Zuora SEI Report: Flexible, Recurring Monetization Models Drive 3.4x Faster Growth Rates Than the S&P 500 Over the Past 12 Years
- SEI companies experienced 3.4x faster growth rates than the S&P 500 over 12 years.
- SEI companies demonstrated resilience through Total Monetization strategies in 2023.
- SEI companies outpaced the S&P 500 in revenue growth in 2023.
- Customer retention is up while customer acquisition slowed in 2023.
- SEI SaaS sector experienced a 10.1% revenue growth rate on average in 2023.
- Consumption-based models in the SaaS sector showed promising revenue growth.
- Media & Entertainment sector saw varying growth rates, with New Media subset leading in revenue growth.
- Publishing Media successfully expanded subscriber count over time in 2023.
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Insights
The Subscription Economy Index (SEI) report released by Zuora, Inc. highlights a significant trend where companies with subscription-based models are outperforming traditional businesses represented in the S&P 500. This data is particularly informative for investors and analysts focusing on the subscription economy, as it quantifies the resilience and growth potential of these business models, even in the face of economic headwinds.
From a market research perspective, the reported 10.4% average revenue growth rate of SEI companies versus 6% for the S&P 500 in 2023 is a strong indicator of the subscription model's effectiveness. The shift towards customer retention and expansion, evidenced by lower churn rates and increased annual revenue per account (ARPA), suggests that companies are successfully deepening their relationships with existing customers, a important strategy in a slowing acquisition environment.
The data on consumption-based SaaS models, showing a 20.1% 6-year CAGR, compared to 16.3% for non-consumption counterparts, provides insight into evolving customer preferences for pay-as-you-go services. It is evident that businesses that adapt their offerings to such consumption patterns can tap into more significant growth opportunities.
Analyzing the financial implications of the SEI report, it's clear that investors may find attractive opportunities within the subscription-based sectors. The sustained growth rate over a 12-year period suggests that subscription models are not just a short-term trend but a fundamental shift in how modern businesses generate revenue.
The report's findings on customer retention and ARPA growth are financially significant. Improved retention rates typically translate into lower customer acquisition costs and higher lifetime value per customer, which can lead to improved margins and profitability. Furthermore, the upward trend in ARPA indicates that companies are not only retaining customers but also successfully upselling or cross-selling additional services.
For sectors like SaaS and Media & Entertainment, the detailed growth rates and ARPA trends provide a nuanced understanding of sector-specific performance. Investors can use this data to identify which sub-sectors may offer better long-term growth prospects, such as New Media in the case of faster revenue growth or Publishing Media for ARPA expansion.
The resilience of the subscription economy, even amid economic challenges, speaks to the broader economic shift towards service-based models and the importance of agility in business strategies. The SEI report's findings suggest that companies capable of adapting their monetization strategies to align with evolving customer demands are better positioned to weather economic fluctuations.
The report's insights into regional performance, with data from EMEA and APAC, also offer a global perspective on the subscription economy's health. This regional data can help economists understand how different markets are adapting to and embracing the subscription model, which could have implications for global economic trends and international trade.
It's also worth noting that the subscription economy's growth may influence labor markets, as these companies often require different skill sets compared to traditional businesses. The emphasis on customer retention, for example, might drive demand for professionals specializing in customer success and relationship management.
In 2023, amid economic challenges and slowed digital transformations, companies in the SEI demonstrated resilience through Total Monetization strategies. By aligning and evolving their monetization models with customer demand, they pursued innovative approaches beyond traditional subscriptions, including hybrid and flexible bundling strategies. This agility and customer focus have driven sustainable growth despite market uncertainties.
In the latest SEI report, The Subscribed Institute at Zuora® found:
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Companies in the SEI continue to outpace the S&P 500: In 2023, companies in the SEI experienced a
10.4% revenue growth rate on average compared to6% for the S&P 500. - Customer acquisition slowed, but retention is up: While customer acquisition slowed in 2023, companies in the SEI are retaining their customers, with churn numbers lower than the previous three years.
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Customer expansion, or annual revenue per account (ARPA), is on an upward trend and slightly improved in 2023: Starting with a quarterly growth rate of
0.73% in Q1 2023, ARPA growth ended the year over 2x stronger at1.76% in Q4. The quarterly average also improved year-over-year, with1.5% growth in 2023 compared to1.29% in 2022. -
While growth rates slowed in the SaaS sector, churn is down and consumption-based models are continuing to demonstrate promising revenue growth: The SEI SaaS sector experienced a
10.1% revenue growth rate on average. The 6-year compound annual growth rate (CAGR) for SEI SaaS companies employing consumption-based models reached20.1% in 2023 compared to16.3% for the non-consumption counterparts. -
In the Media & Entertainment sector, the New Media subset experienced faster revenue growth, but Publishing Media successfully expanded subscriber count over time: Media & Entertainment experienced a revenue growth rate of
6% on average in 2023. While the New Media subset experienced a faster revenue growth rate (12% ) than Publishing Media (5.6% ), Publishing Media grew ARPA year-over-year (YoY), while New Media ARPA growth slowed.
“Staying competitive means embracing agility and flexibility to incorporate a diverse mix of business models as opposed to a reliance on any single approach,” said Amy Konary, Senior Vice President and Founder of The Subscribed Institute at Zuora. “Companies that are able to evolve their monetization with demand will be better set up for faster and recurring growth.”
Zuora’s SEI report analyzes the growth and resilience of over 600 recurring revenue businesses based on anonymized, aggregated, system-generated activity on the Zuora Billing service. The latest report includes data by sector in SaaS, Media & Entertainment and Manufacturing, as well as by region in EMEA and APAC.
To read the full report, visit here.
About Zuora, Inc.
Zuora provides a leading monetization suite to build, run and grow a modern business through a dynamic mix of consumption models, subscription bundles and everything in between. From pricing and packaging, to billing, payments and revenue accounting, Zuora’s flexible, modular software platform is designed to help companies evolve monetization strategies with customer demand. More than 1,000 customers around the world, including BMC Software, Box, Caterpillar, General Motors, Penske Media Corporation, Schneider Electric and Zoom use Zuora’s leading combination of technology and expertise to turn recurring relationships and recurring revenue into recurring growth. Zuora is headquartered in Silicon Valley with offices in the
Forward-Looking Statements
This report contains forward-looking statements that involve a number of risks, uncertainties, and assumptions, including but not limited to statements regarding the expected growth and trends of recurring revenue-based companies, such as subscriptions (including companies in the SEI report) and non-recurring revenue based companies. Any statements that are not statements of historical fact may be deemed to be forward-looking statements, and actual results could differ materially from those stated or implied in forward-looking statements. This report also includes market data and certain other statistical information and estimates from industry analysts and/or market research firms. Zuora believes these third party reports to be reputable, but has not independently verified the underlying data sources, methodologies, or assumptions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties and may differ materially from actual events or circumstances.
© 2024 Zuora, Inc. All Rights Reserved. Zuora, Subscribed, Subscription Economy, Powering the Subscription Economy, Subscription Economy Index, Zephr, and Subscription Experience Platform are trademarks or registered trademarks of Zuora, Inc. Third party trademarks mentioned above are owned by their respective companies. Nothing in this press release should be construed to the contrary, or as an approval, endorsement or sponsorship by any third parties of Zuora, Inc. or any aspect of this press release.
SOURCE: ZUORA FINANCIAL
View source version on businesswire.com: https://www.businesswire.com/news/home/20240409872198/en/
Margaret Pack
press@zuora.com
619-609-3919
Source: Zuora, Inc.
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