The Subscription
Economy Index
TM
March 2023
01
Table of Contents
INTRODUCTION 3
KEY FINDINGS 4
STATE OF SEI BY SECTOR 9
SAAS 9
MEDIA 10
MANUFACTURING 11
STATE OF SEI BY WORLD REGION 12
DEFINITIONS & TERMINOLOGY 13
METHODOLOGY 14
SOURCES 19
FORWARD LOOKING STATEMENTS 20
02
Introduction
SUBSCRIPTIONS: MULTIPLE OPPORTUNITIES FOR
GROWTH, EVEN IN AN UNCERTAIN MARKET
In 2022, the world economy was characterized by uncertainty and concerns
about inflation, supply chain disruptions, and a potential global economic
variants. Many businesses and consumers tightened budgets due to the
unpredictability of the future. However, there were also signs of economic
improvement, with many countries experiencing increased economic activity
and job creation.
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, subscription models 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.
resilience of recurring revenue-based businesses. Comprised of anonymized,
aggregated, system-generated activity on the Zuora Billing service, the
SEI measures the change in the volume of business for subscription-based
products and services across more than 500 businesses. The index represents
a range of flexible recurring pricing models, such as consumption and time-
based memberships. The SEI is intended to view trends in the Subscription
Economy® as a whole.
1 “Economic conditions outlook,” McKinsey & Company, December 2022
2 “The top budget items companies are cutting as they brace for a financial downturn,” Fortune, November 2022
3 “Here’s what consumers plan to cut back on if prices continue to surge,” CNBC, April 2022
4 “December 2022 Jobs Report: A Strong End to 2022,” US Department of Labor Blog, December 2022
5 “The Subscription Economy Index Report,” Zuora, February 2022
03
Key Findings
DESPITE GLOBAL MACROECONOMIC CONDITIONS,
SUBSCRIPTION COMPANIES IN THE SEI CONTINUE
TO OUTPACE THE S&P 500 (TABLE 1)
grown 3.7x faster than the companies in the S&P 500, which have historically
represented more traditional, product-based businesses. Specifically, the
macroeconomic headwinds, companies in the SEI continued to outpace
Subscription-based
companies in the SEI
have grown
3.7x
faster than companies
in the S&P 500 over
the past 11 years.
04
6 “Super Retainers: Early Lessons for Uncertain Times Ahead…,” Zuora, January 2023
CHURN REMAINS CONSISTENT WITH PRE-PANDEMIC
RATES (TABLE 2)
Data suggests that churn rates (percentage of subscribers lost) have
value can help subscription-based companies retain customers as they
continue to scrutinize their spending.
pinpoint precisely why that was the case. Zuora’s Subscribed Institute has
identified a cohort of companies that have maintained a higher retention rate
(and conversely a lower churn rate) relative to the overall SEI. Our analysis of
these “Super Retainers” is available at the Subscribed Institute at Zuora.
Key Findings
05
Companies acquired new
subscribers at a higher rate in
2022
than what was observed
in 2020 and 2021.
SUBSCRIBER ACQUISITION IS TRENDING UP SINCE
PANDEMIC LOWS (TABLE 3)
In 2022, despite facing challenges in the overall economy, the upward trend
the percentage of new subscribers or accounts gained over a specific period.
trendline shows that companies acquired new subscribers at a higher rate in
Key Findings
06
ALTHOUGH ARPA GROWTH IS GENERALLY
CONSISTENT, IT SLOWED IN 2022 (TABLE 4)
growth rate of average revenue per account (or subscriber), in the SEI has
While the trendlines for both account growth and ARPA are both positive
within a limited range, subscription businesses should focus on strategies to
retain customers, especially during challenging times. Most savvy subscription
businesses know that it’s better to keep a customer than to lose one. Offering
customers the flexibility to downgrade or pause their subscriptions is a best
practice, as is using promotional pricing to attract new subscribers. In these
examples, the average revenue per account would decrease if not offset by
other strategies.
Key Findings
07
7 “How Much Revenue Is Driven by Existing Subscribers?,” Zuora, January 2023
Key Findings
Recommendation:
Ideally, businesses that plan to have a successful
subscription business should excel in all three growth
areas: acquisition, retention, and expansion. Overall,
subscription businesses in the SEI have the ability to
adapt while showing flexibility and resiliency during
uncertain times.
