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The SEI Report: Recurring Growth Strategies for Total Monetization

This edition of Zuora’s landmark report (as of April 2024) features new data from the 12 months ending December 31, 2023.
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Key Findings
SaaS
Media
Manufacturing
SEI by Region
Definitions

Flexing business models to find growth in a challenging macro

In 2023, the global economy faced its fair share of hurdles, marked by increased interest rates, rising inflation, and a pervasive sense of economic uncertainty. This environment proved particularly challenging for the technology industry, which saw a continuation of layoffs and a decrease in new digital transformation initiatives.

But even in an uncertain market with increasingly stiff competition, companies in the Subscription Economy IndexTM (SEI) report found opportunities for recurring growth. By tapping into a plethora of innovative business models, these businesses have the ability to adapt and align their monetization in step with—and often in anticipation of—dynamic customer demands.

While the approach can vary widely, these businesses often share one common trait: they are committed to evolving monetization, which is how a business matches what it values with what its customers value, takes that to market, and generates revenue from it. Today, a static model, such as a traditional subscription with a set monthly fee, is often no longer enough to maintain a competitive edge.

For many, this “Total Monetization” strategy means moving beyond traditional subscriptions and exploring a mix of models to align monetization with demand and fuel more sustainable, recurring growth. Examples of this include experimenting with consumption pricing or creatively bundling and unbundling offers.

The winners in this evolving landscape will be those that not only navigate the immediate challenges of the economic environment and increasing competition, but also understand and anticipate customer demands. This future-focused approach will enable companies to lay the groundwork for sustainable recurring growth through customer-centric strategies and adaptable business models.

The SEI report analyzes the growth and resilience of businesses leveraging various monetization models designed to provide recurring growth. Comprised of anonymized, aggregated, system-generated activity on the Zuora Billing service, the SEI measures the change in the volume of business for more than 600 companies.

Key Findings

  1. Despite global macroeconomic conditions and increasing competition, companies in the SEI continue to outpace the S&P 500 (Table 1)

About This Report

The latest edition of the annual Subscription Economy Index™(SEI) analyzes the growth and resilience of businesses leveraging various monetization models designed to create recurring growth. This edition of the SEI (as of April 2024) features new data from the last 12 months, ending December 31, 2023.

What the report uncovers:

  • Outpacing the Market: Discover how SEI companies surpassed macroeconomic challenges, outperforming the S&P 500 in 2023.
  • Customer Dynamics: Uncover the resilience in customer retention and gain insights into the trajectory of annual revenue per account.
  • Sector-Specific Trends: Explore insights on SaaS, Media, and Manufacturing.

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Over the past 12 years, companies in the SEI have grown 3.4x faster than the companies in the S&P 500, which have historically represented more traditional, product-based businesses. Specifically, the compound annual growth rate (CAGR) for SEI companies was 16.5%, compared to 4.8% for the S&P 500 over the same period (Table 1).

Despite various macroeconomic headwinds, companies in the SEI continued to outpace S&P 500 companies in 2023, with 10.4% revenue growth compared to 6%, respectively (Table 1).

Graph comparing the growth trajectories of the subscription economy index, revenue automation software, S&P 500, and US retail sales, highlighting a significant outperformance by the subscription economy index.
  1. SEI quarterly revenue growth held steady over the past year, while the S&P 500 continues to decline (Table 2)
Bar chart showing fluctuating quarterly revenue growth, impacted by automation software, for a company over multiple years.

A five-year analysis of quarterly revenue growth demonstrates that, while both the SEI and S&P 500 experienced an initial dip in response to the pandemic, the decline for the S&P was more severe. Both indices experienced surges following this dip due in part to pent-up demand and stimulus money, but the ensuing years have seen the two part ways with respect to growth trends. While the SEI appears to have returned to and is holding steady at pre-pandemic levels, the S&P 500 has been in a steady downward trend since its peak in Q2 2021.

