. S. And Canada.
The Pro segment was basically flat at $81,000,000 We picked up a point of share. In fact, we actually grew our return volume 4% in a flat market. We made some improvements in the product that improved our Net Promoter Scores and we came in at the high end of our guidance on revenue. Now I want to make one comment about the revenue. This is a business that's on its way to $500,000,000 but this is a transition year for us as we make the shift to Ravel accounting.
So if I look beyond the numbers at what we feel good about from last year, there's really three things that stand out to me. First of all, we set a new strategy. And as a result of that strategy, we are bringing 6 new offerings into the market for the upcoming tax season as well as new business models. That is more than this business has ever brought to market in a single tax season. 2nd is our talent similar to Sasan.
We attracted new talent into the organization. About 40% of our leadership team is new to the Protex business, but we also have developed the existing talent we have specifically around awesome product leadership. The 3rd area I would talk about is our category is expanding into some new adjacencies and that creates new opportunities for us. We also have some areas that we have to work on and there's 2 that I would highlight. The first one relates to the very small firms in the pro tax business.
We did not pick up as much share as we would have liked to last year and this is the business has because the business has been too dependent on price as a growth lever and that doesn't fit our principles of growing by growing customers, returns and add on products. So if I brought all that together, I would say that I thought it was a good year, but the business is capable of doing more. Now I want to take a minute to put some context to the segment that we're in and where we stand. We have leading share today in terms of returns that we do. 25 percent of the customers are pro tax customers and we did 33% of the total pro tax returns.
Our tax returns are a higher share because we have really good share in terms of the mid to larger size firms. In fact, this last year, we had a record year for new customer acquisition and retention. We have bleeding share today, but we have plenty of room to grow and this is a view of the traditional ProTech software market at $1,600,000,000 But I mentioned that the market is moving into some new adjacencies and there are 3 that I will call out. The first one is related to payments and there are expanded payment options in this segment such as things like prepaid cards. The second is e signatures.
E signatures have been approved at the federal level and we expect them to be approved in most states by the start of the tax season. And finally, document storage or the virtual exchange of documents, the capabilities have improved and adoption has improved. So if you put just these three offerings or these three adjacencies together, it's increased the size of our opportunity by 60%. And we will have offerings in market for each of these in the upcoming season. There are external factors that also affect our strategy and I'm going highlight just 2 of them.
1st is the increasing complexity of the regulatory environment. Sasan talked a little bit about ACA and it is ACA for the PROs, but the PROs are also responsible for a lot of compliance with IRS. And it's important that we continue to be the experts for them and be their trusted advisor to navigate through that regulation. The second one I would call out is that our PROs are serving an increasingly financially insecure consumer and small business. And we think there's an opportunity for us to help them help their clients be more financially secure.
And I'm going to talk about that in a minute. So if you remember back to the 1,000,000,000 hours that I referenced and the $140,000 in lost potential income at the pro level, that's the reason that our vision is to bring the power of time to accountants worldwide so they may prosper. Now we'll know that we're delivering if we have highly engaged employees who are excited about the offerings we are now bringing to our customers and will know that we're delivering for our customers if we deliver on our promise to them. And we are now holding ourselves accountable to actually delivering time savings and to helping them grow their practice in a very deliberate monetary way. And if we do that right, I think we can accelerate the growth of customers and accelerate the growth of the business.
So therefore, our strategy now focuses on the pro and their clients, so their consumers and small businesses. We have 2 very simple promises. We're going to help them save time. We're going to help them grow their practice by helping them make their customers more financially secure. Sorry, we think we've had a problem here, but that's okay.
I'll look over here. And finally, we our strategy has can I just get one second to see is this going to come back on? Not sure? Coming back. Great.
Our strategy, the 2 simple processes is to help them save time and help them grow their practice by putting more money in their customers' products or in their pockets. We have 3 durable deliverables, a a collaboration platform, which is reimagining how clients how pros engage with their clients to win online and mobile by leveraging cloud capabilities to deliver better online experiences and finally to disrupt what are rather staid business models in the Protex business today. We have 6 priorities to deliver on that strategy. The first one is to connect households with experts who are pros by bringing what are in person engagements online. And our goal with this is to help clients find a pro and get a quote in 5 minutes.
Last year, Sasan and I did a test in the market and here's the reason. People go through have life change events every year and sometimes those life events cause people who had been do it yourself tax preparers to want to use a pro. When that happens, both Sasan and I want that to be an easy process, but we want them to use one of our pros. And so that's what we conducted the experiment on last year. We leveraged the brand of TurboTax.
We leveraged the pros in the pro tax business and then we leveraged a pro tax collaboration platform. So our job was to be matchmaker, connecting broader with this solution. And again, we want to enable people to find a pro and get a quote in 5 minutes. And I'm going to give you a demonstration of that product. Can you bring up the let
me just
pardon me? Okay. Are you going to bring those on the screen? Okay, great. So I'll walk you through it on the screen.
So what I'm first going to do is click on get a free quote on the orange button on the screen. And that's going to lead me to a series of questions. But what I want you to notice is that I'm never going to ask the customer to sign in or give me an e mail until they've actually made a decision because they got a quote in 5 minutes or less. So first thing I'm going to do is ask what is it you want to do? And I want to get my taxes done with a pro.
Okay. The next question that I'm going to ask is what's the source of your income? And in this case, it's a 9% to 5% typical job. I'm going to indicate that. The next thing I'm going to ask is what states have you lived in?
This is important because it's going to foster the type of quote we give and the type of pro that we move you to. And so I'm going to say that I've lived in the state of California and I've lived in the state of Texas. So then I'm going to ask a final set of questions that are going to help us narrow this quote. And in this case, I'm asking which of the following have you done? And I'm going to say that I have made some investments.
That's going to enable me to get a quote from the pro. And I'm going to look at this pro this quote and decide do I want to move forward? And I do. So I click choose my CPA. I'm now presented with CPAs that have expertise in the states that I've indicated and I can select which CPA I want to work with.
In this case, I'm going to select Brian. Brian is going to then welcome me to the process and we are engaged as that's my new pro. We've got a free quote that I'm going to be able to work with. And as soon as I've done this, it now knows that I am a TurboTax customer and it's gone out and retrieved my prior year tax returns. I've been required to do a form with the IRS that says, yes, I'm willing to share this information with my new CPA Select customer or pro and I am now ready to fully engage with my pro.
So if you think about what we've done here, we've leveraged the TurboTax brand. We've also leveraged, as you can see on the bottom, the TurboTax promise. But we've connected someone who was looking for help with 1 of our pros, 1 of the ProTax pros and we've done it all on the Protex collaboration platform. Our goal was and if you go back to the regular slides, our goal was to help people find a pro get a quote in 5 minutes or less and this is live in market today. The second two priorities both deal with what I talked about at the beginning, which is data collection and data entry.
And the first one is the problem that most pros think is most prevalent to them is data collection. It's the back and forth of trying to get all their tax documents from their customers. Turns out that their clients aren't that fond of the process either. They don't know what documents are needed. They don't know where they are.
They don't know when they're supposed to start collecting them and they don't know when they're done. So we developed an intelligent digital organizer that has a pro facing component and services. It has a client facing component and services and you're looking at that screen now. We will automatically populate any of
the data we have access to such as
W-two forms, 1090 the data we have access to such as W-two forms, 1099s and prior year tax returns. And it has an intelligent missing data engine that will look at what data missing data engine that will look at what data has been provided,
what data is still
missing, what's the due date and it will automate the follow-up to the clients. Our goal with this is to be able to collect and share data in less than 30 minutes and this will be in market for the upcoming tax season. The second piece of effortless data collection and entry relates to doing small business tax returns. So today we have about 115,000 QBO accountants that do small business books. Many of them also do the tax returns, but the process of mapping the accounts and entering it into the tax software is manual.
So Dan and I have partnered this year to automate the process of mapping and data entry into our tax software. Our goal with this offering is to reduce data entry for small business tax returns by 50% and this will be in market in the upcoming tax season. The number one question that a pro has when they're in season doing tax returns when they come into the office is what should I do today? They don't know where they are in their process and they need help with it. Well, the good news is on our online tax offering, because we're in the cloud, we have access to all the data about their tax returns and their workflow.
So we can analyze that data and answer that question for them. And so this year we have launched a tax return hub that shows them whether it's by return type or workflow where are you in the process and what should you be working on. Our goal was to answer that question in 3 seconds or less and this product went live 2 weeks ago. One of the areas that our team is most passionate about is innovative payment solutions. What we're focused on here is can we help our clients help their customers have better financial results.
There's about 68,000,000 people in the U. S. Who are financially underserved. And one of the things that we found out in talking to our pros is their passion comes from helping their customers have better financial outcomes. So we focused on how can we help our accountant have better financial outcomes and their clients.
And so we put together a series of payment offers everything from invoicing to how they handle their actual return designed to enable us to deliver better financial outcomes. Our goal here is to improve the financial outcome for the pro by 20% for every return and 10% for each of their clients and this will be in market with the upcoming tax season. And the final priority I'll highlight is the global tax engine. This is done in partnership with Sasan to develop one tax engine across the do it yourself, do it for me and to take it global if it makes sense. And this year in Protex, we're testing this technology for global markets and we would do that in partnership with the small business team's priorities.
So if I summarized all that into what does that look like for FY 2015, we are comfortable with what we'll do to deliver on customers, increasing our return we are comfortable with what we'll do to deliver on customers, increasing our return growth and of course delivering on our financial outcomes. If I summarize all of this into our alignment triangle, as I mentioned, we are bringing more new offerings into market than we have ever done in a previous season. And we are doing all of that in partnership with our small business group and our consumer tax group really pulling together as one and 2 it just as Sasan referenced. We're looking forward to a very strong tax season. And with that, I am passing it to Matt, who's going to give us directions for a break.
Thank you.
All right. Thanks, everyone. We're about halfway through, so we're going to take a break now. We're a few minutes ahead, so we're going to make the break about 25 minutes. Please make it a working break.
We've got product demonstrations and some product leaders out here in the hallway. We'll be there if you have questions during the break. Happy to mingle a little bit. Let's be back here at 10:05 please. We'll make some announcements, but we've got about 25 minutes.
Out to my left are the product demonstrations. Thanks.
Okay. Okay.
Ladies and gentlemen, please take your seats. The meeting will begin shortly. Thank you. Hey, everyone.
Welcome back to the folks in the room
and the folks on the webcast. We're going to get going here in just a few seconds. Hope the folks here had a chance to interact with some of our product managers and some of the products out there. Like I said, that will be available at noon as well. So we'll have food here at noon after we go through small business.
Dan Wernicoff is going to come up in just a second. We'll have Neil Williams, our CFO, about an hour of Q and A led by Brad, and then we'll break for lunch and go back and check out the products again. So with that, let's jump right into small business and I'd like to welcome Dan Wernicoff up to the stage.
All
right. I want to do a couple of things today. First, I want to start off with what we talked about last year and give you a sense of how we felt like we did relative to the goals. 2nd, I want to talk about the opportunity that's in front of us now. So our business has gone through a pretty significant transformation.
If you think about what's happened in our tax business and moving to the cloud, small businesses definitely lagged that behavior change. But we're starting to see a pretty significant acceleration. So we'll talk about that opportunity and how we're addressing it. And the third thing is, thinking about the business model change. What's the impact to our business overall as we move from being more of a desktop business to being a cloud based business?
So those three things, plus Brad talked at the beginning about being a network effects business. Well small business is probably the best example of that in the company. We have small businesses that work very close with accountants and in a lot of ways have mutual goals. Mutual goals. Accounts are also small businesses themselves and major influencers on decisions for purchasing of a small business and then you have developers which are becoming much more of an influential stakeholder.
So we'll talk about the symbiotic relationship of all three of those and hopefully show you a little bit through the product. All right. So this is what we talked about last year. We had 3 broad goals when we think about small business. The first was creating an awesome product experience.