Business and consumer spending habits during
times of uncertainty still point toward choosing digital
services and experiences, many of which are offered
via subscription. Subscriptions make spending more
predictable, allowing the customer to get more value
for less upfront, as well as an opportunity for cost
savings over time when the benefits of usership
are factored in.
Recurring revenue models are often heralded for their
potential to drive resilient growth and provide stability
in challenging economic conditions. This is playing
out in the SEI as the index continues to grow 3.7x
faster than the S&P 500. The Subscribed Institute has
reported that mature subscription-based businesses
such as those in the SEI can count on existing
subscribers for 70% to 80% of their annual recurring
revenue . This is why it is crucial for businesses to
develop thoughtful strategies for maintaining and
expanding relationships with current customers and
to allocate appropriate resources to achieve this.
7
08
State of SEI by Sector
8 “How does SaaS enable innovation?,” SaaS Industry, February 2023
9 “Super Retainers: Early Lessons for Uncertain Times Ahead…,” Zuora, January 2023
SAAS
SaaS continues to be the fastest-growing sector in the SEI, outperforming
SaaS models combine the benefits of the cloud with the benefits of
subscriptions. The business model is synonymous with ongoing innovation,
high value, and low total cost of ownership compared to alternatives. It is the
As SaaS has been around for decades, businesses in the index have reached
the maturity where they are now focused on optimizing the subscription
model via leading-edge practices in customer success, using advanced
techniques to acquire and retain customers, deliver measurable value, and
create opportunities for expanding their relationships.
The SaaS business
model is synonymous
with ongoing
innovation, high value,
and low total cost of
ownership compared
to alternatives.
09
10 “The state of streaming TV in 2023,” Fast Company, December 2022
MEDIA
common in this competitive sector, especially with new direct-to-consumer
players entering the market. This increased competition has led to scenarios
such as the “streaming wars,” and an ever-expanding list of platforms
providing premium content to subscribers. In highly competitive markets,
subscriber retention can become increasingly difficult.
State of SEI by Sector: Media
10
MANUFACTURING
have seen a decline in sales product growth, which had remained stagnant
even before the pandemic. Manufacturing companies in the SEI continue
to embrace new monetization strategies with services that complement
their products to help foster resilience and growth. In 2022, automakers in
particular increasingly launched and experimented with subscription services.
State of SEI by Sector: Manufacturing
11
Meanwhile, SEI businesses in APAC experienced a revenue growth rate of
The SEI indicates that
subscription-based
businesses across
EMEA and APAC
continue to grow.
State of SEI by World Region
12
SEI SECTORS
• 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.
•
streaming media companies, television and radio broadcasters, cable
operators, search and navigation services, editing services, and
production companies. It also includes publishers of newspapers,
magazines, and books, as well as educational content providers, and
corporate research providers.
• includes fabrication services, industry-specific
software providers, industrial design, heavy equipment, and
tool manufacturers.
TERMINOLOGY
• 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
• 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
•
quarterly growth in annualized average revenue per account, where the
months of billed recurring revenue and dividing by the number of active
Definitions & Terminology
13
Methodology
INTRODUCTION
growth in the volume of business for subscription-based
products and services. The SEI is based on anonymized,
aggregated, system-generated activity on the Zuora billing
service, and is intended to be indicative of the direction of
the Subscription Economy® as a whole. The SEI includes
not only the main index, but also specialized indices
focusing on particular business segments (Sub-Indices).
The index itself is an indicator that increases (or
decreases) at the same percentage rate as the average
volume of activity observed in tenants on the Zuora
service. Such tenants are known as constituents of the
index, for reasons that will be made clear below. Like
many financial and economic indicators, the precise value
of the index is nominal and defined by convention. In
each percentage change in the index corresponds to the
same percentage change in the activity volume of an
THE SUBSCRIPTION ECONOMY INDEX
AS A MEASURE OF ORGANIC GROWTH
As will be described in detail below, this index is
designed so that it measures the organic growth of
the constituents in the index and not the growth in the
number of constituents. At its simplest, that means that
the addition of constituents to the SEI does not make it
go up, in and of itself. Because the index grows at a rate
that is the weighted average of the growth rates of the
constituents, adding constituents to the SEI only dilutes
the weight assigned to all the other constituents. For
that reason, adding constituents only makes the index
go up if the new constituents’ growth rates are higher
than the average growth rate of the pre-existing cohort.
