24 Recurring Revenue Statistics You Need to Know in 2023
More and more companies are launching recurring revenue and subscription models, either to replace their existing one-off sales approach, or to offer hybrid options to their customer base in parallel to their current transactional products. To help you assess if you should be in that bucket, we amassed the most important recurring revenue statistics that you need to be aware of.
Reading time: 7 minutes
Subscription Economy & Recurring Revenue Statistics
The subscription economy has been around for a while; from Spotify and Netflix (just to name the most prevalent consumer examples), to the Dollar Shave Club or Birchbox, there are countless consumer-oriented organizations that have reached the masses. And the shift from traditional, transactional models to recurring revenues is only going to accelerate. If you haven’t started with a reoccurring business model yet, here are some statistics that should make you think twice.
Subscription businesses have grown 4.6x faster than the S&P 500
This probably has to do with the fact that companies that have a recurring revenue can more predictably forecast. And at the same time, they need to put more emphasis on customer experience as customer churn can be their biggest downfall.
The subscription economy is set to grow to $1.5 trillion by 2025.
That’s a growth of 435 percent in the past nine years. And no end in sight. Buckle up because although it might take different forms, the subscription economy is here to stay.
The U.S. consumes 53% of all digital subscriptions.
Although a lot of small and/or local businesses can succeed with subscriptions (think: your local gym), there’s no denying that if you want to be a global leader, you can’t escape having a solid market presence in the US.
By the end of the year, 75% of all direct-to-consumer businesses will offer subscription services. [Gartner]
Many sectors are moving to recurring revenue models (more on that below), but businesses selling directly to consumers are at the forefront of this trend.
SaaS Industry But Not Only
Software-as-a-Service is the most popular and common model for subscription businesses, along with music and video streaming services. But recurring revenues don’t stop just at these two industries.
Servitization has been a growing trend in the industrial sector, so it’s no surprise to see that a big chunk of the subscription market value will come from physical products. The Electrolux AtEase project is a perfect example.
The global SaaS market is worth $152 Billion.
Whether the Sillicon Valley VC-backed world lives in a bubble or not, does not matter. The global SaaS market, at $152 Billion in valuation, is a sector to reckon with. In comparison, the healthcare sector is barely above SaaS, with a market valuation of $165 Billion.
70% of business leaders claim subscription business models are crucial to their prospects in the future.
This is a stat that really supports the subscription economy will only accelerate in the coming years. Whatever is business critical for prospects (which equate to revenue) is business critical for companies.
Physical products are set to represent 45% of the subscription market value.
Although we might (rightly so) assume that subscriptions relate to digital services, physical products are equally important to the subscription economy. Recently, Electrolux launched its AtEase program, in which consumers can subscribe for a robotic vacuum cleaner … and pay based on square meter vacuumed every month.
91% of businesses are engaged in some form of digital initiative, and 87% of senior business leaders say digitalization is a priority. [Gartner]
Digitalization is an enabler for subscription businesses. You could run a local gym with a an analog list of subscribers and printed plastic cards for members. But then you would need an employee at the front desk to check the cards of all members coming in, and thus limit having the gym open during specific hours. Now you can run a 24/7 gym wih a digitized system that knows when a member should be allowed in or not based on the validity of their subscription.
Reality of Recurring Revenue
Recurring revenue models are trendy and getting more and more common in consumer-oriented sectors. But in B2B, it is still a minority business model. Companies are built from the ground up through transactional models; transitioning to recurring revenues, in an increasingly data-driven world, puts a lot of strains on financial teams.
Volume of data/information created, captured, copied, and consumed worldwide will reach 147 zettabytes by 2024. [Statista]
The amount of data generated and handled grows exponentially. Handling such volumes and variety becomes a challenge for many B2B companies.
48% of subscription businesses struggle to meet accounting and reporting challenges.
From accurately calculating deferred revenue liability on balance sheets to having good integration between billing and accounting systems, finance teams are tasked with completely new challenges once a business move to collecting monthly payments.