And this was coming out of a time where we had made a significant investment in globalizing our platform, opening it up as an ecosystem, starting to think about building in the services to QuickBooks Online. But one thing was missing, which was creating a great experience for customers. And last year, we gave you a bit of a preview on Harmony, which was the new QuickBooks Online release. And today, we can track back on what the results have been to date. The second piece is thinking about one ecosystem, multiple solutions.
So in prior periods, we have called our payments and payroll businesses add ons. In reality, they are becoming more and more like features embedded in our product. And when we redesigned QuickBooks Online this time around, we thought about starting from scratch, let's design them that way. Let's make sure that they're features that you can turn on versus add on products that you buy and bolt on. So we'll talk about the results there.
3rd piece, to win globally, we recognize that we need to create that same network effect that we had in the U. S. And so we got very deliberate this year and think about winning with accountants globally. And this focus has paid off. You'll see some early results and Brad talked about the rate that we've had in Global over the last year.
But these were the three areas that we said we were going to focus on. And so where do we feel good? Well, we feel good with the introduction of Harmony. Brad mentioned that we exited the year at 40% active subs base relative to prior year. We entered the year at 28% growth rate to prior year.
Every quarter, we saw an acceleration of growth, while we made a significant migration of our base to a whole different user interface. And this is akin to flying the plane while you're changing out all of the equipment within the plane. And team did a great job here and we're feeling good as we enter next year. 2nd piece on the global focus, we entered the year with a little bit of history in global where we had gone very broad, thought about different solutions that we could build natively for every market that we entered. We had not a terrible focus on a small number of geographies, but more of a focus on going bigger and experimenting in many geographies.
And when we came into this year, we said, let's get our template in place. Let's focus on 4 geographies and let's bring the product that most countries actually want, which is financial management, but let's make sure we have a way that we can localize that product for each one of those markets quickly and let's make sure we have the right talent on the ground, which was a big component that was missing, local talent on the ground to get us started with strong account relationships in countries where we didn't have as much of an established network of accountants. 3rd point, and this is new data. We haven't shown this ever before. We typically show you penetration data.
As we think about attaching our ecosystem, one of the things that we really, really focused on was making it as drop dead simple the moment you start in QuickBooks Online to actually start by turning on everything, payroll and payments combined. This metric is a leading indicator. This shows you new users of payments in payroll relative to new users acquired in a given period. And so what you're looking at is the forward view of attach. And you can see that it's been significantly improving over the last couple of years, but there was a big bump this year where now 27% of new users will turn on payroll, 9% of new users will turn on payments.
So this was all about designing the experience as if it was one product versus those bolt ons. And the last piece, accountant partnerships, is also data that we haven't shown you before. We look pretty obsessively at the number of QuickBooks Online accountants that we have. And it's defined as an accountant that has at least one customer using QuickBooks Online with the idea being as soon as they get familiar with that one customer, they become a pretty strong target for us to start asking them to influence their customer base to migrate over to QuickBooks Online because still the bulk of their clients are on the desktop. So the first step is getting the account motivated to migrate those customers.
And here you can see we entered the year with about 40,000 accountants that had QBO customers. We exit with almost 3 times that much. So there are opportunities as well. We talk about the QBO growth and the inverse of that is thinking about what's happening in our desktop business. And we're happy with the results on the desktop business, but it's definitely put a little pressure on us as we've changed our business model.
So you think about the last year and we deferred a pretty significant amount of revenue to later periods and we had to manage that change pretty aggressively internally. So we expect desktop to continue to decline over time, the new user component of it. And that's why we went ratable. So we don't have those decisions to make to try to make a current period but really solve mainly for the long term. And the second thing is we talked about in the payments business, we had a standalone payments business and we had a payments business that was integrated with QuickBooks.
And the one that we feel most passionately about, the one where we have a real point of differentiation is when you integrate it into invoicing. And we decided to really focus our energy there versus focusing on the standalone commoditized payments business. And the result is, you see stronger recovery in growth in QuickBooks Payments, but it's offset by a decline in the payments business that we have that has no point of differentiation. And what you're looking at from the outside is you see probably that average number. What we see from the inside is the right decision, but something that had an impact on our short term results.
So both of these were strategic decisions that we made that we feel good about, but they've had an impact on our short term. Now this is one of those charts that, you look at it and you say, I'm not sure that this is an opportunity to improve because you're showing strong growth in the U. S. On QuickBooks Online and you're actually seeing an acceleration this year. But we have very lofty goals when we think about our growth for QuickBooks Online in both the U.
S. And globally. And so 32% growth, when you talk about it still being about 80% to 90% of our total active subspace, you have to accelerate this growth rate to accelerate the growth in the overall QuickBooks Online business. And that's about getting after non consumption. And a lot of the investment we made in simplifying QuickBooks Online is about making it more accessible to companies earlier in their life cycle.
We've had really strong attach of our own services to QuickBooks Online with the refresh. One of the things where we haven't had as much progress is getting 3rd party applications attached. This is also incredibly important because accountants are becoming a big channel and we also know that this will make it much simpler for our customers because they manage their business using many applications. It's not just QuickBooks and it's not just applications that we build. In fact, we want more and more developers customizing QuickBooks as a platform so that it serves every need of every business regardless of size and regardless of their vertical that they serve.
And the last one, and I want you to etch this picture into your brain, this is the design of QuickBooks Online for Accountant that's out in the prior year. This was a place where we lagged in innovation for accountants. While we had a strong partnership with them, we didn't bring the product out harmonized like we did for QuickBooks Online and that the net promoter score for accountants is actually negative today. The good news for accountants is they solve first for their clients. They want us to improve the QuickBooks Online product.
They want us to add features so that they can migrate their desktop customers over and they want us to focus our energy there. But we have to solve this problem for accounts. We have to make it simple for them to collaborate with small businesses. We have to make it simple for them to integrate their Pro Tax business with their small business customers. And so this is an area where we focus going forward and I'll show you some of the progress with the product that we're about to launch this season.
All right. So strong results, opportunities for improvement. If you think about customer base growth, paying base grew 6%, that's an acceleration from 4% prior year. I'll go down to the ecosystem results. Payroll penetration, up 3 points payments up 2 points.
Again, this is the lagging indicator, not the new user attach rates. And then revenue growth of about 10% impacted by some payments pricing decisions impacted by the deferral in revenue that we had prior year with the migration to QBO versus desktop. Now on the experience side, that's probably the most important thing to me. I look at that as the leading indicator of the overall health of the whole business. And you can see it looks like it's half a good story, half a bad story.
So I'm going to start with new user net promoter. We showed last year new user net promoter scores for us. Some of the data that we had showing the leading indicators of that score was showing that it was going to be positive. In fact, it turned out to be about 10 points up with all new customers coming in. Incredibly important because today we have about 700,000 QuickBooks Online customers.
In 3 years, we're saying we'll have 2,000,000. So the bulk of them will be new users coming in, versus the existing base of users. We also put our existing base through a pretty tricky migration. So any time you change the experience for an existing base and they've been almost trained on how to use that UI, even if it's not a great UI for them, you're going to take a hit on Net Promoter and we saw that. We saw an impact to our existing base of customers where their Net Promoter Score went down as measured right in the middle of the migration of our customer base.
Now the good news is we have actual customer behavior as well. So we look at Net Promoter as a sentiment, but we have real actions that customers have taken. So one data point is conversion rates improved and that's the idea of trial to sub and that's the new user measure. But we also have churn and an interesting thing is over the last year as we migrated our existing QBO customers from the classic version to Harmony, their churn actually went down. So we're seeing the product as very sticky.
We see potential in the long term as we continue to refine it. Anytime you do a migration, you find some things that you didn't pick up from the prior version and you need to apply them back after launch. And so there's good opportunity as we look forward. And if you lift up the nose of the plane, today we're sitting as the worldwide leaders in online accounting. So we have about 700,000 paid subscribers.
Now this data is through August by the way, so this is updated data. We have about 115,000 accounts that have QBO customers, over 300,000 payroll customers, dollars 6,000,000,000 of charge volume. We're approaching 100,000 mobile users. We're not going to show that today. Our mobile application is a way to run your business away from the customer data, an interesting point, dollars 100,000,000 invoices were created and they led to $1,500,000,000 of commerce.
Now the bulk of that was originated through the invoices and if you think about how much of that we have in our existing payments business, we're talking about $6,500,000,000 of charge volume out of that $1,500,000,000,000 of commerce that's flowing through QuickBooks. So that should give you a sense of why we decided to shift our focus back on QuickBooks payments as the main focus for payments, not trying to win in a very commoditized environment, but thinking about what we do best, which is send an invoice and have an end customer be able to pay that invoice immediately electronically and have it reconciled directly back with our books. All right. So there's 3 big opportunities as this shift goes on. And it's worth noting this shift is early.
So we've looked at all markets. In the U. S, we think right about now it's under 4% are using some form of a SaaS Financial Management solution. So if you think about it, this is so much more Management solution. So if you think about it, this is so early in the journey in the U.
S. Three opportunities. 1 is desktop switchers. We think about it as helping our base, as well as our competitors' base, migrate to the cloud. And we think about it as helping our base as well as our competitors' base migrate to the cloud.
The second opportunity is this competitive alternatives, people using online banking, people using spreadsheets, but people who look like QuickBooks customers. From a profile perspective, they look like QuickBooks customers, but choose not to use an online accounting solution. And that's about 12,000,000 small business we estimate. Estimate. And then this last group, which is emerging, the self employed.
And the idea here is that there are many small businesses now that are actually a business of 1. And these businesses have very unique needs. We've never approached them before. We've approached them more as a QuickBooks Online customer and really oversold them on the solution. Hopefully some of you saw Self Employed out there and I'll talk a little bit more about it later.
So if you look at this, this is that 2% penetration. One of the things that I look very closely at is penetration into accountants as a leading indicator because before you will get substantial migration of small businesses, you have to get accounts to buy into that migration. And the good news here is that in the U. S, we're about 100,000 accounts that now have a QuickBooks Online active customer. That's 5% penetration and it's leading the penetration of the desktop or of the small business.
So you can start to think about them bringing in new clients with QuickBooks Online, but also being willing to have the conversation with their existing base of customers about potentially migrating over from a desktop solution. The other thing to look at on this slide is QuickBooks Online is a foundation. It's a platform and it gives us an entree into other
businesses like payments and payroll. And we talk about demand for us and growing
the business Quickbase. We're talking about customizing workflows to think of work back with QuickBooks. So today, 2 thirds of our revenue is actually coming from payments and payroll, not QuickBooks, but it's due to QuickBooks. And so if you look at the total spend in SBG, it's $2,300,000,000 but the overall opportunity we estimated about $31,000,000,000 Now if you look at this from a global perspective, you see a very similar story. In fact, we've looked at all the different markets that we're in at this point and all the ones that we're thinking about entering and you see the same dynamic.
It's anywhere from 0% to 10% penetration of SaaS solutions in any of these markets and it's much more closer to 0. In fact, the one market where we see the highest penetration is Australia, which is highly competitive market, but also a very savvy country. So adoption of mobile devices and online solutions has led most countries. You can see our penetration is near 0 everywhere when we think about SaaS solution or QuickBooks Online. And you can see our accountant penetration is low as well.
Now interesting alignment with our acquisition strategy, you look at India where we have 0 penetration with accountants at 2,000 accountants. That's where we made the acquisition of KDK Software, which is a pro tax solution, has access to about 20,000 accounts. And so if you start to think about getting the flywheel going even faster, how do you get access to accounts that already trust the solution provider and create that integrated solution between their accounting package and their Pro Tax solution. So that's our goal there. All right, which brings us to our vision and this has remained relatively stable.
