Subscriptions are where it’s at — in retail, direct-to-consumer (DTC) sales, media, business and nearly every sector where consumers are spending money. The growth of subscriptions is a defining characteristic of the shifts in consumer preferences and expectations, particularly with the rise of digital, which makes opting in and paying for subscriptions as simple as a few taps on a smartphone.
The Subscription Economy Index (SEI) report from Zuora explains, “Recurring revenue-based business models have exploded over the last decade owing to digitally enabled, pay-as-you go services. As globalization has placed increasing margin strains on manufacturing and product sales, subscription-based businesses have benefited from stable and predictable revenue projections, data-driven insights from direct consumer relationships and large economies of scale owing to relatively small fixed costs.”
The Top 4 Takeaways From Zuora Subscription Economy Index
Understanding how and where subscriptions are growing and the consumer response is a necessity for brands and marketers looking to deploy a recurring-revenue business model. The SEI “reflects the growth metrics of hundreds of companies around the world, and spans a number of industries including SaaS [software as a service], IoT [internet of things], manufacturing, publishing, media, telecommunications and business services” over the last seven-and-a-half years. (The sectors are referred to as indexes in the study. See chart.)
- Subscription models are out-pacing traditional companies. Subscription businesses grew revenues five times faster than S&P 500 companies and retail sales. From January 2012 to June 2019, subscription business sales grew 18.2% versus 3.6% for S&P 500 companies and 3.7% for retail sales. This growth in subscriptions, particularly compared to other kinds of sales, is a fairly definitive nod to what a game changer subscriptions have been.
- Media seems to be most impacted by indecisive consumers. When it comes to churn rate and customer base growth rate, media is struggling. With only a 3% customer base growth rate (compared to more than 17% from telecommunications) and a 37% churn rate, there may simply be too many options in the media sector, creating a non-committal consumer base. The Zuora study indicates that traditional media also has a high-churn rate, because of the level of contention in the industry.
- Publication subscriptions are growing but may be limited by existing payment models. Although publishing is arguably one of the oldest subscription models, it has a high churn rate (28%) and a somewhat low customer base growth rate (9.5%). More worrisome, is the negative average revenue per account (ARPA) of -3.3%. (The SEI average is 6.5%.) This negative ARPA for the publishing industry is likely attributable to a very volatile fight from publishers to determine the best route to revenue after giving away content for free for so long and effectively losing the battle for display advertising. However, recent attempts at digital memberships and subscriptions have shown some success.
- Subscription services receive the majority of payments electronically. The reliance on mobile for shopping, bill paying and entertainment means most payments for subscription services are done electronically. Digital and the growth of subscription go hand in hand, particularly as consumers lean into frictionless solutions and want the easiest route to a purchase or payment. According to the SEI report, on average, 71% of companies across industries give and receive electronic payments. The share of telecommunications companies using electronic payments is slightly higher at 74%.
Consumers Will Continue To Demand Subscriptions
Although consumer interest and profitability waxes and wanes across sectors, “more than a third of consumers say they will increase the number of subscriptions they use in the next two years,” according to an article in eMarketer. And while subscription market saturation seems possible for certain verticals, those supported exclusively by digital users, like software, are likely to move almost entirely to a subscription model. A change Zuora, calls “a broad, secular shift.”