Below is an excerpt of the article, “Subscription to Success,” from Fortune Magazine’s May Fortune 500 edition.
When public health restrictions sent the global economy into a tailspin this year, companies of all stripes were suddenly reminded how important customer retention is to revenue, margins, and even solvency. What might have gone unnoticed, however, is how one fast-growing business model has made revenue ultra-resilient across a host of industries, even in an unprecedented economic storm.
The “subscription economy,” a term trademarked by Zuora, a Redwood City, Calif.–based provider of cloud-based software for subscription-based businesses, is modeled around customers opting to receive repeat fulfillment of everything from dinner to digital content. Across the globe, 7,000 companies sell subscription boxes, according to the Subscription Trade Association (SUBTA). And that number doesn’t include providers of many other subscription types, such as streaming services or wholesale club access.
Fueling the proliferation of subscription-based strategies is what Zuora calls “the end of ownership.” Fifty-seven percent of adults wish they could own less “stuff,” according to a 2019 Harris Poll commissioned by Zuora. Seventy percent believe subscribing to products and services frees them from burdens such as maintenance, clutter, and declining value.
“Today’s consumer is more focused on usership than ownership,” says SUBTA CEO Paul Chambers. “More and more companies are coming online to fulfi ll that consumer’s needs, including some they maybe didn’t know they had.” Cultivating subscriptions has become a ticket to growth. Zuora’s Subscription Economy Index, which tracks sales of subscription-based businesses, found an 18.2% compound annual growth rate from January 2012 to June 2019. (That’s compared to 3.6% for S&P 500 companies and 3.7% for U.S. retail.) Companies with subscriber-based revenue streams account for 18% of all credit card sales, or about $7.38 trillion, according to SUBTA’s annual report.
“Subscription businesses tend to be more resilient,” says Zuora founder and CEO Tien Tzuo. “Having predictable, recurring revenue winds up being a huge competitive advantage. All your customers aren’t going to cancel next month—it’s just not going to happen.”
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