Last year we talked about being the operating system behind Small Business Success, it's really an operating system is really just software that manages hardware resources and creates a really simple, unified UI for all of the different applications that run on it. And for us, we like to just replace the word hardware with small business. So what we're saying is we're software that helps small businesses run their resources, which is really time and money. And manage those resources effectively is the name of the game for us. And we think more and more about how we do that in a way which creates this common experience across everything.
So it needs to be very simple. It needs to be integrated across many, many different applications. It needs to be a single cloud. It needs to work on all devices, but it needs to be a single source of data. And if you think about modern operating systems like Android and iOS, they're more about convergence of desktop solutions with mobile devices in a single operating system and that's what we're trying to create as well.
We want it to be a single instance globally. We want it to work with all third party apps. We want it to work with our apps and that has to be a single instance. The 3rd piece is what makes us unique is the power of our ecosystem and the data that we have today. Brad talked about having all the financial data gives us an entree to help a small business get a loan.
There's also simple things like looking at all of the data in our customer files so that we can help set them up on QuickBooks quickly. And we can do that because we know businesses just like you have this type of chart of accounts or businesses just like you have this items list and we can pre format QuickBooks so that it solves specifically the problems of every individual business. But it really starts with core accounting. So we know that people buy our software because they want an accounting solution. And in every geography that we enter, we have to solve this first, which is we need to make data easy to get in, we need money to move in and out, we need bank reconciliation, we need reporting, we need compliance that needs to work on multiple devices.
You need integrated payroll because payroll, if you have employees, is a compliance product that has to integrate with accounting. You need payments because you send invoices out and now they need to be paid on the other end. And you need to have account collaboration. And you also now need to have an open API so the developers can integrate directly to it. So if people are using an existing solution, they feel comfortable working with QuickBooks Online.
Once you do those things well though, it gives you opportunities to expand and think more about, I have your customer information, so maybe I can help you with retention marketing or growing your business or I have your employee information, so maybe I can offer you customized benefits or you're transacting with lots of other businesses, maybe I can make that more seamless for you with things like a Commerce Network. So all of those are important add ons when we think about from a foundation accounting enables all of those capabilities. But it's not just about small businesses, it's also about the accountant. So the accountant needs to collaborate with their clients, but they also need to manage their own firm. They're a small business themselves and they're also very conscious of growing their own of growing their own practice.
So they have clients and they have prospects and they need access to more prospects if they want to grow. So all of these things have to work back together. And then you think about the developer side And developers need critical services. They need ways to integrate back with QuickBooks Online, which means you have to create an experience for them where they can integrate in under a day, not in a matter of months and offer it to their customers, that integration. You also need to think about user contribution.
How do you enable customers to customize the product? And Live Community is a great example of that. Developers has been the piece that we probably have made the least amount of progress over the last couple of years and it's probably the piece where you're going to see the most velocity and improvements over the next 6 months. And along those lines today, we want to announce another partnership that is a very strategic partnership for us. Every year, we try to do 2 or 3 partnerships where it's aligned from a brand perspective, It's aligned and there's overlap in our base customers using both products.
And it's aligned in terms of the pain that it causes small businesses to integrate. And so we think about what are those types of solutions that we want to integrate. And this year, I'm happy to announce that we're doing a partnership with PayPal. Now I know it's not going to make the headline today for PayPal, but this is an incredibly, incredibly important partnership for us. As we think about our own payment solution and our payment solution being focused on invoicing, PayPal
does a
lot of other things extremely well when you talk about e commerce, when you talk about emerging on the mobile and point of sale side. And for our customers that use them and they become ubiquitous as a mark, they need that data to flow into QuickBooks. The other thing I'll mention is last year we ended with about 30 applications that were built on our platform and sold through our app store. One of the things that our competitors do is they typically count the total number of integrated applications that have connections to QuickBooks Online or in their case whatever their solution is. So we're going to report it 2 ways now.
We moved from 30 apps about 6 months ago that were sold through our app store to now we have about 100 apps that are sold through our app store. But we also have 300 applications that have built an active integration with QuickBooks Online and are themselves marketing it to their base. So that's the number that you have to think about. Now we want to get all of them on our app store. Some of them don't have a need to be on our app store, but over time we'll try to get them all there, but we'll start to publish a directory of them regardless so that our customers can find them.
But we have made significant progress here and are about to announce some even more significant progress in the next 2 months. All right. So along with all that, we simplified the org. So if you look at that wheel and now you stick business units within it, you get a sense of how we're organized. Now this is all one worldwide product organization and so all of these teams work very tightly together.
QuickBooks sitting at the center, Demandforce, Employee Solutions, Payments, the ProAdvisor program, QuickBooks Account, Quickbase, our new QuickBooks developer platform. And then the one piece where we have an intersection point is with CC, with Sasan and thinking about how we move that data over to tax and that's another area of major focus for us. So along those lines it's missing a slide, but I'm going to shift over to a demo. And what I'm going to show you is how these different stakeholders are all coming together as a single experience. So, this is a product we have not launched yet, we're launching in about a month and a half, called QuickBooks Accountant and this is going to be the new product that replaces QuickBooks Online Accountant, with the idea of being this one being the harmonized one that integrates the full experience.
I mentioned that, an accountant plays lots of different roles. So, they manage their practice and so you can see here, here's their client list, here's their team and here's their membership and ProAdvisor program. They also are a small business, so in a single click, they can be looking at their books fully harmonized and they can toggle back and forth. So they can look at any customer from any spot. You can also see there's lots of patterns that we simply just copied from the Harmony release.
So everything here is familiar and that's very purposeful. So you want accountants as they're working in their own books to get more comfortable working in QuickBooks Online because then it becomes a natural thing to recommend it because they're experts in it. So if I look through this and I come back to my own client list as the accountant, I can see lots of information. The idea here being this is a macro view of every one of my clients and actions that I have to take. So, you're looking at their bookkeeping, you're looking at what's going on with payroll tax.
And if I look at Cafe Terrence here, you can see there's a lot of unaccepted transactions, the last bank download didn't happen for a while, payrolls do. And if I look at a note, oh, it turns out the owner is on vacation, I was supposed to do that for them. So I can jump in and I can understand, okay, here's their balances, their account balances. I can actually make a request. If there's something there I wasn't sure about, if I needed more data, I can ask that small business to send me an e mail.
And you can see it just build it. I'm not going to fill this out. I can make this request. This is something we're going to show in a couple of weeks. This is a collaboration space between the accountant and small business.
So, you get a sense of we're sending a lot of data back and forth, well, we want to really create a common workspace, but we're not ready to announce this one just yet. If you go back, at this point, overall, you've just done a lot of cleaning up and you've asked for lots of information, but you may just want to log into their books themselves. So I can go directly from here into Cafe Terrence. I can see everything that I see in Harmony. So there's some overdue invoices.
There's lots of transactions that I should be looking at either categorizing or fixing. And there's alerts down here in the activity feed which will tell me things that I have to do. I can even see the last transactions that small business did just by simply looking in the search box, I can see the previous transactions. In this case, I can click down on any one of them. This is an expense.
I can even go all the way back to the source document. So they took an image of this expense. I'm looking at this expense. I see it's a train ticket. When a small business categorize it as meal and entertainment, I can come in and just simply move it to travel, save and it's done.
And the idea here is small businesses don't really even need to do accounting if they have an accountant there. They can just get on running their business. And that's what we're trying to do for them. We're not trying to make accounting look great or do anything like that. We're trying to remove it and do business management for them.
And so this enables the accountant to do it. Now when you talk about developer integration, one of the big problems on developer integration is that oftentimes they're completely different sign ons, they're different UIs and someone has to learn the different patterns between them. In our case, we've introduced this plug in architecture. So I'm going to show this is a small businesses payroll that's integrated with QuickBooks Online but offered by a 3rd party. And what you see is it's seamless.
This is a company in the U. K. Called PaySuite. We like the shaver so much that we bought the company. This is one of the acquisitions that we made this year.
But this was originally integrated by them independently of us in our UI. And so you can see same behavior. We call that the trouser when it comes down. You could enter all the information from a pay run and you can simply approve payroll. Now that's a 3rd party experience within QuickBooks Online.
Now if I go back and I think about the accountant and what's important to the accountant, it's very important that this integrates with their whole ecosystem of products. So, over here you can see into a tax online. This is where you would simply click this and it would take you to books to tax and the idea of the data seamlessly migrating. You can also go into ProAdvisor and you can see your status. The more clients you have, the more benefits you get from us.
And here there's things like downloading your badging, which helps them acquire new customers, training and certification. Training and certification. You can even add customers from here. And as you add a customer, you simply fill out their information. You can go into QuickBooks and set up how you want to configure that customer, whether you want QuickBooks Online to bill that customer directly or if you just want to roll it into the practice and say that you're the one that's providing the service and do value billing.
And in this case, you could say, my firm will pay wholesale. And if you do, you'll get a discount potentially depending on the volume of QuickBooks Online customers that you have, but this is again an interesting benefit for them. So as you think about that experience you just saw, it cut across everything. And you saw the accountant experience, you saw them managing their practice, you saw them managing their customer, you saw a developer in the mix, you saw the customer experience from a small business perspective. It's all coming together as a single experience, where in the past it's been completely separate.
And you've seen what happens when we pull things together. That's when things like payroll attach move up, payments attach move up. And in this case, we're bringing this ecosystem together so that we can get developer attach up and get accountant attach up and help accountants actually grow their practice. So if you can go back to the presentation. All right.
So let's talk about some of the goals that we have. And here, there's a couple of goals that I think are pretty important to you guys, which is the platform mix and customer growth as well as unit economics during the shift. And then I'm going to show you some updated information here. Now on the Q4 earnings call, Brad mentioned that it was the Q1 where new users outpaced the desktop on QuickBooks Online and you can see here that it was 55% of new users came on to QuickBooks Online. What I've shown here is just a little bit more history, so you can see the trajectory and you can see over the last year that moved pretty aggressively.
Now, something to keep in mind, we've been starting to lean into this shift, but we haven't fully leaned into it. So, this year we're introducing QuickBooks Online, the full lineup in retail and we're shifting a lot of our demand generation towards QuickBooks Online. We're doing things like our homepage takeover. We're running events. We have a very big event coming up, QuickBooks Connect that will be at the end of October where we're bringing accountants that are considering a shift to the cloud together with small businesses and developers, and really trying to influence the behavior change.
All of these are things that we think accelerate this shift where we haven't really pulled them in the past as levers. Some updates on the economics. Last year, we shared the 5 year revenue estimate for desktop and online and it was about $1,000 on the desktop and $1500 online. That's changed a little bit and so I'm going to talk about the 2 components. On the desktop side, we changed methodology because QuickBooks Online is including all versions from Simple Start to Essentials to Plus, we felt like it's probably right at this point to include Premier in the mix of the desktop and so we added that.
And so there's just an element here of changing the methodology, which is changing a big component of the value. The other thing is we had improved ecosystem pricing. And so, on the payroll side, there was a slight increase in pricing, which led to an increase in the value of the customer. Now over time, we'll probably see with the decline of the QuickBooks Desktop customer, we'll probably see a slight increase in the lifetime revenue of those desktop customers as they become the ones that are remaining are more of the ones that are very complex where QuickBooks Online doesn't yet serve them. So you can probably imagine that trend would continue a little bit.
On the online side, it remained relatively level, but you can see within it that there was a change. So promotions drove growth, but reduced the software component of value. And we've talked about the attach side. We've increased attach to offset that. The important thing to note is that we will solve for the overall business, the overall absolute growth in customers, the absolute growth in revenue, the absolute growth in operating income.
And so that's what's guiding us. And if you look at the next slide, you can see that the growth in customers is accelerating. And so we're okay with unit economics decline. Now this is something that we're going to be doing lots of testing this year. We're going to be trying a lot of different approaches to optimize our lineup, but that goal is the critical goal for us is optimizing for the overall business, not just unit economics.