Though multiple variables are likely at play, factors like rising inflation and market saturation may be causing consumers to be more mindful of their spending and diligent in managing their services. Agile strategies and technologies that are both customer-centric and future-proof can also help encourage continued growth.

Multiple quarters of outperforming growth could indicate that the companies in the SEI are executing on this better than companies in the S&P 500.

Businesses should invest in strategies and technologies that help surface rich customer insights into behavior and preferences to quickly adjust product development and go-to-market initiatives that can deliver maximum value back to customers. 

As businesses continue to fight over pieces of the same pie, it’s more imperative than ever to focus on customer centricity and future proofing to foster loyalty and fuel recurring revenue.

  1. In the face of economic headwinds, SEI customer acquisition slowed in 2023 (Table 3)
Bar chart showing the percentage growth in account (customer) numbers by quarter with varying growth rates, peaking in Q2 2019 due to the implementation of revenue automation software.

Recurring revenue business models have historically provided stability during turbulent times. Since the focus of such business models is often on nurturing and monetizing relationships rather than repeating multiple one-time transactions, they are inherently resilient. These business models have a unique advantage in that they offer three potential levers for growth: acquiring new customers, retaining existing ones, and expanding revenue through upselling or cross-selling.

Key findings 3, 4, and 5 examine the various ways that companies in the SEI can achieve recurring growth—through new customer acquisition (account growth), customer retention (inverse of churn), and expansion (annual revenue per account). 

Customer acquisitions within the SEI did slow in 2023 (Table 3), this validates what is being seen on a macroeconomic level.

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  1. Companies are retaining their customers: Churn rates in 2023 dipped lower than the previous three years (Table 4)
Bar chart of subscription economy index showing a slight decrease in average quarterly churn rate from 2018 to 2023, enhanced by revenue automation software.
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While account growth slowed in 2023 (Table 3), companies in the SEI also experienced lower churn (Table 4). Counter to suggestions of a “great unsubscribe,” companies in the SEI saw an improvement in customer retention, with churn numbers falling below pandemic and even pre-pandemic levels (Table 4).

Continuously delivering on value is a key factor to retention. While consumers still find great value in their subscription services and they are likely to keep the ones they have, they often churn when they are not receiving the expected value.

Companies can better retain customers by focusing on customer value. This often means providing beyond the original service or product a customer signed up for. Examples of this include more flexible pricing or billing options to customers, who are also feeling the strain of slashed budgets. Companies can improve retention by finding ways to provide their customers with alternatives to churning, such as pausing, changing tiers, changing to monthly billing, or moving from a subscription plan to pay-as-you-go.

  1. Customer expansion, or annual revenue per account (ARPA), improved, and remains on an upward trend (Table 5)
Subscription economy index quarterly arpa growth rate

Annual revenue per account (ARPA) experienced a slight upward trend over the last 20 quarters, with an encouraging YoY turn in 2023. Starting with a quarterly growth rate of 0.73% in Q1 2023, ARPA growth ended the year more than 2x stronger at 1.76% in Q4. Given 2023’s quarterly average of 1.5%, growth represented an improvement from the average of 1.29% in 2022.

Global economic challenges likely contributed to slower account growth in recent years, however, adversity and competition fuel innovation and new ways of doing business. When growth is harder to come by, the companies that achieve best-in-class growth do so by investing heavily in customer retention.
And because it costs more to acquire than retain customers, growth during challenging times can be achieved by adapting monetization models aimed at nurturing and growing existing customers. By focusing on upselling, cross-selling, and renewals, these companies can fuel more sustainable annual recurring revenue (ARR) growth and ARPA growth.

