Companies with a subscription model have been able to outpace the S&P 500 when it comes to growth, according to the latest Subscription Economy Index (SEI) from monetisation platform provider Zuora.
The SEI found that subscription-based companies (covered within the analysis) have experienced 3.7x faster growth rates when compared to the S&P 500 over the past 11 years.
Despite turbulent economic conditions and tighter budgets, rising geopolitical tensions and businesses still feeling the effects of COVID-19, Zuora’s SEI report shows recurring revenue businesses have managed to find growth by bringing on new customers, retaining existing ones and expanding revenue with add-ons and packages.
What the SEI found
The SEI analyses the growth and resilience of recurring revenue businesses by compiling anonymised, aggregated, system-generated activity onZuora Billing’s service. to measure changes in business volume for subscription-based products and services across more than 500 companies.
In 2022 alone, SEI companies experienced 12% revenue growth compared to the S&P 500’s 10.6%. Subscriber acquisition also turned around for the first time since hitting pandemic lows, with companies acquiring new subscribers at higher rates in 2022 compared to both 2021 and 2020.
The percentage of subscribers lost, or churn rate, also managed to remain stable when accounting for current consumer sentiment. According to the SEI, average quarterly churn in 2022 was 6.36% compared to 6.13% in 2018 and has increased almost 1% since 2021.
Average revenue per account growth has an overall positive trendline but growth rates slowed in 2022, decreasing from 1.89% in Q2 that year to 0.97% in Q4. Zuora concluded this to be a product of companies both offering customers the flexibility to downgrade or pause their subscriptions and offering new subscribers promotional pricing.
Within the SEI, Software as a Service was once again the fastest-growing sector, beating others in terms of cumulative revenue growth in 2022 with an average of 12.3% across the year.
Amy Konary, Founder and Senior Vice President of The Subscribed Institute at Zuora, said: “Despite economic headwinds, spending habits are still trending positively toward digital services and experiences offered through subscriptions.
“Recurring revenue models can offer subscribers predictable spending opportunities with clear value and savings over time but finding ways to be indispensable with products and services that customers value will be key.”