Today, CFOs face a business environment that is more complex, dynamic, and competitive than ever before. An accelerating shift toward agile business models, and a trend toward an increasingly customer-centric back office, has brought with it a new set of needs around measuring the business. We’ve witnessed this shift firsthand at Zuora and the CFOs we work with think and speak about their business in new terms, in terms of subscription metrics. They crave the ability to look forward into their subscription business, to measure not only what’s happened in the past, but to analyze what is on the books today that is going to turn into tomorrow’s billing or revenue growth.
This new way of measuring business performance is being noticed by investors too. Subscription metrics are becoming more prevalent on earnings calls. Take IBM, on their Q1 2020 earnings call they referenced that their subscription business would be among the last of their businesses to be impacted amidst economic uncertainty. The future lens is powerful.
That’s why Zuora made the investment to build our newest application, Zuora Analytics, putting these metrics a click away for our business users. We recognize that a key user of Zuora Analytics will be our CFO customers. I’ve had the pleasure of working with many CFOs in our Zuora Analytics Early Adopter Program, and no surprise, CFOs love their metrics. Let’s dig into 3 subscription metrics for CFOs to watch:
- Net Retention Rate: Zuora looked at data from 17 public companies to identify what we can learn about retention from today’s leading subscription companies. We found that median net retention stands at 100 percent, meaning that the median company gains at least as much recurring revenue as it loses from each cohort of customers over time. Yet, the top half of companies in net retention grow at nearly twice the rate of companies in the bottom half, thus net retention is one of the key ways in which hyper-growth companies become hyper-growth companies.
- Recurring-to-Consumption Billing Ratio: Did you know that companies leveraging a combination of recurring and usage pricing grew 30% faster than those who don’t have usage pricing? Our Subscribed Institute has been benchmarking the most successful subscription business growth patterns over the last decade and that’s why we encourage our customers to monitor this metric and to identify areas they can consider utilizing usage based pricing.
- Net Annual Recurring Revenue Changes: According to the Subscribed Institute, recurring revenue is the single most important metric for any subscription business, we recommend customers monitor these recurring revenue changes across the following categories: new, contraction, expansion, and churn. You can factor in your discount charges to get a complete picture of the transactions driving growth in your business.
For our Zuora Billing customers, we’re excited to offer these metrics to you out-of-the-box with Zuora Analytics and look forward to hearing about the insights you uncover! If you have any questions regarding analytics, please reach out to my email, firstname.lastname@example.org. Lastly, we’ve partnered with the Subscribed Institute to release the Definitive Guide to Subscription Metrics, and encourage you to check it out here.