And you can see what that turns into longer term. So today, the revenue mix, 26% is coming from QuickBooks Online Ecosystem. By FY 'seventeen, it's about 50%. And we see improved lifetime value ways that you can imagine, attach improvements that continue. We start to offer services globally.
Today, we're really just primarily offering QuickBooks Online, but payroll and payments are something that we'll offer in the geographies that we go after with QBO. Improvements in retention, you heard me talk about the churn data and the fact that we think we have a better experience, so we should see less churn and line up mix. As we build out capabilities in QuickBooks Online that mirror the capabilities in QuickBooks Desktop, you can assume you get more valuable customers sliding over. There's also some places where we could reduce lifetime So, as the geographic mix shifts and we enter new markets, we may be aggressive in those markets, to try and establish ourselves as a player. As we target non consumption, we might have to think about how we go after a different type of segment of customers that have different ways to monetize.
And so overall, there's going to be puts and takes and we'll keep updating you at every Investor Day about what that means from a unit economics perspective as well as an overall results perspective. But at the $1400 unit economics and with the projections that we've shared already, we feel pretty comfortable at that level, if it stays at that level that we're hitting our FY 2017 targets.
All right. So a little
bit on strategy and priorities about how we'll achieve that. There's 4 things that we want to talk about, moving from the desktop to cloud in seconds. So this is that migration that we're talking about. First experiences are flawless, delightful, which is about the non consumption. Going after self employed for the first time ever, and solving it with a very specific solution that's targeted at them and then winning in all the focus countries.
All right, starting with the desktop switchers. So, one interesting piece of data, we now can really understand the behavior in our desktop customers and we can look at the features they use and we can map them back to whether or not they can be served by QuickBooks Online. But one of the interesting things is only 30% of existing QuickBooks Desktop customers really based on the features they use could migrate to QuickBooks Online today. It's still a very large number and there's a lot of customers that may choose to migrate even though it doesn't have the feature set. But this is the number that you should have in your mind as the addressable base to potentially target switchers.
If you look, by the end of the year, we estimate that at about 70 percent. So, the biggest component of that is offering advanced inventory capabilities, which we're currently building out. The other thing that's good about that is it shows that we can target in our base of customers. So now that we know what they're using, we can customize the message to help them make the migration possible. And you've seen that.
We played with it this year and we saw an acceleration in every quarter, independent of seasonality, as we started to tune the model of how we would get interested customers, customers that we think will get more value from QuickBooks Online than the desktop, to consider it. They go through a trial and they make their independent choice. So we're not pushing customers there, we're pulling them there with incentives and with a trial of the QuickBooks Online product. Making First experiences flawless. I mean this is the trial sub conversion rate with a little bit more of a historical view.
So you can see the big investment we made in Harmony paid off in terms of conversion. It's also possible now for us to reach a whole set of small businesses that we haven't historically through web distribution. And one of the other acquisitions we did was a company called Doc Stock, which has a lot of really interesting content. And the idea is, before a small business has the need for accounting solutions, in the very top of their funnel is just being a successful small business, helping them form the business, help them hire their first employee and a lot of them have questions. And as we're thinking more and more about this marriage between content and asking helping answer questions that a small business has and ultimately helping them find the right solutions to run their business.
So you'll see us do more and more of that this year. Self employed, this is an area where the estimates are very wide ranging right now. You can see our estimate, I think, is conservative that there's about 12,000,000 self employed businesses. The Wall Street Journal just did an article that said there are about 53,000,000. And when you look at the service platforms that are popping up and the number of freelancers that are joining on to those platforms, whether it be an Uber or an Airbnb, that growth is starting to really take off.
And there's a very specific need that these customers have that hopefully you guys saw today in the product, which is detangling their personal and their business expense because they typically have it in one account and then getting ready for tax time, making that all flow seamlessly from a tax perspective. And there are other things that they look for from a compliance standpoint that we're interested in as well. And a big component of that was accountants. A big component of that is product. So we've been focused on global for about 3 years from a QBO product perspective, but a lot of what we did was not visible.
So it was globalizing the platform. And if you think about the first countries we went to, it took us about a year to create the localized version in Singapore and Canada. As you thought about the next set of countries, it took about 9 months. And that had to do with us creating a global tax model, which was a significant investment. The 3rd phase of this is separating the tax model from the business logic of the application itself so that we can move even faster.
So France, we're estimating will take us about 5 months and I just mentioned France for the first time as the next geography that we're going for. And right after France, we think we can get into any country in about 3 months from a product standpoint and a big component of that was accountants. A big component of that is product. So we've been focused on global for about 3 years from a QBO product perspective, but a lot of what we did was not visible. So, it was globalizing the platform.
And if you think about the first countries we went to, it took us about a year to create the localized version in Singapore and Canada. As you thought about the next set of countries, it took about 9 months and that had to do with us creating a global tax model, which was a significant investment. The third phase of this is separating the tax model from the business logic of the application itself so that we can move even faster. So France, we're estimating, will take us about 5 months and I just mentioned France for the first time as the next geography that we're going for. And right after France, we think we can get into any country in about 3 months from a product standpoint.
So this is a real competitive advantage. When you talk about a single instance that's multilingual, multi currency and has the ability to be compliant tax compliant in 3 months, that's the foundation we're trying to build. We're playing the long game, not trying to launch into these countries without doing the right work from a technology standpoint. Today, we saw Brad mentioned the 150% growth. It's actually 100 and 60% in subs going into from last year.
And we expect that to continue and we'll consider incremental countries and we'll go deeper in the countries that we're focusing on as well. So all of that adds up to our alignment triangle, which again being the operating system behind Small Business Success, starts with employees, employees solve problems for our customers, customers ultimately buy our products and leads to a great shareholder outcome. We have a real focus, I hope you saw, on addressing this platform shift by trying to grow new users. And you saw 4 different ways that we're thinking about it, and we have the same rigor around metrics and we didn't get deep into it. But the real metric that we care the most about, the total key for us is this active base growth and really measuring ourselves in every geography as if we should grow faster than every single participant in that geography, which leads us to a longer term view.
There's not numbers on this, but you guys have the FY 2017 estimate. The 2,000,000 QBO subscribers, we're comfortable with that. And long term expectations for SPG around 10%, 15%. Now I'm going to hand it off to Neil. Neil is going to give you even a deeper dive on some of the economics around this business model shift as well as some background on the tax business as well.
So Neil?
Thanks, Dan. And thanks to all of you for coming out today and listening to our story and for your patience. I just want to cover a couple of quick things, and then we'll bring Brad back up to facilitate your questions. 1st and foremost, I want to talk a little bit about some summaries of what you heard today, put that in kind of headline form so you can think about that. Secondly, go a little deeper into how we expect to make money, what our expectations around profitability for the next few years, and then some thoughts around capital allocation, how we expect to use the money that we bring in.
I've been in Intuit 7 years, and I have to tell you, this is the I am most enthusiastic about our prospects going forward than I've ever been in my time here. And there are three reasons on this slide. First of all, we have a great strategy that you heard Brad and others unpack today. We've always had good strategies. I think that's an aspect of Intuit that's always been true.
But as we head forward, our strategy is more focused, it is more refined and it is more unifying across the company than it has ever been. And I think that's a great reason and a great cause for us to think about great execution going forward. Secondly, we have a great market opportunity, a large total addressable market. We've always been talking about that. We've always had a large market.
It's bigger now that we're thinking about global expansion. But what's exciting to me is that we have the products to make that a reality. We have a real product that's worldwide that meets a need in all the markets we serve. Our resource allocation reflects that, and we have a go to market plan that I think makes sense to inspire confidence that we're going to get traction in those countries in a way that makes sense for us and meets our long term financial objectives. Finally, this is a principal based company and we have long term financial principles that we adhere to that really direct the way we think about our business long term, but they're not a straight jacket.
And they've enabled us as we think about finishing up 2014 going into 2015, to make some investments and to do some things to take advantage of the inflection point that Brad let off talking about first and to really take and set us up for success going forward. So great time, I think, to work it into it. You've heard us unpack this strategy today and talk about the alignment triangle. So I think the real value of this is internal. If you look at the left hand side of the slide, it really shows the connection between our mission as a company and the operating metrics that we review every 2 weeks with the top 130 leaders in the company.
If you look at the right hand side of the page, it does a great job on one sheet of aligning the customers we serve at the top with the things that make Intuit unique at the bottom. The assets we have, the processes that we have developed over years, the things that really make us unique, we sometimes refer to that as our secret sauce. You heard Dan talk about a big market opportunity in small business. Let me just point out 2 facts to you on this slide. It's the same one Dan used, so it's not new information.
But in the top half, if you look at the customer penetration, if we can get one additional point of penetration into the small business addressable market, that almost doubles the QuickBooks Online subscribers we had at the end of 2014, just an additional penetration point. So that explains why we're so focused on customer growth and growing our category share and our share of that category. At the bottom, it shows the small business spend in the U. S, just in the U. S.
On accounting, payroll and payments. And after all the years we've been at it, our share of that is still less than 10% of the $31,000,000,000 that's spent here. So still big opportunities for us to grow our share, to grow our portion of that opportunity. Okay. We've talked about big opportunities before.
How are we going to do that? For my reader's digest version, I boil our small business plan down into 3 simple points. 1st and foremost, we have to be sure that we get all new financial accounting users into our products. So it's all about non consumption, getting those people into our products, either QBO or other products that we're going to develop down the line that meet their needs to get them into the franchise. And making sure when they're ready to move to the cloud that they do it on our solutions and on our products.
We view everybody who's not on an online solution today as a desktop customer as a prospect, as somebody who will be an online customer in some point down the road. And so we have to have a very easy, simple migration path and easy process for them to come online when they're ready. And so and then last, we've got to be sure we bring new customers in and we monetize them and drive lifetime value across the franchise. I think we've done a great job. Our history is very good at monetizing customers and driving lifetime value.
We need to be a little more balanced in feeding the top end of the funnel and bringing more customers in and getting our customer growth accelerated overall. I just kind of got to bridge you back to last year. We talked last year about 5,000,000 customers going to 10,000,000. We still think that's a valid metric. We're on track for that.
But you heard Dan talk several times about our total paying QuickBooks customers. We think this is really a much more relevant metric. I want to give you some data to kind of bridge you back. Many of you already know this. But what we've done to go from 5.1 down to 2.1 is primarily pull out those customers who bought QuickBooks Desktop either in our fiscal year who bought QuickBooks Desktop either in our fiscal year 'twelve or fiscal year 'thirteen.
They're still viable customers.
They're still prospects. We still want to work those and go after them. We still want to make sure they have a great product experience, but haven't paid us anything in the last 12 months. And we think it's more relevant. It should be more focusing for us to look at people who either are QuickBooks Online customers, who use QuickBooks Plus subscription or who bought a more recent copy of QuickBooks Desktop in the last 12 months.
So that kind of bridges you from the 5.1 to the 2.1. And we talk more now in the earnings calls, and you heard Dan mention a number of times, this focus on the total QuickBooks paying base, which is really our online subscribers, plus people who have bought a new copy of Desktop in the last 12 months. And as you can see, in the last 12 months. And as
you can see, as we move forward, and again,
there aren't a lot of numbers on this slide either going out to the far right, but we told you what our expectation is around QuickBooks Online customers for 2017. Our goal is 2,000,000. You can see that we expect it to grow significantly beyond that. The blue bar on top is QuickBooks Online customers. The brown bar on the bottom is QuickBooks Desktop customers.
The thing I'd point out to you here is desktop is going to remain important to us, we think, for a long time. There are lot of people who use our desktop software today, who are happy using it today, and we want to be sure they stay happy. Again, we think they're our primary prospects for QuickBooks Online eventually. So we're focused on those. And when you think about our business prospects and our small business revenue long term, you should expect a significant portion of customers in that desktop category even in out in 2017 2018.