STATE OF SEI BY SECTOR

SaaS

Overall, the SEI SaaS sector continues to grow, but year-over-year (YoY) growth has slowed, correlating with macro SaaS trends.
Line graph showing the comparative six-year growth projections for SaaS consumption and non-consumption growth by business model, with SaaS consumption significantly outpacing non-consumption in the context of revenue

In 2023, the SEI SaaS sector overall experienced a 10.1% revenue growth rate on average (Table 6). Within this sector, SEI SaaS companies employing consumption-based models experienced a cumulative revenue growth (CRG) rate of 10.4%, higher than the SaaS sector as a whole, but slightly slower growth than the subset of SEI SaaS companies using non-consumption models, which grew at 10.6%.

Recently, hybrid consumption models that combine predictable subscription approaches with more variable usage models have stepped to the forefront as drivers of recurring revenue.

Although the SaaS sector is still fine tuning these pricing and packaging strategies, the results are promising when comparing the current performance of hybrid consumption with non-consumption and all other SaaS monetization models in the SEI (Table 6).

It’s important to note that businesses with consumption-based models are maintaining a long-term revenue growth advantage. At the end of 2023, the 6-year CAGR for SEI SaaS companies employing consumption-based models was 20.1% compared to 16.3% for the non-consumption counterparts.

This long-term trend aligns with previous Subscribed Institute research on consumption models. While pure usage revenue can be less predictable and more volatile, hybrid consumption models can be a good fit for SaaS offerings—particularly cloud services and generative AI. This evolution of generative AI monetization signals a broader trend among companies exploring how to effectively price their AI offerings. These hybrid, agile models can help provide predictability, while also improving value to the customer by tying pricing and payments more directly to usage and actual demand.

STATE OF SEI BY SECTOR

SEI SaaS YoY Change in Growth Rate (2022-2023)

-1.3%
-0.6%
-0.61%
-1.21%
-1.3%
SEI SaaS YoY Revenue Growth Rate Slowed
-0.6%
SEI SaaS YoY Churn Rate is Down
-0.61%
SEI SaaS ARPA YoY Growth Rate Slowed
-1.21%
SEI SaaS YoY Account Growth Rate Slowed

While overall the SEI SaaS sector continues to grow, year-over-year, the growth was slower in 2023 compared to 2022. SEI SaaS sector revenue growth fell at a rate of -1.3%, and YoY ARPA growth is down at a rate of -0.61%. However, YoY churn is also down at a rate of -0.6%, meaning customers are keeping their SaaS services.

Data in the SEI corroborates reports of a challenging environment marked by increased competition and market saturation. There has been a notable effort on the part of CIOs to consolidate products and services across the wider SaaS industry, which can lead IT departments to trim their vendor count instead of buying new.

That said, there are silver linings and learnings to be gleaned from these trends. First, the sector continues to grow, albeit at a slightly slower rate than the previous year.

Also, the reduction in churn, particularly for SaaS, indicates that companies in the SEI are effectively managing the pressures of a challenging market environment.

Resiliency, innovation, and adaptability are the strategies of the day. Elements of the SaaS business model lend itself to these strategies. Resilience can be found in maintaining and growing relationships with existing customers. Innovation is being driven by strategies such as modularity and new packaging for lighter lands, improved product and services offerings that increase stickiness, as well as new categories of products or services, like generative AI, that are presenting opportunities to rethink monetization models and strategies.

STATE OF SEI BY SECTOR

Media & Entertainment

In 2023, companies in Media & Entertainment experienced a pivotal evolution, navigating a mixture of market-rocking challenges while seizing growth opportunities. The SEI Media & Entertainment sector observed a revenue growth rate of 6% on average in 2023, highlighting the resilience and adaptability of media companies in a fluctuating market landscape (Table 7). 

The growth was unevenly distributed, with the SEI New Media subset (examples of which include streaming and gaming companies) leading at an impressive 12% revenue growth rate on average, spotlighting an ongoing shift toward digital and streaming services. Conversely, the SEI Publishing

Media subset (examples of which include traditional and digital newspapers and magazines) grew by a more modest rate of 5.6%, the slowest within the sector, which reflects the ongoing struggle and gradual adaptation of traditional publishing to the digital-first consumer preferences. 

