The Subcsription Economy Index issued by Zuora

The Subcsription Economy Index issued by Zuora
06.05.2019 iqi-adm
Pfeilnachoben

Zuora’s Subscription Economy Index (SEI) compares the success of companies that earn their revenues primarily with subscriptions with the overall economy. Since Zuora is a service provider for the Subscription Economy, it supports its customers in managing, billing and monitoring subscriptions. Therefore, the SEI is based on Zuora’s broad customer base.
Above all, the curves published by Zuora show how high the growth rates are for companies that have switched their business to usage-based models. Since the beginning of the SEI’s records, sales have grown by more than 300%. On the other hand, the economy as a whole, has only grew by about 25% (represented by S&P 500 Sales and US Retail Sales).

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Zuora – Publisher of the Subscription Economy Index

Early on, the founders of the software company Zuora (Ex-Salesforce and WebEx executives) recognized that the increasing switch to usage-based revenue models placed completely new demands on companies. With product sales, retailers bill the prices and bundle turnover for manufacturers. Now, subscription prices have to be billed individually to the end customer. This had to take place monthly or at regular intervals. In order to manage the customer contact profitably, customer accounts and customer contact programs are necessary.
Consequently, Zuora supports these new processes on the software side and helps companies to complete the changeover to subscriptions quickly and easily. From the outset, Zuora has also been involved in the theoretical background of the Subscription Economy. Most noteworthy, it is publishing the SEI and organising worldwide conferences entitled „Subscribed“. Furthermore, founder and CEO Tien Tzuo has written a highly recommended book with the same title.

Zuora’s Subscription Economy Index

The Subcription Economy Index is published twice a year based on the hundreds of customer data that are processed via the Zuora platform. It covers several industries, including SaaS companies, media, telecommunications, IoT and corporate services. The data points date back to 2012.
  • The sales of companies that rely on subscriptions have grown by more than 300% in the last 7 years – the market as a whole, however, only by an average of 25%.
  • Growth will (even) be driven more by new customer acquisition (+14% in 2018) than by rising revenues per account (+8% in 2018). A reversal of these figures would be desirable, as it is generally cheaper to address existing customers.
  • B2B and B2C subscription models are growing equally, but there are already more user-based B2B approaches

    Zuora’s Subscription Economy Index – Growth rates per Industry Source: The Subscription Economy Index, March 2019

    Zuora’s Subscription Economy Index – Growth rates per Industry
    Source: The Subscription Economy Index, March 2019

  • The fastest growing industries are IoT and telecommunications. Behind IoT are OEMs who have managed to successfully network their products and deposit them with a service model.
  • The annual churn rate within the Subcription Economy Index is between 20% and 30%. In order to generate growth, the churn rate must always be below the growth in new customers.
  • While the B2C churn rate has declined over the last three years, it has risen in the B2B sector.
  • The IoT and SaaS industries are also experiencing strong increases in the churn rate. A decrease in customer satisfaction should be responded to quickly, e.g. with improved offers and services.

 

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Conclusion

Every company today should be aware of the developments within the Subscription Economy. The high growth rates speak for themselves. Secure and predictable revenues make the usage-based models so successful. Furthermore, direct customer contact facilitates up-selling and cross-selling as well as the recovery of migrated customers. And service providers such as Zuora make the handling of subscription business immensely easier.

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