Dan mentioned 10% to 15% is kind of our long term thought processes around what should small business revenue grow over the time period. The 2 things that may be surprising to you about this chart, and I want to focus your attention, the second line down, the biggest component of our revenue growth we expect over the long term is non consumption moving into the software category, category growth, 4% to 6%, one point improvement in this category is 3.5 points of small business revenue growth. So a big driver for us and it's one of the reasons we talk so much today about increasing customers in the franchise and growing the category overall, the best long term approach. And then the 2nd biggest category is one that wouldn't surprise you is driving our revenue per customer. We do this not primarily through raising prices, but we do this through mix, we do this through bundling, we do this through getting attached products on.
We have some great opportunities. Once we have a customer into the franchise to grow with them and to provide additional services and things that they're going to need to manage their business better. So if you weigh out all of the ratable changes, the shift to online, once we get through that, we think this business ought to be a 10% to 15% grower in terms of revenue. These are the 2 big components, category share and revenue per customer that ought to fuel that growth. Now let's talk about tax for a second.
This is a slide that Sasan and C. C. Showed you. The cool thing about this is that there are 4 ways to do your taxes in the U. S.
And Canada, and we have the number one share in the only 2 categories that are growing. And so that's one of the reasons we think this business is so important to us. You heard Cece talk a lot about the pro tax. I agree with her. There's more coming out in our pro tax business unit this year for FY 2015 than we've ever had before.
Just from my perspective, this business unit is really important to us for two reasons. First and foremost, in a normal year, it's going to be 10% of our revenue. It's very profitable and there's very high retention for the customers in this category. But secondly and equally important, these customers are great recommenders and they are a great source of business for our small business franchise. And so the relationship we have with these accounts is incredibly important.
And so we talk a lot about this business and we focus a lot on it for both of those reasons. I want to do a little click down in consumer tax though and talk about the $173,000,000 tax filers we have in the U. S. And Canada. Roughly half of the $173,000,000 dollars either file a 1040A, a 1040EZ or a T4.
Forms that any individual filer ought to be able to do electronically, they ought to be able to complete, prepare and file those themselves with assistance from software. So really excited about the opportunity to grow this category. So Simon would tell you that about 80% of the people who come to TurboTax online, we can't recognize at first blush. We don't have we don't know who they are. We don't have cookies on their computer or something like that to recognize them at first blush.
We need to improve that significantly and there's a lot of stuff on the roadmap to make that a much more personalized experience for people who just come in for the first time. Too much work. You and I might not think about this, but about 10% of the people who come to TurboTax Online bail out when it comes time to enter their W-two information. They're overwhelmed. They don't know how to do it.
And that's why we work so hard on ways to download the information from their employer or to upload images and pictures like that. A big reason why people abandon and go to someone else. And then we've talked a lot about life changes being a reason why people lose confidence or defect. This is where our CPA Select product comes into play, where we want to make it easy for people to use another tax preparation solution when they have those complicated years and then move back into TurboTax in other years when that may not be the case. So huge opportunities here in consumer tax.
These are basically the same growth drivers we shared with you last year. I don't think we've changed them from last year. We think this business can easily be a 5% to 10% grower in terms of revenue over the long term. Like in small business, category share is the biggest driver. It's the thing we're really focused on and where we think we have a really big opportunity and that's where we want to really focus our efforts.
And so years when you see us make money and you see us improve in terms of just pricing or revenue per customer, it may look good or feel good in terms of revenue for that year, but we don't think that's a healthy indicator for the business long term. So that's why we're more focused really across the whole company in customer growth and growing our category share. This is the goal we gave you last year, and you've heard from both Sasan and CC that we're on track, we think, for our $84,000,000 a couple of years out. Back to our financial principles, I really like these. The day these change or the days we think that they're no longer relevant, we'll be the first ones to tell you.
But we think there's still a key driver for how this company should work and how it should perform long term. We realize that 9% CAGR isn't double digit growth. I think if you take off '14 and 'fifteen, which are transition years, clearly, we expect to exit this period at much higher growth and consistent with these principles. We typically do a good job managing the margin. I will tell you from my perspective, it's easier to manage the margin in this company than it is to manage customer growth and top line revenue growth.
And so that's why we're focusing more on the top line. The key thing I'd point out to you here though is that we're really solving more for operating income dollars, not margin percentages. So that means if we see an opportunity to invest, that's going to accelerate our top line growth and accelerate our operating income dollars, we're not fanatically solving for a margin percentage necessarily if we can generate a really nice operating income growth rate.
I'm going to give you
a little more detail on how we allocate our cash. You probably know you've heard us say this many times before and it hasn't changed. Our first priority is always to invest dollars in the business to grow in the business, and I'll give you some insight as how we plan to do that going forward. Secondly, we look for acquisitions that will accelerate our growth. You've heard us say we made 10 last year.
Most of them were relatively small. We'll talk to you more about that in a second. And of course, we like our share buyback program and dividends as ways to return cash to shareholders that we're not investing in the business or inorganically. Just to give you an idea of some of the internal resource allocation, you don't see this externally because it affects our P and L and it's not out there with M and A or with dividends and share buybacks. Internally this year, we've allocated more than $200,000,000 shifted the allocation away from our desktop ecosystem, away from what you might consider more generic marketing across the board and away from traditional means of customer support, offshore things like that.
2, building out the online ecosystem for QuickBooks significantly, improving the care experience that is embedded in the product. You heard both Dan and Brad talk about that. That's a big deal for us. It doesn't mean we're not spending money on marketing support or customer care. It means that we're trying to build it into the product.
So you don't have to call an agent and we don't need people standing by when you call with a problem, make the product work better. And clearly, global expansion is a big deal for us and was a key area for us to allocate money in 2015 plan. Our cash flow generation, as you know, both operating and free cash flow has typically trended along with our operating income growth rate. I don't see that changing in the foreseeable future. We think our operating cash flow per share will do about 10%, 11% over the next few years as we continue to drive our share count down through our share repurchase program and as we've talked about revenue growing at about 9% over the next few years.
Now this shows how we've used our cash. This is a 6 year look back. We've actually returned about $6,000,000,000 either in the form of dividends or share repurchases over the last 6 years. Our free cash flow is about 5.8 percent. You obviously have the Digital Insight sale in here that drove a lot of the cash for the share repurchase agreement.
We like share repurchases and we as we've told you before, we expect to be in the market on a continuous basis when we don't have other things going on. Some of you asked me about M and A. I would tell you, we have really good strategic roadmaps for all of our business units and functional groups. We know what things would accelerate our growth if we could find an acquisition target that really helped us with those. Valuations are typically the gating factor.
It won't surprise many of you, but we can find lots of companies that are interesting to us. We can find lots of companies that are doing something that we think would be accretive to what we're doing. But finding one that is early stage enough or one that has operating economics that would make the purchase price make sense for us are a little harder to come by. And so that's why 9 out of 10 of the acquisitions we did last year were relatively small and we're not choosing those because they're small by nature. But the metrics we use to determine the fact we do have to make money on these and you expect that from us, kind of gate what we can afford to pay and the price that makes sense for us.
And so that's kind of the gating factor. I'm always looking for opportunities to accelerate our growth through acquisition opportunities and we'll continue to do that. But we're not going to do something that's inconsistent with our returns and our financial principles going forward. We look at ROIC. I know this is not a capital intensive business, but we do track it and we report it out to you.
After the kind of reset year this year, we expect to be back in the mid-20s in terms of our return on invested capital. This is the guidance we provided in August. It hasn't changed. I realize it's kind of hard for you to relate some of this because of the ratable accounting shift that we made and the acceleration of our online ecosystem. If you have questions about how do you track this back, Mike or Matt will be around after this, or I'm happy to talk to you as well.
We can kind of gate you back to this, but this is no different than we talked about in August. This revenue bridge we also disclosed in August that basically tells you as best we can determine if you take out the effect of the shift to online and QBO and you take out the ratable change, our revenue guidance for 2015 would have been in the 5% to 18% range, we think, if you take those things out. This we shared with you as well back in August. And we thought it was important to provide an FY 2017 outlook because a legitimate question for us first and then for you second is how do we make money through this transition and how do we make sure that we come out of this stronger and more effective than we were going in. And so we gave you and us some targets to look at that.
Last two slides and I just want to cover these last 2 in a little more detail. We shared this with you before and this was one of the things that we use internally to think about what profit margin would make sense for us and how should we invest our money. And so just to give you kind of a broad view for how we think about it going forward, using FY 2014 as a guide, our gross margin last year was about 85.9%. We don't see that under any pressure from the business model shift necessarily we're going through. But again, back to the concept of we do want to grow the business and we want to grow our category and we want to grow our share of the category.
So I'd be willing to take some level of compression in this gross margin if it generated operating income, if it generated more customers and if we could show that it moved all the way through the funnel. So we're still targeting in the mid-80s, but this could move a little bit or it could be sideways as you think about long term going forward. Sales and marketing, G and A are both categories that we think should be coming down. Our marketing teams are much more effective, much more surgical in how they invest marketing dollars going forward. And I'm really delighted to see some of the opportunities we have to match marketing spend to our lifetime value customers, even by SKUs on products.
And so I think that's going to enable us to spend less going forward as a percent of revenue overall, but still drive really good outcomes. G and A is a category that's always lots of pressure, always room to drive that down. We certainly think that will come down as a percent of revenue going forward. R and D is a category that's important to me because I want to always be sure that we're investing in the business going forward. Our target here is to put 16% to 18% of revenue into new products and the new investments going forward, that's 16% to 18% including stock based compensation.
And that's something that Tayo and I work very carefully on going forward to be sure that we're allocating the right amount of money into R and D going forward, so that we always have new products and new innovation coming to market. If you sort all that through, it puts us back in the mid-30s, which is about where we ended up 2015 2014 rather. But again, the idea would be to have a much bigger base and so that the operating income does quite nicely. Last thing I want to share with you is just some things that we see that would influence your model and would influence where we are in the long term outlook that we've provided. Clearly, how successful we are at attracting customers in the QuickBooks Online ecosystem is a big deal, not just to QuickBooks Online, but the ecosystem itself with all the attached products and ancillary services that customers use.
So that's a big deal, a big opportunity we see. You've talked about the addressable market, big opportunities there. We see that as probably one of the biggest determinants that might put us at the high end of the outlook that we've given, high end of our guidance range through 2015. Tax results always has to be on the list just because it's such a big number. You've heard from Sasan and C.
C. About what our plans are there. We're very optimistic, and I've seen a little more than you have on some of those plans. And I'll tell you, I think we've got a really good plan for next season. It is a multiyear journey, but I think there's a good opportunity there to pay off that installment again next year.
Improvements in attachment retention. You heard Dan mention it. We're going to play with bundles. We're going to look at different pricing schemes, different ways to match up to be sure that we're doing things that get customers into the franchise and that we learn ourselves what the right balance is between pricing on desktop, pricing on QuickBooks Online. And so we'll see how that goes throughout the year, but getting retention improved in both tax and small business is a big lever for us, a big opportunity, something we're working on heavily.
Place of global expansion, Dan mentioned France. We're looking at other markets. We're looking at ways to moderate our expansion there so that we do things in a wise way that gets us consistent with our revenue growth principles and our profitability principles as well as customers. So we're thinking about that, but we want to be opportunistic. And so if we see good opportunities to expand, good opportunities to do something on an inorganic basis, I'd like to think we would take advantage of those.
And finally, competitive initiatives and response, a big deal there is that going back to what we talked about in SBG, we want to be sure that new customers use our product first when they use technology. If they go online, they go with our products. We do think this is our fight to win. And so we want to be aggressive and be sure that we keep our franchise growing, that we keep that customer base growing. And that's what we're solving for over the longer term.