Similarly, when constituents leave the SEI, that does not
necessarily cause the index to go down. A constituent
leaving the pool may be associated with contraction in
that constituent prior to departure if the tenant leaves
the Zuora service due to business failure at the owner
company, but that is not necessarily the case.
The SEI also removes the impact of non-organic growth
in the system activity. Non-organic growth, for these
purposes, means any increase in the activity in the
Zuora service that is not reflective of the changes in the
underlying fundamentals of the company owning the
tenant in question. The most common cases of non-
organic changes in activity are account migration from
another billing system to the Zuora service and voluntary
decommissioning of a tenant by a company that was
using the billing service. In contrast, declines in activity
resulting from business failure remain part of the index
calculation. These issues will be described in more
detail below.
CRITERIA FOR INDEX CONSTITUENTS
Borrowing a term from stock market indices, a tenant
on the Zuora service that produces activity used for
calculating the SEI is referred to as an index constituent.
Not every tenant on the Zuora billing system will be
an index constituent at any given time. The criteria for
inclusion is simply a minimum length of time that a tenant
must have been live on the Zuora billing system (i.e.,
purchased, implemented, and now uses the product). The
main purpose of this minimum is removing the effect of
non-organic activity growth from the index calculation,
as described above. Other considerations are removal of
seasonality and ignoring high rates of activity growth from
insignificant base values. As described below, companies
using the Zuora billing service become available for
inclusion in the index after two years of being live on the
Zuora system.
BURN-IN PERIOD
In order to remove the effect of account migration from
other billing systems, a minimum burn-in period of two
years is applied to every tenant on the Zuora billing
system. That means that the first two years of system
activity for a constituent is simply ignored and never used
as part of any calculation. The two-year burn-in period
also removes whatever growth comes immediately after a
new company launch, when Zuora is the original billing
14
system for a new product. This is sensible because high
growth rates measuring growth from an insignificant base
level are usually not sustainable in the long run. The burn-
in period for a constituent may be longer than two years
whenever there is known, or suspected to be, significant
account migration from other systems even after this
time. Note, however, that Zuora does not have perfect
information about these events, and some migration
of accounts from another billing platform may not be
excluded (however, any extreme outliers will be removed
as an outlier, as described below.)
CALCULATION PERIOD
As will be described in more detail below, revenue for
the SEI is measured in a one-year rolling window. The
purpose of the one-year window is to remove the impact
of seasonality. After the burn-in period, the next year
of system activity for a constituent is used to establish
the baseline for the measurement of future growth. As
a result, a typical tenant using the Zuora service is first
used as an index constituent when their one-quarter
growth is calculated two years and one quarter after they
went live on Zuora system.
REMOVAL OF INDEX CONSTITUENTS
Decommissioning of tenants and the causes are tracked
in the Zuora CRM system. System activity for a tenant
is suspended from the SEI report calculation beginning
in whatever quarter their decommissioning is noted,
and whenever the reason is other than business failure.
Business failure decommissionings are allowed to remain
in the SEI report throughout the decommissioning as this
reflects organic contraction on the tenant activity, while
voluntarily decommissioning tenants are removed as
that is a case of non-organic change in the activity. Note
that this may fail to exclude migration of accounts from
the Zuora system that preceded the acknowledgment of
decommissioning; such migration off the Zuora system
would appear as negative growth and may influence the
SEI data calculation (however, any extreme points will be
removed as an outlier, as described below).
POST-LIVE INVOICE CONVERSION
The migration of accounts and invoices from another
billing system to Zuora usually occurs before or
immediately after a tenant goes live on the platform.
Occasionally, however, a company converts accounts
and invoices to the system at a later date. Whenever
such a conversion is known to occur, the corresponding
quarter(s) of system activity will be removed from the SEI
calculation for those companies. The data points for those
companies will be filled as necessary with the average
of the quarters before and after the conversion. Note
that Zuora does not always have complete information
about these events and it is possible that some post-live
revenue conversion may go into the index calculation and
would appear as growth (however, any extreme points will
be removed as an outlier, as described below).
MULTI-TENANT AND MULTI-ENTITY
In cases where a single parent company operates either
multiple entities or multiple tenants in the Zuora system,
the system activity for each entity or tenant is treated
as if it were a separate constituent for purposes of SEI
report calculations. A separate tenant is the specific case
of multiple entities operating with fully separate product
catalogs, databases, etc. The base date for beginning the
burn-in period on a tenant or child entity is the later of
the customer go-live date or the earliest date for which
system activity for the tenant or entity is first processed.
