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Author: Amy Konary joined Zuora as VP of Customer Business Innovation in 2017 with close to 20 years of experience advising companies on subscription business strategies. She is the founder and chair of the Subscribed Institute, a think tank for the subscription economy. Through the Subscribed Institute, Amy brings together a community of business executives, thought leaders, and industry experts at a series of Executive Summits, and generates research and industry benchmarks on subscription transformation topics. Amy also advises Zuora customers on the subscription business strategy development, execution, and maturity.
Today, the world is witnessing the rise of the Subscription Economy. Innovative business models built around recurring payments are emerging in every major industry—from SaaS to retail to more traditional industries such as construction and manufacturing.
The Subscription Economy Index Level Versus S&P 500 And Retail Sales Growth
According to Zuora’sSubscription Economy Index, over the past eight years, subscription companies across North America, Europe, and Asia Pacific have seen their sales grow by more than 400%, representing an 17.8% compound annual growth rate (CAGR). That’s six times faster than S&P 500 company revenues and US retail sales.
Subscription business sales have grown substantially faster than two key public benchmarks—S&P 500 Sales and U.S. retail sales. Overall, the SEI data reveals that subscription businesses grew revenues about 6 times faster than S&P 500 company revenues (17.8% versus 3.1%) from January 1, 2012 to June 30, 2020.
The Subscribed Institute, Zuora
And according to Zuora’s recentSubscription Impact Report: COVID-19, 50% of companies are still growing but have not seen a significant impact on their subscriber acquisition rates. 18% of companies are seeing their subscription growth rate accelerate, 17% of companies are seeing slowing growth, but are still growing, and the remaining 14% of companies are contracting.
This change is being driven by customers who increasingly prefer access to services over ownership of products. High upfront costs, the hassles of ongoing maintenance, and the frustration of technological obsolescence have resulted in product ownership losing the charm and status it once held in our lives. Instead, today’s customers favor outcomes and unique experiences—access to the latest software, a ride, a place to stay, the latest handbag to accessorize with. “Why own when you can subscribe to a service?” is the new mindset amongst customers. They are breaking away from the shackles of product ownership and seeking the freedom to try, buy, upgrade, downgrade, pause, cancel, and rejoin services at their will. Simply put, they want the freedom to consume on their terms.
Customers’ need for freedom and choice extends to payments as well. Today’s subscribers want the freedom to pay using any method of their choice and expect providers to accept a wide range of payment methods and currencies.
For businesses, recurring payments mean that every time you ask your customers to make a payment, you’re making a sale again. Losing current and potential customers on the payment page nullifies your marketing and sales efforts, and increases your subscriber acquisition costs.
To be fair, with more than 180 currencies and 200 different types of electronic payment methods worldwide, things can get fairly complex. But here’s the thing—offering customers a choice of payment methods and currencies plays a critical role in driving business growth.
Choice of Payment Methods Correlates with Business Growth
Research from theSubscribed Instituteshows that choice of payment methods has a strong correlation with business growth.
Impact of Payment Methods on Revenue Growth
Businesses that accept more payment methods have higher revenue growth rates.
The Subscribed Institute, Zuora
The ability to offer your customers the ease and convenience of transacting via their preferred approach reduces friction in the onboarding process and can help drive revenue growth. Companies that accept more than five payment methods grow, on average, 4% faster than those that accept three or fewer.
Impact of Payment Methods on Churn Rates
Businesses that accept more payment methods have lower churn rates.
The Subscribed Institute, Zuora
More payment methods also mean less churn as companies that accept more than five payment methods have, on average a churn rate of 28% while those that accept three or fewer, average 33%. That’s on average, a 5% lower churn rate. Lower churn rates can make an enormous difference in subscription revenue.
Impact on Collection Efficiency
Businesses that accept more payment methods have more efficient payment collections.
The Subscribed Institute, Zuora
Offering different payment methods also allows businesses to have more effective payment collection. Companies that accept more than five payment methods have on average 4% higher invoice payment rate than those that accept three or fewer methods.
Local Currencies are Crucial
It’s a no-brainer that you should accept local currency in any market that you want to serve, especially if you expect your business to be sizable in that geographical area. Requiring customers to pay in your currency of choice, and consequently bear the fees and currency conversion charges can hurt revenue growth.
Research from the Subscribed Institute shows that offering customers a choice of currencies has a strong correlation with revenue growth and subscriber growth.
Impact of Local Currencies on Revenue Growth
Businesses that accept more currencies have higher revenue growth rates.
The Subscribed Institute, Zuora
Companies that accept five or more currencies grow, on average, 8% faster than those that only accept one currency.
Impact of Local Currencies on Subscriber Growth Rates
Businesses that accept more currencies have higher subscriber growth rates.
The Subscribed Institute, Zuora
Companies that accept five or more currencies have, on average, a subscriber growth rate of 15.4% whereas those that only accept one average 9.6%. That’s a 5.8% difference in subscriber growth rates.
Conclusion
Payments are a critical aspect for any business but more so for subscriptions since the recurring nature of the model makes payments an ongoing touchpoint with customers. Subscription payment collection must be localized, friction-free, and cater to customer preferences.
Businesses that cater to their customers’ preferences by accepting a greater number of payment methods and currencies grow revenue and their subscriber base faster, reduce their churn rate, and collect payments more effectively. Failure to offer this flexibility can not only cause abandonment during sign-ups but can also result in customer churn later on.
It’s crucial that businesses understand the importance of offering customers a choice of payment methods and currencies and use them strategically to drive business growth.
To see how you can boost your subscription business, check out our guide.
The Adyen guide to subscriptionsFor more research on subscription payments, download the entire Global Recurring Payments benchmark.
DownloadZuoraprovides the leading cloud-based subscription management platform that functions as a system of record for subscription businesses across all industries. Powering the Subscription Economy®, the Zuora platform was architected specifically for dynamic, recurring subscription business models and acts as an intelligent subscription management hub that automates and orchestrates the entire subscription order-to-revenue process seamlessly across billing and revenue recognition.
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