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Are Payments the Key to Subscription Success?

1 min read · 736 views Bong-Geun Choi Jun 09, 2022

Research from subscription consulting company Zuora indicates that companies that offer subscription-based pricing plans experienced faster sales growth than those that do not.  Zuora also found that companies that offer more payment options, specifically those preferred by their customers, were among the most successful companies in terms of revenue growth. 

 

Stronger Revenue Growth

Zuora created the Subscription Economy Index (SEI) to measure the performance of companies that offer subscription-based products and services. As of the end of 2020, sales for companies in the SEI grew at a seven-year compound annual growth rate (CAGR) of 18.2% versus 3.6% for the overall S&P 500 and 3.7% for retail companies within the S&P 500. 

 

What part do payments have in the growth of companies offering subscription-based products and services?

 

More Payment Options, Faster Growth

Zuora found that companies that offered more payment options, experienced the fastest revenue growth.  For example:

  • Companies that offered five or more different payment options experienced the fastest revenue growth over the seven-year period.
  • Payment options worldwide, e.g., bank debit cards, digital wallets, and credit cards, varied, and companies that offered the preferred payment type in their countries experienced the fastest growth.
  • Businesses that accepted more payment methods reduced churn, or the number of individuals canceling their subscriptions.
  • Companies that accepted more payment options had more effective payment collection, i.e., they collected a higher percentage of the total amount invoiced to customers.
  • Companies that accepted more payment methods grew their customer base faster.
  • Businesses that accepted more currencies grew both their revenue and customer base faster.

 

Customization Is Key

While companies offering subscription-based payment options grew their revenue and customer base faster than those who didn’t, businesses that offered more flexible payment options performed the best on those metrics.  The key takeaway is that having the flexibility to customize products and services to a customer’s preferences is a factor that may allow companies to differentiate themselves from their competitors and grow their businesses faster.

 

The subscription-based pricing model may allow companies to offer this flexibility as there are often more points of contact between the customer and companies that offer subscriptions.

 


 

Bong-Geun Choi

Chief Economist

bchoi@fountinvestment.com

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Risk Disclosure:

 

Investing involves risk, including possible loss of principal. There is no guarantee the Funds will achieve their stated objectives. In addition to the normal risks associated with investing, international investments may involve the risk of capital loss from unfavorable fluctuation in currency values, differences in generally accepted accounting principles, or social, economic, or political instability in other nations. Emerging markets involve heightened risks related to the same factors, as well as increased volatility and lower trading volume. 

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