So these are some variables that if you ask me a top five that I would think about if I were modeling out our results over the next few years, these are the levers that we think about that could be influential on how we really come out. So that's a whirlwind. I'll be here afterwards to answer any questions you may have and talk to you later. At this point, I'm going to bring up Brad to facilitate your questions.
Thank you, Raymond, Neil Williams. All right. You have once again survived an Intuit fire hose, where we put as much information in your direction as possible. Hopefully, lived up to our aspiration of trying to give you some information that's useful and encouraging. I just want to put a summary around the day and then we're going to open it up to you for questions.
There is a very exciting and optimistic tone that I suspect you picked up starting with me through all the leaders and finishing with We're a company that prides ourselves in being pragmatic, making sure that we have good conservative outlooks and talking about things where we feel we're doing well and things where we have work to do. But our confidence is coming through because we are in the midst of a fundamental shift right now and it's very early days. And we have a track record of looking back in time and seeing that these are when we make our biggest advances. We have a playbook. We've made some transformational change.
We've been ahead of the curve and we're now capitalizing on it. Our game plan is very simple. We know the customers we serve and the problems we solve are often a 2 party problem that create network effects and that is the single source of durable advantage that accelerates growth in industry leaders. Whether it's book to tax or it's employees working for small businesses or it's the ability to leverage the capabilities of the data to do amazing things for customers, we have a game plan that has now come together as a result of the last 18 months of restructuring. And for us, we also have something that we've been yearning for.
As we move from desktop to the cloud, we have the ability to see further in the future with leading indicators. Examples that Dan Wernicoff showed today, what are the attach rates on the new users of Cohort, which give us the ability to talk to you with more confidence about what we see happening in 'sixteen and 'seventeen. So I'm excited because I do believe we're at an inflection point. A lot of the heavy lifting is behind us, a lot of the opportunities ahead of us, and we think we have the momentum to make it happen. And with that, we'll open it up to you to any questions that you want to ask.
We have microphones. So lights are in my eyes, Rayeta, so just hand someone. Okay, you went to Kash Rangan.
Hi, thanks, Brad. Kash Rangan. It's good to see you guys take this bold transformative step and I want to see if we can prompt you to do even more, granted that this is all fantastic. When I look at the $2,000,000 QBO goal for fiscal 2017, a lot of that is coming from new new sub adds rather than migration of the base. I think you spoke about it between the break.
What are the things that you would want to see in your business in the next year or so? So you may be in a position to come back like Adobe did over the space of 2 or 3 years and say look our goal was X. Now we're actually entertaining a more ambitious goal about how quickly we can convert the base to the QBO and also hopefully get more attached to payroll payments because that seems like the obvious lever in
your story.
Yeah. Kash, I appreciate the question. This goes back to our fundamentals, but we want to make sure we're pragmatic in giving you a multiyear outlook that we fundamentally can see the behaviors today that would support that. At the same time, we're very early days. And I thought Dan did a wonderful job of laying out the 3 point plan in the U.
S. Plus the global opportunity. So it's migrating desktop customers with 3,500,000 of those today using our products and other 1,500,000 using others. Then you've got 12,000,000 that should be using QuickBooks or some software and they're not, they're using an alternative, many times spreadsheets and shoeboxes and you've got 12,000,000 self employed. So our fundamental game plan and what we would do to revise that forecast or that outlook anything above 2,000,000 to demonstrate on a quarter by quarter basis that we are meeting and exceeding our quarterly subscriber growth.
We believe, by the way, that we have the levers to do that. We believe that with the additional feature functionality that Dan talked about that will be in QuickBooks Online by the end of this fiscal year, it will move from 30 percent who can make the move today to 70%. We think we have the right incentives and leaning in on marketing, and we really like the trajectory in Global. And then you saw the self employed stuff out there during the gallery walk. So net net, what you'll hopefully see from us is demonstrated behavior as opposed to revising a forecast without any reason to believe.
But once we see that change, then you may hear us come back and talk to you about whether our outlook over the long term has evolved as a result. But the levers are very clear and the game plan is there. Okay. Thank you. Just hand the microphone and I will take that.
Thank you.
Sterling Auty, I want to ask a simplistic question. You talked about mid teens growth exiting the transition. We see the 10% to 15% growth target in small business. We see 5% to 10% in tax in terms of the slide. So where would the overage come from to bring the entire revenue growth up to that mid teens level?
Yes. Neal, do you want to talk to that? Kind of deconstruct the model a little bit for Sterling?
Sure. I'm happy to. I mean, clearly, we think the small business category is going to continue to grow much faster than tax overall. Tax is a great business for us. It's very profitable, customer sticky.
But the big growth opportunity we think where we have an opportunity to be at the top end of that range is really in small business over the next few years. We do think consumer tax is going to perform very well too. And so we have some aspirations there. But I think to answer your question directly, Sterling, I think you're going to see the mix of small business revenue as a part of the total company change significantly over the next few years and that will be the driver.
Yes. And Sterling just a piece of accounting that goes with that. While that will be the ultimate organic drivers, you do have the ratable revenue shift which will actually be banking revenue that will show up in 2016 2017 that will push that up into the mid teens. But hopefully at that point in time, we'll also be demonstrating the organic growth that will be able to sustain that sort of double digit mid teen growth over the long term. Okay.
Brad, take one from Oppenheimer. Yes. Go ahead.
Thanks, Brad. Scott Schneeberger with Oppenheimer. I have 2 in the tax category. I'll go one at a time. We've now seen the new forms for the upcoming year with regard to ACA.
Just curious it does add a lot of complexity to what you'll be offering. I imagine when we see it, what is your view? The industry takes a view of, hey, this is an opportunity to price
on complexity.
What's The industry takes a view of, hey, this is an opportunity to price on complexity. What's the Intuit stance? Well, first of all, our view starts with what we
want to do for customers, which is any time there's a change in legislation and new policy, our goal is to take the complexity out of that, remove the cognitive burden and enable you to get the job done and get to the thing you want, which is a refund. And so our team has been working for the last couple of years and doing some amazing work to simplify what looks like a very complicated form. And keep in mind, those who produced this form are the same ones who produced a 1040 EZ form, which was 1 page in a post office with a 42 page help booklet. Now we turn that into the ability to do taxes with no information needed at all. So we can take that form and those sets of forms today and it's as simple as a checkbox for most of our tax filers.
It is not a form. And then for the more complex forms, I think it's 8,962 is that the form Sasan, and there's a variation of those. We've been working at a very intuitive interview process that enables us to simplify that and basically remove the cognitive burden so you can get it done. And so we fundamentally don't believe this is going to drive a shift. We've looked at the analog of what happened in Massachusetts when they went to
a similar program. We did not
see a shift from DIY Massachusetts when they went to a similar program. We did not see a shift from DIY to assisted. We've run
some really good experiments over
the last year and a half and worked between the seasons. And I think fundamentally, you're going to see that we feel we're prepared with the easiest way to reduce the burden on the tax filer. We have not the easiest way to reduce the burden on the tax filer. We have not talked about and we don't plan to talk about today what we plan to do in terms of charging or not charging. We're not going to share any of those go to market pricing decisions yet because it's a highly competitive area and we want to get closer to tax season.
But I can assure you, job 1 for us is not to allow this to be a reason why someone would lose confidence and want to switch. And I feel very confident that our team has done a good
job in that regard. Thanks. And then just following up along with the pricing theme in tax. Quote from the pitch book, success is growing customers faster than revenue. We saw it in TurboTax last year.
Yet the guidance does show about a 1% increase revenue per return. Could you just speak to those two themes and talk them out? Thanks.
Yes. Well, the priority and the levers continue to be if we can expand the digital category, which grew 6% this year, has grown 5% over multiple years, then we can take share, a point or 2 of share, the share we took 2 points. That is the single biggest indicator of health over the long term. And now you start to bring that together with the CPA side of the house, the pro tax side of the house, the ability to form relationships that are over the lifetime of a tax filer are significant. And we know we can monetize that relationship as your taxes become more complicated.
You move up and need more versions of our product, in which case we get a higher revenue per return. The reason why we see opportunity for a 1% is because anytime you get an influx of new free filers, oftentimes in the next year, something changes in their tax situation and they need to move up into the paid product. And of course, we offer things like prior year import, electronic W-two download and all the reasons why you should feel confident to stay with our products. So we have historically seen that if we can grow customers significantly and then we can actually form the relationship that keeps you in the franchise, we can increase that revenue per return. But as we said this year, if we had our choice, we would absolutely grow customers faster than revenue.
And when you do the math, that says, well, revenue per return isn't going to be positive, it's going to be negative. And that works for us because over time that actually pays big dividends for us in terms of growing the total business. So that's the one of the key levers. I know we've talked about that and that's really just unpacking the way we think about it. Okay.
Yes.
Hi. Jen Lowe from Morgan Stanley. Hi. I wanted to ask about the international business a little bit. And in particular, I think Neil made a comment of investing tactically and being prudent, but also being prudent in the investments there and staying true to the principles around operating margin expansion.
And I really had two questions there. 1 is given how low the penetration rate is internationally and the success you've seen there so far, why not invest more aggressively in international over the next couple of years to build out a presence even if it is at the risk of operating margins? And 2, if you think about the product evolution in international going back to the slide with QuickBooks and versus payments and payroll and how much payments and payroll are driving in revenue versus QuickBooks, how do you think about the payments and payroll strategy outside of the U. S?
Yes. So I'll start, Jen. Thank you for the question. You saw where Neil had in the top five levers and obviously small business subscriber growth QBO including global is our single biggest opportunity. And we have shifted resources inside of the company that way.
The opportunity for us was to deprioritize other things that weren't as big an opportunity and put more energy there. So you do see that happening, and we announced today a 5th country, and we are looking at building that out. The interesting thing is in terms
of
why not sacrifice more, the first thing we want to be able to do is demonstrate that we take that 3 month window that Dan talked about and get the product compliant and ensure that it's working. And then the lever we have for actually expanding end market is when we say we have people on the ground, we're talking about teams that are a dozen to 2 dozen because their job is basically to do 3 things: to build out the accountants' relationships, to ensure the product is compliant and if there's any feedback coming in around something that we haven't thought about, they get that to the engineering teams and we make the product more local. And the third is to make sure that we have the best website and online marketing capability, search engine optimization, social capabilities. So this is not a significant investment in terms of the dollars. It's basically going in and proving that we can actually take what we're already seeing as behavior and accelerate the results.
The neat thing on acquisitions is because we're an open platform now, you heard Dan talk about the payroll company we bought in the U. K. We have an open platform. We have a partner that logs in and ends up using our APIs and it becomes a fast, attractive product. We can make that acquisition and we take the risk out of the acquisition because we're mindset wise, leaning into Global as a significant area of opportunity.
We have shifted investments. But the big risk investments or the things that may move the total company's operating margin in a certain direction actually are derisked to a large extent because it's just getting the product localized in 3 months, putting a small team on the ground to work account relationships and looking at which partners seem to be getting the most adoption. And that's the way we're working the investment. But our mindset is we will win. We want to win globally and we want to go fast and we'll make the necessary investments.
They just don't have to be bet the company investments, okay? You had a second question, which was the I'm sorry. Payments and payroll. Good news about being an operating system and an open platform is we can partner with companies that already have international presence, and we've been doing that. So we had KeyPay in Australia, and we had the payroll company and what was it in U.
K? Yes, Paysuite. And then we have a partner down in India. And so we have the opportunity to work with those partners. At the same time, Payload and our CTO organization have been working on taking our current payroll platform and ensuring that it's global enabled.
And so a complement of partnerships as well as our own platform will fill out that payroll piece. In payments, we have partnerships with Square. We also have partnerships with PayPal we've announced today, and we'll be leveraging those relationships to ensure that we have that core accounting rounded out. Over time, we'll make the right decisions on whether that will continue to be a partnership approach or whether there be other ways to approach payments. But we don't want to leave a gap in the portfolio, and we're doing it through a combination of partnerships, small acquisitions like the U.