CALCULATING CONSTITUENT GROWTH
Once a tenant on the Zuora service becomes an index
constituent, its activity is calculated every quarter with a
one-year rolling window. Many subscription businesses’
activities are subject to seasonality, although the precise
nature of the seasonal effect varies significantly. Using a
one-year window for SEI calculations removes the effect of
seasonality. This means that if the SEI data increases (or
decreases) over any quarter, it is because that quarter was
better (or worse) than the same quarter one year prior;
not the quarter immediately preceding it. The activity
measure for SEI data calculation is the one-year prior
total of Invoice Item amounts generated from recurring
and usage Rate Plan Charge objects in the Zuora billing
business object model. One-time charges are excluded
from the calculation, as the SEI is intended to reflect the
growth in recurring activity. Whether Invoice Items are
for recurring, usage, or one-time activity is given by the
Rate Plan Charge object linked to the Invoice Items in the
object model. Note also that any activity a constituent
makes that is outside the Zuora system is ignored by the
SEI calculation. A consequence of this is in cases where
a division of a large corporation uses Zuora for a single
product line; that constituent is treated as if it were a small
company, independent of the larger organization.
15
Once the activity of a tenant in the SEI has been
calculated, the growth calculation for the SEI is the
quarterly change in the one-year trailing activity
expressed as a percentage. That is, the quarterly
growth for a constituent is calculated as:
G
Q
constituent
Q
constituent
A
constituent
where A
Q
represents the one year trailing activity ending with
the quarter denoted Q and, and A
is the same but for the
year ending with the prior quarter.
AVERAGE GROWTH AND
UPDATING THE INDEX
is the average of the growth in activity for constituents
who make up the SEI at that time. However, the average
growth used is not the simple average (or mean)—rather,
it is an amount-weighted (i.e., volume-weighted) average,
subject to certain constraints.
OUTLIER REMOVAL
The first step taken in calculating the average is to
remove outliers, those constituents in the SEI having
the largest increases or decreases in activity for each
quarter. Outliers are defined as the top and bottom
remove is rounded up to the nearest whole number;
companies would be removed. Removing outliers serves
two purposes: first, the movement of the SEI is meant
to represent what happens to typical constituents in
the SEI. However, averages can be unduly influenced by
the presence of very large values. Also, as noted above,
the SEI calculation does not contain perfect information
about non-organic changes in activity (e.g., conversions,
decommissioning of tenants, etc.). Removing outliers
helps to ensure that even if such constituents’ system
activities remain in the SEI and do, in fact, have extreme
changes in their activities, then those changes will not
influence the index.
WEIGHTING BY VOLUME OF ACTIVITY
In addition to reflecting what happens to a “typical”
constituent, the SEI is meant to reflect the amount of
growth in the overall Subscription Economy outside of
the Zuora service and the opportunities that are available
to creators of and investors in Subscription Economy
companies. For this reason, the weighted average used in
the SEI growth calculation is weighted by the total amount
of activity each tenant has so that companies with higher
weighting is by the baseline amount of activity for each
constituent, but not by the growth in activity that is being
indices are weighted by the market capitalization of their
constituents and for the same reason: the indices are
meant to represent the overall size of the market and the
opportunity available to investors, so it is weighted more
towards larger entities.
However, complete reliance on amount weighting may fail
to reflect what is typical if a few very large constituents
dominate the activity measured by the SEI. For this
reason, the weight of any single constituent in the
weight in the SEI (or a sub-index) based on their total
the remaining weight is distributed proportionally to the
other constituents in the pool. This process is iterated
MINIMUM NUMBER OF CONSTITUENTS
Taken together, the outlier removal and weighting
method determine the minimum number of constituents
for calculating the SEI data or any sub-index of the SEI
implies there must be no less than twenty constituents.
However, the twenty constituents must be available
after outlier rejection, as described above. The number
percent outlier removal is rounded up to the nearest
whole number, so that for more than twenty constituents
the two highest and two lowest activity growth numbers
are removed from the average. This means the minimum
possible number of constituents to calculate the SEI or
one of its sub-indices according to these rules is twenty
four, however, the SEI increases this minimum to twenty
five for simplicity.
16
INDEX DETAIL
Given the growth of all constituents over the prior quarter
and the weights to use in the average, the average growth
is simply the sum of all the constituents’ growth rates
multiplied by their weight (note that all the weights add up
average growth rate is then multiplied by the prior index
level to arrive at the new index level. That is,
SEI
Q
Q
)
where SEI
Q
is the new index level, SEI
is the index level
after the last quarterly update, and G
Q
is the average
constituent growth over the most recent quarter.