This juxtaposition of growth rates underlines diverse trajectories within the media landscape, where New Media ventures thrive on innovation and adaptability, while Publishing Media works to reinvent and stabilize in a rapidly evolving environment.

Graph illustrating the growth trends across different media sectors over time, with revenue automation software in the sei media & entertainment sector showing the highest increase.
STATE OF SEI BY SECTOR

SEI Publishing Media YoY Change in Growth Rate (2022-2023)

0.8%
0.02%
0.02%
0.00%
0.8%
SEI SaaS YoY Revenue Growth Rate Slowed
0.02%
SEI Publishing YoY Churn Rate is Up
0.02%
SEI Publishing ARPA YoY Growth Rate Increased
0.00%
SEI Publishing YoY Account Growth Rate Remains Unchanged

SEI New Media YoY Change in Growth Rate (2022-2023)

1.3%
-1.3%
-1.70%
-1.21%
1.3%
SEI New Media YoY Revenue Growth Rate Increased
-1.3%
SEI New Media YoY Churn Rate is Down
-1.70%
SEI New Media ARPA YoY Growth Rate Slowed
-1.21%
SEI SaaS YoY Account Growth Rate Slowed

Churn rates provided nuanced insights, indicating a dichotomy within the sector: SEI New Media successfully reduced churn by 1.3% YoY, showcasing effective customer retention strategies, such as crackdowns on password sharing across the industry, aimed at converting shared users into paying subscribers. On the other hand, SEI Publishing Media faced a slight increase in churn (0.02%), which could signal challenges in maintaining subscriber engagement amidst a fiercely competitive environment.

ARPA growth varied across the sector. The SEI Publishing Media segment saw a modest increase of 0.75%, benefitting from strategies like strategic bundling and enhanced content offerings, which helped The New York Times surpass 10 million subscribers. New Media, however, faced a 1.7% decline in ARPA, highlighting the challenges of pricing strategies and market saturation pressures. This calls for innovative approaches to value creation and subscriber revenue maximization.

Account growth further differentiated the sector’s performance. SEI New Media saw a 2.39% increase in new customers, fueled by the expanding appetite for diverse streaming content and telecommunications services. This could be due to the sector’s capacity to attract new subscribers through compelling content and technological advancements.  In contrast, SEI Publishing Media’s more measured growth emphasizes the importance of building deep, engaging relationships with subscribers, leveraging analytics to tailor content, and exploring new models to broaden the subscriber base. The industry’s strategic realignment towards enhanced subscriber engagement, leveraging subscriber insights, evolved pricing models, content innovation, and revenue diversification is setting a foundational path for future growth.
STATE OF SEI BY SECTOR

Manufacturing

Despite a contraction of U.S. manufacturing, the SEI Manufacturing sector grew at an impressive rate of 14.1% in 2023 (Table 8) compared to the SEI overall at 10.4% (Table 1).
Graph comparing the cumulative revenue growth between SEI manufacturing and the S&P 500 manufacturing from Q1 to Q4, with SEI significantly outperforming the S&P index, attributed to its advanced

SEI Manufacturing YoY Change in Growth Rate (2022-2023)