K. And building out our own platform.
Walter Pritchard with Citi. Maybe a question for Dan as much as you, but on the pricing side, I just want to make sure I understood your assumptions on the online pricing coming down a bit. Is that just being a little bit more aggressive to drive volume? And then just as it relates to the desktop, I think there's some notion you probably have some room to take pricing. You've slowed down your discounting in the last 12 months and maybe effectively raised ASPs there.
Could you talk about the alternative strategy to getting more aggressive on the online side in terms of desktop pricing?
Sure. Well, let me hand it to Dan. Let him take the question on the QBO pricing and then we can talk about desktop as well.
Yes. So on QBO pricing, we're going to do a lot of testing this year and we already have been. So we have a promotional rhythm that we're trying and there's 2 flavors to it. 1 is direct to small business and one is promoting through accountants to incent them to start to move their practice over. And so what you're seeing is us giving ourselves some flexibility to really test to Neil's point, what we can do overall for customer growth, revenue growth and operating income at an absolute level.
So you can expect to continue to see that this year. And when we find the exact right formula, you can expect to see us go pretty aggressively on it.
You want to talk to desktop pricing as well?
Desktop, I think I mentioned a little bit of this. What's interesting about the economics of the desktop base is over time, the unit economics will probably increase on their own without any effort on our side because the mix of the customers will become the most complex component of our lineup. So there's an opportunity on mix as we keep moving people up Premier and we move them up to the enterprise business. We'll look at pricing. We'll look selectively at pricing.
But we also want to be very conscious of our desktop base is also our future prospect on the QuickBooks Online side and we have to manage that relationship closely. There's a different nuance for us also in that it's not just about pricing to the desktop customers, but it's also pricing that our accountant partners are looking at and trying to understand how we think about our relationship with both them and businesses. And so we want to make sure that we're balancing that and thinking about the long term game of how we move people online.
Can I just ask one follow-up? I mean, I know we all build models here and I'm not trying to pin you down on a specific number. But if I look out to 2017, should we expect that the $14,000,000 is in each channel is where it is? Or you expect them to break in a certain direction based on because those are fiscal 'fourteen numbers,
I think.
Yes. Well, in the aggregate, I mean, if you think about our long term plan, the $2,000,000 I'd be very comfortable if it just remained level at $1400 per unit. And you saw the puts and takes. There's lots of things there. You can increase the lifetime value of each customer, but you can also decrease the price of the software component of the offering.
Right now, we have the assumption because to Brad's point, we don't have all of those learnings and all of those different variables and we have the assumption of remaining flat.
I think the key thing here and what Dan's pointed out and illustrated in the presentation is we know the levers. So we have the ability to increase the attach rates of payroll and payments. And as we get that more into global markets, those are razor blades that will go on the razor of that ecosystem of QuickBooks Online. We have the ability to improve retention. And Dan talked about the churn being reduced even as we migrated customers into QBO, it's just a better experience.
The other pieces, we have the ability to just look at other ways to increase customers by adding more feature functionality. And as a result of that, they may actually end up with a more premium version of QuickBooks Online over time. The puts and takes of that are as we move outside the U. S. Today, we don't yet have some of those attached services.
And so the average lifetime value of a customer as global becomes a bigger piece of the mix, kind of brings the average down. And the other piece of that is taking a look at self employed, which as Dan said is a real opportunity for us, but it may not be the same monetization models we have in QuickBooks Online. So I like how Dan answered the question with this $1400 tons of subscribers we have is an unbelievably good business, but we also know what we can do to go in and see how we can
another question another question on QBO and it actually relates to the QBOA so accountant products. So I think you talked about 100000 ish or so accountants and you talked about that being a big driver for recommendations to the small business base. Today you have a QuickBooks ProAdvisor community. I think it's 600,000 plus. So it sounds like you're relatively early in that penetration.
But also you do charge. Those accountants typically have paid for product. They pay to be an advisor. So what are you doing to change the economic model for the accountant to make them more willing to be on the QBOA plan?
So we actually do not charge for QBOA. And we charge for the ProAdvisor program, but the ProAdvisor program includes a bundle of all flavors of our desktop application at a very deep discount as well as membership and certification. So you'll see us probably more and more lean heavier in the ProAdvisor program on raising awareness for QuickBooks Online and QuickBooks Online for accountant. And you'll also see us kind of bifurcate and start to make it very clear that when you're working in the QuickBooks Online ecosystem, the pricing today is free essentially on QuickBooks Online for accountants, but it will remain much lower, because what we're really trying to do is get them started and we understand that it's a real shift for their practice. If you built your whole practice around a desktop product and you have to migrate, there's upfront cost for them to make that transition.
And to Brad's point, over time, we've been good at increasing lifetime value of our customer bases once we have a large base of customers on any platform. So that's the strategy.
And then just one follow-up maybe for Neil. Just you gave that metric where you had QuickBooks Online customers and QuickBooks Desktop customers, but those were units. And I just wondered if you could comment on the revenue mix as we go through this progression because it relates to this higher ASP if you will on the residual desktop customers. So I'm trying to understand revenue mix rather than unit mix. Thanks.
Yes, Ross. I think over time what we expect to see is the lifetime revenue of both the desktop and an online customer probably converge. You saw the chart that Dan put up as we move to higher mix on the desktop side as more of the desktop customers that are still around to the very end you can think about those more likely to be QuickBooks Enterprise customers or likely to be higher SKUs where the lifetime value is going to be higher. And so, I mean, we talked about last year about having about a 40% lift. But if you move the online product and what we're seeing now, what kind of what we expect more is that the lifetime value is going to move more to about that $1400 level regardless of which product that we're using.
So I think we're going to be more agnostic than ever or indifferent as we move toward 2016, 2017, 2018 as to which SKU you're in because I think the lifetime value is going to be more in what we talked about more evenly distributed between online and desktop.
Hey, Brad. Jim McDonald, Jeff Nalges. Hi, yes. More of a philosophical question. QuickBooks has typically been used by either the accountant or the accountant at the company.
How important is it? And how is the shift going to get employees and the business owner comfortable with sort of being in QuickBooks and the ecosystem?
Yes. This is actually where we have, I think, a very strong advantage today is QuickBooks Online has been really optimized for the small business owner. And they are so comfortable with the product that they ultimately tell the accountant and the accountant ends up using it. So the adoption is happening faster on small business in terms of the new Harmony adoption and we've been seeding the accountants and I think Dan showed some good numbers there. The opportunity for us has been Dan showed, remember he showed that very first slide and said, where do we need more work?
And he said, I want you to lock this one in your brain and I'm going to do a demo of a new version. We hadn't really taken QuickBooks online and made it really productive for the accountants. Now we're doing that. We've got this new version that's coming out that's going to be ready for peak season that the accountants are excited about. But this is different than some of our competitors.
Some of our competitors have historically solved for the accountants who like to see things with debits and credits and a T account and then they give it to a small business who says, if you're doing this for me, I'm good. If you want me to do it, I kind of skipped accounting. I didn't pay attention in class. We try to make accounting invisible. And so for the small business owner and for their employees, we do believe that we have with the new Harmony Edition a very easy to use product that doesn't even feel like accounting.
You simply go out and see a client, you send an invoice and everything happens behind the scenes. And now we've done the right thing for the accountant too and says, now how do we show you the data in the way you want to have it, so you can actually help the small business be successful.
So I don't know if
I answered your question.
Can I add just a little bit? Yes, please. One other component that I think is interesting to look at, you can see it already behaviorally, is that we're getting close to 100,000 mobile users. Now on the mobile device, there is no accounting exposed. I mean you're creating estimates, you're creating invoices, you're doing all types of activities directly with the customer.
And so it's really emerging more as a CRM solution that just so happens to integrate back with accounting. The other thing we didn't show on the homepage of Harmony, there's this concept of an activity feed. And you can think of that as it's sort of like Facebook or Yammer for a small business. It has all the activities that are happening whether they're accounting or not. And you can think of it as a homepage for a business that can also start to incorporate things from the outside.
So if there's a Yelp mention about your business, if there's been a review about your business somewhere else, anything, a Twitter mention. And you can start to pull it in and think of it as the front page of your business. So we keep thinking about how can we make it more of a business management solution. So from Brad's point, how he just described it that that data then flows seamlessly into the accounting and the accounting is managed either by us or in partnership with the accountants. This is why
they say leaders who surround themselves with people smarter than themselves. I've made a whole career out of it. So there you go.
Brad, can you hear Brad?
Yes. Hey Brad, I'm Phil with UBS. Hi, Brad. Just on payments, the attach is still below 10%. If you looked out 3 years, where would you personally like that attach to be?
And what do you think are the constraints? It's inching up, but it's not leaping up at a rate perhaps that we all would have thought it would have attached to?
Yes. I think there's a couple of things going on. One is at the macro level, 1 out of 2 small businesses accept credit cards and debit cards today, but that is starting to accelerate because everyone and their brother are in the digital payments game, whether it's Apple Pay, it's the new Amazon, Fire, you have all the opportunities going on with American Express and PayPal and us with GoPayment and Square. And so you're starting to get the consumerization of IT pulling small businesses in. And because the competitive intensity has increased, the actual fees are coming down and small businesses no longer have that barrier of, hey, I want you to pay cash because I don't want to give somebody 3 point 2.
Now it's down to 1.5 in some cases. And so you're starting to see the total category grow, which creates huge opportunity. The second thing is then is how seamless is it in the experience for the small business owner to accept the payment. And that's why our team has done a wonderful job. As Dan said, it's no longer buy this and then bolt on this.
It's literally a feature you just turn on. Someone comes in and makes a payment and you want to just go ahead and turn on the ability to accept electronic payments. And to do it with an invoice, send an invoice, have them actually click on a button and pay electronically and we do it for pennies. And so it's a huge opportunity for us and we think it could be a significantly higher penetration. Right now, I we haven't given a multiyear forecast.
Dan, since it's your IPI and bonus we're talking about, I'll let you set a goal out there.
All right. Well, I'm going to skip that question and answer your question. Smart. One of the things that is just sort of universally understood is no payments business is great unless it has a network effect. And so you think about what we're trying to do is we're trying to create a very unique network effect.
The first step was just getting the payments well integrated into QuickBooks. But the next step is as you send an invoice off, there's a counterparty. That counterparty is storing their payments credentials. And we just launched that capability over the last month. And what we're seeing is, if you're a counterparty to another small business, you're willing to store your payments credentials because you do recurring payments, which then makes them a potential prospect of being a merchant with us.
And you start to think about the network effect that we have, it's quite unique because there already is a network of QuickBooks customers transacting with other QuickBooks customers, which no one else has really approached because most of our competitors are focused much more on the consumer to small business network effect. And they do it through marketplaces or e commerce or some other form. So we're really trying to find our unique space. It's taken a lot of pieces in the puzzle to get into place, but this is the year when we start to expose that capability.
Well said.
And just a quick follow-up on the competitive landscape. You've had a luxury of not having a big platform company to compete with, but you do have to worry about Xero. They came with a pretty elegant UI, easy pricing and the accountant focus. And it seems like you've narrowed the gap on all three fronts, if my analysis is correct. But just your perspective on what you're seeing from them in the field.
And clearly, they've been a bigger issue international, but trying to come in here in the U. S. Yes.
Well, I'll go back to the statement I said earlier about competition in general and to be respectful for the dozens and dozens of others we've competed with, including Redmond, Washington. We've had some big platforms and operating systems come into our systems come into our space before. And we try to actually look past the size and look at who's really got a compelling product and some disruptive approach that we can learn from, be inspired by and ensure that we're better than ultimately at the end of the day because the customers are are going to choose. And what you have right now with this competitive player coming into the market is someone who has a platform and they have a way of helping the accountants do a better job for their small business owner and basically have the accountants with a new incentive package that says, hey, you can actually do the service and do wholesale billing. So we've learned about a few things that we historically didn't think about.