Only 24% of businesses currently implement subscription models.
Despite some sectors like D2C (as predicted by Gartner) predominantly offering subscriptions, only a quarter of businesses overall currently do it across sectors, because it’s anything but an easy transformation. On the flipside, it gives a lot of companies the opportunity to still gain that competitive edge.
Revenue Leakage and Other Challenges
As great as recurring revenues are, having a subscription model also brings its own dose of challenges. Money falling through the cracks of billing processes becoming more complicated is one of them. Companies on a subscription transformation need to ensure they can charge customers correctly and fairly, recurringly. Not easy.
42% of companies experience revenue leakage. [MGI Research]
Revenue leakage is a very real problem for many companies. And when times are tough because of the macroenvironment, tightening billing processes to avoid leakage can be a good solution.
Every company loses 1% to 5% of realized EBITA to leakage annually.
To put some context (or number) around how much revenue leakage happens, think about this number.
59% of companies cite significant customer friction due to billing disputes.
Churn is a subscription business’ worst nightmare. And nothing leads to churn like a truckload of angry customers because you bill them inaccurately every month.
32% cite time-to-market issues related to introducing new pricing plans.
Offering new pricing plans can be a great way to increase revenue. As Warren Buffet once said, the single most important decision in evaluating a business is pricing power. But can you afford to delay a product launch because you’re technically capable of pricing the way you want to?
30% of companies indicate that billing issues are impacting their financial results.
Again, billing issues have a direct impact on the health of a company’s revenue. It should not be undermined or overlooked.
Many companies’ quote-to-cash processes are built on legacy systems across business units, sometimes on-prem and sometimes in the cloud, who don’t talk to each other and were built for linear, transactional payments. The question faced is whether to keep maintaining those legacy systems year after year, or just modernizing the IT infrastructure.
44% of companies see their legacy systems as a barrier to growth.
It’s not the large fish that eat the small; it’s the fast ones that eat the slow. Large and antique IT infrastructures often equate to slowly moving organizations.
Bad data costs the US $3 trillion a year. [Harvard Business Review]
Data can often be erroneous. Before you feed it into important systems (like billing, for example), it needs to be cleaned, enriched… or otherwise, it can cost you a lot.
64% do not have standardized revenue assurance tools as part of their enterprise data systems.
If you can’t detect errors or anomolies in your financial records early enough, your organization is at risk of not recognizing its full revenue potential.
65% of organizations prefer to deploy data integration solutions from cloud platforms or hybrid cloud. [Forbes]
We’re also in the midst of a cloud migration, where more and more companies move away from on-prem to private or even public clouds.
If companies want to move beyond the traditional subscription model of flat-fees, then usage- or consumption-based is one way to add great flexibility, by letting customers pay based on how much they consume your product or service. But in order to do so, you need to be able to correctly track usage data.
61% of SaaS companies will adopt some form of usage-based pricing in 2023. [OpenView]
Usage-based pricing is already prevalent in SaaS companies. It doesn’t mean they only price on usage; in most cases, they will have a hybrid model. But regardless, usage is already here.
79% of SaaS business want to leverage usage data as a growth lever. [DigitalRoute]
Most SaaS companies leveraging usage data do it in a proactive rather than reactive way. You can read more about our exclusive research in our report, The Evolving Landscape: Understanding Enterprise Usage Data Demands in 2023.
Moving from legacy mediation and integration systems and to an intelligent usage data management platform could lead to a 65% reduction in hardware and operational running cost.
That’s what Forrester found out when they were commissioned to analyze the impact of our Usage Data Engine on our customers.
If you found these recurring revenue statistics interesting, you should explore the following blog posts:
Sign up for the Data for Subscriptions newsletter and receive new trends, latest podcast episodes with industry experts and exclusive insights.
The importance of a unified system cannot be overstated. As we had the opportunity to discuss with...
The Software-as-a-Service (SaaS) landscape has been undergoing a considerable transformation,...
SaaS businesses need to adapt to the ever-changing ways that their consumers want to consume and...