GROWTH FACTOR: CHURN
The SEI measures the amount of growth in the
Subscription Economy, but a single indicator does not
give all insight into what may be driving it. A related
factor, churn (the loss or churn of existing accounts),
helps explain potential sources of that growth. Churn
is defined as an account that has had no activity in the
last year (4 quarters), but last had activity in the quarter
prior to that. To explain churn another way, suppose an
account had activity in Q2 some year; if Q2 of the next
year passes and the account has not had activity again at
all in that year, then the account is considered a churn in
Q3 (up to one year and one quarter after the last activity.)
Data on churns is presented and communicated in this
report as a rate, and the churn rate is defined as the
number of churns in a quarter divided by the number
of accounts at the start of the quarter. This metric is a
growth factor of the SEI. Like the percentage change
in activity used in the SEI calculation, churn is an
average of percentage changes in other activity-based
measurements. Unlike the SEI, churn is not used to update
the index—it is simply provided as explanatory information
Companies calculate churn of accounts in many different
ways. The SEI’s churn metric uses a simple calculation
that makes results comparable across the wide variety
of companies in the SEI, and is consistent with the
calculation of the SEI’s main index.
Many companies use different definitions for metrics,
such as when defining churn, and those choices are often
made based on the typical customer lifespan, re-signup
behavior, etc. Naturally, any definition applied to a diverse
pool of companies will not be perfectly suited to every
type of tenant in the Zuora service. This SEI definition
was chosen to remove the effects of seasonality and for
consistency with the annual activity calculations used by
the SEI.
ADDITIONAL METRIC: COMPOUND
ANNUAL GROWTH RATE
Within this report, compound annual growth rate, or
CAGR, 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
Where EV is the ending value of the time period, BV is the
beginning value of the time period, and n is the length of
the time period by number of years.
CAGR represents one of the most accurate ways to
calculate and determine returns for various types of
assets, investments, and indices that can rise or fall in
value over time. Additionally, when interpreting compound
annual growth rates, it is important to remember that
CAGR does not reflect investment risk and the same time
periods should be used to effectively compare multiple
CAGRs to one another.
EV
( )
BV
n
17
SUB-INDICES
In addition to providing insight about the direction of
the Subscription Economy overall, it is useful to know
about the differences between various categories of
companies. To support this, the SEI’s method is also
applied to specific subsets of the constituents. Borrowing
terminology from stock market indices, these constituent
groups and their associated measurements are known
as sub-indices. Once the classifying criteria for a sub-
index are defined, the same methodology is applied to
that pool of constituents as is used for the main SEI. The
only requirement for creating an SEI sub-index is that the
category must have a minimum number of twenty-five
constituents, as described above.
A variety of classifications are used to define sub-
indices, and examples include the Business Model, sector,
industry, vertical, and geographic Region. Additional
classifications, or combinations of classifications, may be
applied in the future. These classifications are provided
by data providers and applied to the billings system
measurements via Zuora’s CRM system.
Starting in 2023, historical sales figures for industry and
regional indices have been updated based on the most
current mix of companies represented in the applicable
exchange-traded funds (ETFs). Prior to 2023, sales per
share figures were documented at the time of each SEI
study and not changed for future studies, even as the mix
of companies in each ETF may have continued to change.
Given recent economic volatility, it became apparent that
consistently using the current mix of companies gave a
more accurate depiction of the actual historical trends.
18
Sources
S&P 500
US RETAIL
S&P SOFTWARE & SERVICES SELECT INDUSTRY
INVESCO DYNAMIC MEDIA
ype=Institutional&ticker=PBS
S&P 500 INDUSTRIALS
FTSE (UK)
DAX (GER)
CAC (FRA)
JPX (JPN)
HKEX (HK)
ASX (AUS)
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“The Subscription Economy Index Report,” Zuora, February 2022
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 subscription-based companies
(including companies in the SEI report) and non-subscription 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
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.
20
4
“The Subscription Economy Index Report,” Zuora, February 2022
Zuora’s Subscribed Institute is a dedicated think tank focused on
events, and connections. Research provided by the Institute helps
business leaders and their organizations maximize the opportunities
of the Subscription Economy.
More at www.subscribedinstitute.com
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