METHODOLOGY

BCG and Zuora Consumption Report Methodology

Boston Consulting Group conducted the research in collaboration with the Subscribed Institute, Zuora’s dedicated think tank focused on the most critical business problems of the Subscription Economy. The dataset was derived from Zuora’s Subscription Economy IndexTM (SEI) database. The SEI consists of anonymized, aggregated, system-generated activity on the Zuora Billing service, and metrics derived from it are meant to be indicative of subscription-based business in the broader economy.

This document has been prepared in good faith on the basis of information available at the date of publication without any independent verification. Neither BCG nor Zuora guarantee or make any representation or warranty as to the accuracy, reliability, completeness, or currency of the information in this document nor its usefulness in achieving any purpose. Readers are responsible for assessing the relevance and accuracy of the content of this document. To the fullest extent permitted by law, neither BCG nor Zuora shall have any liability whatsoever to any party, and any person using this document hereby waives any rights and claims it may have at any time against BCG or Zuora with regard to the document. Receipt and review of this document shall be deemed agreement with and consideration for the foregoing.

Figure 1

  • The analysis in this figure was limited to Zuora customers that fit the following criteria:
    • Enterprise SaaS
      • Offering: Software/platforms as a service but can also have perpetual offerings
      • Customer’s customers: Enterprises/large corporations
      • Sales motion: 100% direct
    • SMB SaaS
      • Offering: Software, platforms, or marketplaces as a service
      • Customer’s customers: Small and medium sized businesses “mom and pop” shops, and small franchises
      • Sales motion: Direct and/or self serve (more self serve)
  • The growth rates in the top chart in Figure 1 are derived from analyzing the Net MRR and Net MRR Changes data across the Zuora Billing tenants included in the cohort from the calendar year 2022.
    • The “Base” value is derived from the total Net MRR of every customer in the cohort as of January 1, 2022.
    • The “Churn,” “Contraction,” “Expansion,” and “New Business Revenue” values are derived from the total Net MRR Changes that occurred between January 1, 2022 and December 31, 2023.
  • The definitions of Churn, Contraction, Expansion, and New Business align to the business impact events tracked by Zuora Billing’s Analytics product. Those definitions can be found here.
  • The growth rates in the bottom chart followed the same methodology for each calendar year 2017-2020. The average of each year’s growth rate is what is displayed in the final chart.
  • 2021 was excluded from Figure 1 due to the plethora of external macro factors (pandemic, supply shortages, war in Ukraine etc.). The intent is to focus on more stable periods and look at how YoY growth now compares to pre-pandemic levels.
  • To remove Outliers, tenants that fit the following criteria were removed from the final cohort:
    • Less than $1M of total ARR as of Jan 1, 2022.
    • Tenants in the 95th or higher and the 5th or lower percentiles based on YoY ARR growth.
    • Greater than 80% ARR growth (i.e., inorganic or early start-up growth).

Figure 2

  • All Zuora Billing customers were included in this dataset.
  • To remove Outliers, tenants that fit the following criteria were removed from the final cohort:
    • Less than $10M of total ARR as of Jan 1, 2022.
    • Net Revenue Retention derived from the tenant’s Net MRR data was < 0%.

Figure 3

  • Since 2020, BCG has run 5 surveys targeting over ~360 IT buyers across North America and Europe to understand their strategic priorities, IT budgets, and views on seasonal topics such as responses to macro-economic conditions and use of purchasing channels. All respondents were at the director level or above and, as with previous iterations, had a clear view of their company’s IT priorities and budget.

Key focus areas for the survey include:

  • IT buyer sentiment
  • Strategic priorities
  • Generative AI
  • Channels and marketplaces

Figure 4

  • The analysis behind this figure leverages posted invoice revenue data from Zuora Billing tenants from 2020-2022.
  • Tenants with more than 75% of their 2022 invoiced revenue from one-time charges were removed from the analysis.
  • The following criteria, based on Zuora Billing’s three different product rate plan charge types, were used to break customers out by four categories for each calendar year:
    1. Companies with no revenue from consumption models
      • If a customer had no invoiced revenue in a given year generated from a usage charge type, they fell in this category.
    2. Companies with usage revenue from consumption models
      • A customer was grouped into this cohort if any of the following were true:
        • They had any invoiced revenue from an Overage or Tiered with Overage charge model
        • More than 25% of their total revenue in a given year came from any Usage charge model.
        • Three or more charge models contributed to at least 10% of total revenue in a given year AND they had some invoiced revenue from usage charge models.
        • At least 1,000 Usage Records were processed in a given year.
    3. Companies with hybrid revenue consumption models
      • For customers that fit within the criteria outlined in #2 above, the invoiced revenue from recurring charges was examined to determine if that recurring revenue was coming from a pricing model based on a consumption value metric or not. The process for this determination was:
        • Zuora and BCG analysts manually evaluated the units-of-measure (UOM) behind every recurring charge.
        • Units-of-measure were considered to be a “consumption value metric” if they had keywords like “GB,” “Minute,” “API Call” in them—i.e. anything that connotes the amount paid by the end customer is based on how they expect to consume.
        • Most other units-of-measure were considered “non-consumption value metrics.” Most of these had keywords like “Seats,” “Licenses,” “Users,” etc.
      • With this analysis complete, customers with no recurring revenue coming from models driven by verified “Consumption value metrics” were removed from this cohort.
      • All remaining companies that fit the criteria described in this step are considered to be hybrid consumption businesses.
    4. Companies with only revenue from pure usage (i.e. in-arrears, pay-as-you-go)
      • A customer was grouped into this cohort if they only had invoiced revenue generated from Usage charge models in a given year.

Figure 5

  • Since 2020, BCG has run 5 surveys targeting over ~360 IT buyers across North America and Europe to understand their strategic priorities, IT budgets, and views on seasonal topics such as responses to macro-economic conditions and use of purchasing channels. All respondents were at the director level or above and, as with previous iterations, had a clear view of their company’s IT priorities and budget.

Key focus areas for the survey include:

  • IT buyer sentiment
  • Strategic priorities
  • Generative AI
  • Channels and marketplaces

Figure 6

  • The growth rates in Figure 7 are derived from analyzing the Net ARR and Net ARR Changes data across the Zuora Billing tenants included in the cohort from the calendar year 2022.
  • New Business growth percentage is derived from totalling the Net ARR Changes in 2022 attributed to the “New Business” business impact category.
  • Expansion growth percentage is derived from totalling the Net ARR Changes in 2022 attributed to the “Expansion” and “Contraction” business impact category.
  • Revenue retention percentage is derived from subtracting the total Net ARR Changes figure attributed to the “Churn” business impact category across all of 2022 from the Net ARR as of January 1, 2022.
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