So we were always about a referral model and we didn't necessarily have wholesale billing. We literally allowed you to give discount for QuickBooks to your client, but we didn't put you in the business of actually doing the books for them and then being able to market up. We've now implemented that. Dan showed you that in one of the demos he did earlier. And then the second thing I would tell you is in terms of how they're doing, you'll have to look at their results.
But I can say this, we have a very clear and excited organization right now that is laser focused on winning in each of the focused geographies we're in and to allow no beachhead in the United States. And from what we can tell right now, our momentum is continuing accelerate in the U. S. We're now up to over 2,000 gross new subs a week outside the U. S.
That's up from 600, which was where we started 12 months ago. And we continue to accelerate momentum in each of the geographies, and that is head to head. Also had an independent research study done in Australia and in the United Kingdom, where we had small business owners and now accountants test the ease of use, how quickly they got their job done and whether they would recommend QuickBooks Online against the competitive alternatives that you just named. We outperformed them 2:one. And so I fundamentally believe that with the game plan we have, the products we have and the laser focus, that we will be inspired by the competition, but it's not going to stop our 30 year run.
We're going to continue to reimagine and reinvent ourselves and try to get better. If you notice, I never named them once because I prefer to have them talk about themselves as opposed to us talk about them.
Hi, Brett.
Yes.
This question is basically about what could go better than expected in the small business transition and what might be slower than expected and how are you going to monitor that? So let's say on the tax side, it's a sort of an annual business. You work all year and you find out in a very short space of time whether what you did are embraced by consumers. On the small business side, it seems like you have a lot more than just a subscriber count to that you can monitor and you must have leading indicators of you can even see how people behave. So what can you monitor?
And what might you do if things are going faster than expected or not as fast as expected?
Yes. Well, one of the things thank you for the question. You saw each of the alignment triangles finished with a set of metrics. And Neil alluded to the fact that every 2 weeks, the top 130 leaders get together and we review those metrics. Those metrics were inspired by the best practices of cloud based companies we followed, which are leading input metrics.
So one of the things that you heard the teams talk more about today that we haven't done historically is Dan says, look, a leading indicator is how many accountants have at least 1 QuickBooks Online customer because that is a proxy for how many small businesses we're going to have. We not only track the number who have 1, we have to track we also track the ones who have 3, 3 or more. And so that is one of the leading indicators we track right now. Another is cohort analysis, which is we're on a 4 week release cycle with QuickBooks Online instead of once a year with QuickBooks Desktop. Every 4 weeks, Dan and the team track the cohort analysis that says what was the actual traffic to conversion paid sub, which was the number he showed and then what is the attach rate of payroll and payments for those new customers in that 4 week period and they make changes and then we track the next 4 weeks and we're able to continue to look at these leading indicators that give us much more visibility.
So those are really the macro points, I would say, is accountant adoption, the 1 and 3 client number. The second is the cohort metric on the actual traffic to paid subscriber conversion and then the attack rate and then ultimately that leads to retention. So those are probably the biggest indicators that give us some visibility.
But in putting together the FY 2017 model, do you feel like you've got most variables fairly well understood because you've already been tracking them for a while or still a lot of unknowns to be realized?
I would tell you we have a high degree of confidence in what we've talked about externally as objectives, but I suspect that we'll learn more as we go. And as we do, we'll expose that thinking to you. But enough of what led us to put that 2,000,000 subscriber growth out there, we believe we have enough visibility that we have confidence in signing up for that number. And I think we'll continue to get smarter every day. That's what happens when you're in a kind of dynamic cloud based business where you're able to observe behaviors and then modify your actions as a result.
Okay. Yes.
One of those metrics this is Greg Dunham from Goldman. I wanted to ask one of those metrics of churn is critical, right, the leverage growth and kind of really what you're spending on customer acquisition cost. And so what is the magnitude of improvement in churn that you're seeing with Harmony today? I don't know how much you can say on that. But also what are the assumptions going forward to get to that $2,000,000 some number from a churn perspective?
And what is the kind of potential range of outcomes that that churn could actually improve or stay the same? Thanks.
Okay. There is several pieces in there. So our churn number today in QuickBooks is in that low 70s to mid 70s range. 1 is in that low 70s to mid 70s range. 1 of the biggest levers we have in the entire company regardless of the franchise, tax or QuickBooks is one point of retention is significant because the lifetime value of a customer continues to multiply over time.
That's why one of the big levers that Dan talked about in terms of how we can get that $1400 per customer higher is continue to improve churn. I don't know if we actually specifically talked about the improvement in churn with Harmony. Did we okay.
No, we didn't break it out. And actually churn is a bit of a lagging indicator too because we do cohort analysis of attrition anytime we do a release, anytime we do a test because what you're trying to see is the behavior change that is a lifetime value versus just the original the initial conversion. And even on the earlier point, when we think about testing things now, we have leading indicators well before you actually go from trial to sub. So I know a behavior in the 1st day of someone trialing that is predictive of whether or not they'll turn into a sub. And then I can start to think about how to tune the experience so that we expose that capability right upfront.
So all of this is sort of a recipe that you continue to drop new tests in and see what the result is coming out on a cohorted basis, which then the lagging indicator is something like churn where today we see about 30% churn in the base annually, which is a huge opportunity. The bulk of the churn actually happens within the 1st 3 months of usage, which shows that there's a bit of a learning curve. And so the more simple the product gets, the better your churn and your attrition rate will become.
Okay. Other questions?
Over here at CarTech on the
okay. Thanks. So Brad, this last tax season you had very good success in growing your client base. It looks like you want to do the same this year even if it comes at little cost of revenue. Can you talk a little bit about or share some of the metrics that take you from a free client to a paid client?
What are those metrics? When somebody comes into the TurboTax ecosystem, how long does it take to generate revenue from them? And then how much is that? And just a second question on that is, are the customers you're getting now, especially last year since you changed your pricing a little bit different than the customers you received got previously using the free model?
Okay. I'm going to tag team with Hassan. Let me provide the macro level and then be an equal opportunity distributor of questions, so you can hear from the man who actually led the results. I'll start first with free. Free is a compelling offer that enables people to understand they can come in and get this obligation done with very little effort at all.
And ultimately, what happens when you have a free version is first, people will come in with free and they'll look right next to it and see a version that's $29 that has a little more feature functionality. And so even though they're attractive with free, they may move right into a paid product year 1. The second is those may come in that are free, but then they have a state product. And so they may do a free federal, but then they want to actually get their refund done with the state. And in the 44 states that actually have income tax, we can sell a state product in the sitting paycheck to paycheck.
And so we really were able to step up our game with the work that Sasan and the team put in place It increased our share in the high single digits this year in that particular part of the segment. And so that was one difference in the kinds of customers we got is we're able to get a customer group we weren't historically serving well. And I'll hand it over to to add any other color comments or Yes. Just one thing around type of customers. 2 things.
1, 70% of our competitors' customers used to be TurboTax customers. And so in terms of type of customers, we're really going after getting back what we feel is rightfully ours. And so there's not a dramatic change in type of customers. And secondarily, the reason we're so focused on this area of the market is 70% of all of our starts are customers that start in free. So we feel like we have an opportunity to deliver an awesome experience to them.
And I think as Brad just mentioned, really focus on the benefits based on what's important to that customer. And we now have the ability to understand based on the customer behaviors the things that's important to them and sell a specific benefit at the same time. And so we really were able to step up our game with the work that Sasan and the team put in place that increased our share in the high single digits this year in that particular part of the segment. And so that was one difference in the kinds of customers we got is we're able to get a customer group who weren't historically serving well. And I'll hand it over to Sasan to add any other color comments or Yes.
Just one thing around type of customers. One, 70% of our competitors' customers used to be TurboTax customers. And so in terms of type of customers, we're really going after getting back what we feel is rightfully ours. And so there's not a dramatic change in type of customers. And secondarily, the reason we're so focused on this area of the market is 70% of all of our starts are customers that start in free.
So we feel like we have an opportunity to deliver an awesome experience to them. And I as Brad just mentioned, really focus on the benefits based on what's important to that customer. And we now have the ability to understand based on the customer behaviors, the things that's important to them and sell a specific benefit at the point in time versus trying to force them to upgrade to a different product. So it's just a very different philosophy in terms of approach that we're focused on. But the type of customers are generally the same.
We've fed the marketplace and we're really going after the customers that we've lost.
Would you expect the metrics to be the same as monetization metrics? So the customer you 2 years ago that were free that you're monetizing today, they're generating X number of dollars. Would you expect the customers that you just got last year to have the same type of metrics?
Sean? I think in the long term, you can expect the same in terms of how we monetize, because these are again the same set of customers that were in our franchise. So I think long term, yes. And I think secondarily, as we start moving to products and services that are beyond tax, we start expanding our opportunity to how we monetize those customers. Yes.
We're down to one last question here. I'm looking it's actually top of the hour. So I'll go ahead and do this last question and we'll wrap
up.
Thanks. Raimo Lenschow from Barclays. 2 quick ones. First on going back to churn, if you think conceptually if you go online should the churn launch or like should the attrition not come down quite significantly because you have more interaction with the customers, you have more visibility? That's a quick one.
It's a yes or no, I guess. And the other one is more the other question was then on the long term model. So I appreciate there's a lot of investment, a lot of opportunities. But if I look at kind of where you put the number in for R and D, that's the one number that's still relatively high 16% to 18% longer term. Should that not if you have a cloud model come down if I look at other cloud vendors?
And what's the drivers for kind of keeping it at a higher rate? Yes.
I appreciate the question. So first of all, we spend a lot of time, as we shared earlier in my presentation, benchmarking best in class companies that we see continuing to reinvent themselves and also continuing to lead the competition in terms of innovation. And what we see is the 16% to 18% sort of R and D as a percent of revenue as a threshold. Now we don't just blindly spend at that level. Our CTO, Taylo, actually works with all the engineering teams across the company, and we have some of that that's actually devoted to tech refresh, hygiene, ensuring privacy and security of data, ensuring the technology has been rearchitected to be services oriented architecture, make sure we can actually leverage things like AWS, Amazon Web Service and the public cloud.
So there's all these fundamental things that keep the technology fresh so engineers can do great stuff. Then we have a set of that R and D that's focused on making the existing products better, so continuing to do things in TurboTax and QuickBooks to add the functionality out. And then we have a piece that's innovation, which is the breakthrough kinds of ideas like the QuickBooks financing I talked about earlier. And we measure each of those categories differently. So what is the return on investment in each of those areas?
And we hold ourselves accountable. And if we aren't getting a return on investment, we will back off in the spend. And if we actually are seeing the return on investment, we'll spend more. But that guideline, as Neel said, is not a straight jacket. It is a best practice that we benchmark ourselves against, but it's also when we hold ourselves accountable for to say, if we're going to spend that much, we to be getting a return on that kind of an investment.
You're by the way, one last piece, absolutely correct on cloud based companies. The digital cost of goods sold goes down with the scale. The ability for us to add an additional customer in the public cloud or in the private cloud continues to push margins up. And an example this year was TurboTax, a very competitive season, grew traffic, conversion, retention, net promoter and increased the margin 300 basis points, and we didn't try. And I don't mean we didn't try because we're willy nilly.
We were going aggressive after customers, and the multiplier effect of that digital COGS on a cloud based company is so good that we just continue to accelerate the margin. And so that's really the tailwind we have going behind our back. Okay? Thank you so much for the questions. Thank you for enabling us to share with you the story.
We're going to go out now. There is lunch served and, of course, the gallery walk. And if you want to spend more time with management, feel free to come up and talk to us. Thanks again. Take care, everybody.