0.5%
-0.4%
2.49%
-2.33%
0.5%
SEI Manufacturing Revenue Growth Rate Increased
-0.4%
SEI Manufacturing Churn Rate is Down
2.49%
SEI Manufacturing ARPA Growth Rate Increased
-2.33%
SEI Manufacturing Account Growth Rate Slowed
Year-over-year, SEI Manufacturing revenue increased at a rate of 0.5% on average and churn decreased at a rate of  -0.4%. In keeping with the SEI as a whole, account growth for the SEI Manufacturing sector is down, which means that fewer customers are adding new services. However, the data suggests that manufacturers could be leveraging retention as an opportunity to grow with existing customers over time, as ARPA growth increased by 2.49% YoY. Contributing factors to this growth could include trends such as the diversification and maturation of Everything-as-a-Service (XaaS) and Product-as-a-Service (PaaS) manufacturing offerings, which likely are not facing the same level of competition and market saturation that exists in the SaaS sector. Shifting from a primary focus on capital expenditures (CapEx) to customer-centric, recurring operational expenditures (OpEx), can also help manufacturers better navigate the uncertain economic landscape. Digital services offered via PaaS or XaaS allow the customer to tap into an OpEx budget, which is beneficial in today’s inflationary environment when the cost of capital is relatively high.

State of SEI by World Region

Businesses in the SEI continue to thrive in EMEA and APAC compared to regional stock indices
In 2023, revenue for SEI companies in EMEA demonstrated significant growth when compared with the FTSE, CAC, and DAX indices. Revenue growth rates in APAC showed similar strength against the JPX, HKEX, and ASX indices. SEI businesses in EMEA experienced a revenue growth rate of 17.5% on average for 2023 and a 
4-year CAGR of 18.8% (2020-2023) (Table 9). 

Graph showing the growth of revenue automation software in the EMEA region compared to FTSE and DAX indexes over a period, with revenue automation software outperforming both benchmarks.

Meanwhile, SEI businesses in APAC experienced revenue growth of 14.6% on average for 2023 and a 4-year CAGR of 22.3% (2020‑2023) (Table 10).

Line graph depicting the cumulative compound growth rate of sei apac region growth, highlighting significant growth for sei apac compared to jpk and hkbx channels over a four-year period, strongly influenced by
DEFINITIONS & TERMINOLOGY

SEI Sectors

The Software as a Service (SaaS) Index includes providers whose software is accessed via the cloud, and monetized via subscriptions, including traditionally perpetual software shifting to SaaS. This includes SMB SaaS, B2Every SaaS, and Enterprise SaaS companies.

The Media & Entertainment Index:


  • SEI New Media Subset: Includes sports, streaming and OTT platforms, fan engagement, telecommunications, operators, smart venues, advertising, music, radio, live venues, and gaming

 

  • SEI Publishing Media Subset: Includes traditional publishing channels, such as newspapers, magazines, books, or digital channels (desktop, apps) distributed to mass or segmented audiences

 

The Manufacturing Index includes fabrication services, industry-specific software providers, industrial design, IoT, heavy equipment, and tool manufacturers. 

DEFINITIONS & TERMINOLOGY

Terminology

Compound Annual Growth Rate (CAGR):

This is the mean annual growth rate of an index over a specified period of time longer than one year. This is calculated by dividing the ending value by the beginning value over the time period, raised to an exponent of one divided by the number of years between the beginning and ending values, subtracted by one, then multiplied by 100.
Low-angle view of a modern glass building with external steel framework against the sky, embodying the essence of revenue automation software.

Account Churn Rate:

Also known as the rate of customer attrition or customer churn, this is the rate at which customers stop doing business with a company over a specific period of time. This is calculated by dividing the number of attrited or churned customers over the time period by the total number of customers at the start of the time period, then multiplied by 100.

Average Revenue Per Account (ARPA) Growth:

This represents the quarterly growth in annualized average revenue per account, where the average revenue per account is calculated by summing up the last 12 months of billed recurring revenue and dividing by the number of active subscribers at the end of that 
12-month period.
DEFINITIONS & TERMINOLOGY

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.

DEFINITIONS & TERMINOLOGY

The Subscribed Institute

Zuora’s Subscribed Institute is a dedicated think tank that supports 1500+ business executives across 1000+ global companies with critical research, ideas, events, and connections. Research provided by the Institute helps business leaders and their organizations maximize the opportunities of the Subscription Economy. More at subscribedinstitute.com.
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