By Amanda Mesler
Amanda Mesler, Chair and CEO of Minna Technologies discusses findings from their recent report, Subscription Economy: Evolution Not Revolution, and shares what this means for CFOs, subscribers and the broader subscription economy.
Introduction
Despite economic headwinds, more than two-thirds of U.S. enterprise subscription businesses have experienced modest subscriber growth (up to 20%) in the last 12 months and 89% are confident about their revenue growth potential for the year ahead. These are findings from Subscription Economy: Evolution Not Revolution, a new report from subscription management fintech Minna Technologies in partnership with specialist management consultancy FT Strategies and global market research firm Savanta. This includes data and analysis of surveys of over 100 U.S. enterprise executives, spanning industries including financial services, software, streaming media, publishing and retail, and more than 2,000 U.S. consumers. The global subscription economy has grown by 435% over the past decade, and UBS forecasts it will reach a market size of $1.5 trillion by 2025. This presents a significant opportunity for businesses looking to unlock new revenue streams. As enterprise businesses across sectors have embraced subscription models, subscription growth has become a strategic focus for the CFO, with the opportunity to generate predictable recurring revenue and reduce exposure to market volatility. The CFO is increasingly involved in strategic growth initiatives and tech transformation to accelerate recurring revenue. According to the latest SEI report, subscription companies have grown 3.4x faster than companies in the S&P 500 over the past 12 years, underlining the CFO’s growing interest in this space.
Top factors impacting profitability: changing customer demand and tech disruption
Our research and analysis highlight a growing gap between what customers expect from their subscriptions and what businesses are offering. Two-thirds (67%) of U.S. businesses say that changing customer demand will be the top impact factor on profitability in the next 10 years, followed by tech disruption (52%), such as the continued integration of AI into operations. The data reveals notable subscriber demand for greater flexibility, including the ability to pause (39%), manage all subscriptions in one place (73%), and have a seamless user and payments experience unsubscribing and resubscribing. Yet just half (50%) of subscription businesses offer pause functionality at present, and only a third of businesses provide dynamic offers and renewal pricing based on behavior. More than a third (37%) of U.S. subscribers are now spending more on subscriptions compared to a year ago, with the average subscriber having 8.2 subscriptions and spending $1,416 per year. 63% of consumers prefer paying monthly to an annual fee and 55% think owning anything they don’t need now is a waste of time. Given the growth in spend and number of subscriptions, six in ten (61%) subscribers would like to be able to view and manage all their subscriptions in their banking app – with the flexibility to pause, change plans, accept offers or cancel – which 64% trust more than subscription platforms or app stores. Gen Z and millennial subscribers have more subscriptions than older generations and are especially interested in this functionality. Eight in ten (80%) 18-44 year-olds want it, and nearly half (45%) are willing to switch banks for it. It’s critical that businesses cater to their expectations to remain competitive and boost profitability.
AI, diversification and total monetization strategies
Our research also shows that serial churners, who habitually cancel and resubscribe, continue to grow and have become an increasingly large proportion of the customer base as subscribers become savvier, with two-thirds (67%) of businesses reporting that up to 20% of their churners return within six months. This behavior continues to disrupt the predictability of recurring revenue that CFOs prefer, and complicates revenue recognition and reporting, highlighting the urgent need for businesses to adapt and cater to evolving consumer preferences. Despite the challenges of keeping pace with evolving consumer behavior, there is a clear opportunity for businesses to track and meet changing demands with continual tech-enabled experimentation and innovation. Nearly all (93%) businesses recognize the crucial role of AI in shaping customer service and retention. There are also growing opportunities to leverage AI to enhance products and services to increase their monetization appeal. For example, by deploying basic AI and machine learning tools, businesses can rapidly analyze customer data at scale to recommend highly personalized product packages, prices, complementary offerings or valueadd features that maximize value for each subscriber, as well as optimizing predictive churn and customer support capabilities. 83% of subscription businesses have already either invested, or are planning to invest, in AI to enhance services including customer support, user experience, and personalization of pricing and products, and this will grow as businesses transition from theory to practice. Subscriptions are no longer a static, one-size-fits-all proposition. They are an ongoing value exchange that fits into a wider monetization strategy. Businesses need to focus on enhancing flexibility, convenience, and control to succeed. Customer demand has led to the emergence of new channels to manage subscriptions, such as banking apps and aggregators. By enabling customers to track and manage their recurring spend digitally, banks can increase revenue,
reduce chargebacks and OPEX, and enhance engagement and trust. In turn, businesses can retain, win back and grow subscribers. Businesses are exploring broader total monetization strategies, through a range of recurring and transactional revenue streams. Product diversification, new channels, bundles and beyond have all emerged as critical components to complement core subscription offerings, add value and drive retention. For CFOs, offering subscribers more choice and control – and cumulative value – is essential to develop sustainable, long-term revenue strategies. As our research reveals, the main drivers for canceling a subscription are to save money or the perception that the service is not needed. By putting customers at the heart of recurring revenue strategies and leveraging tech for personalization, automation and customer experience optimization, CFOs can ensure their organizations maximize long-term value, attract, engage and retain subscribers, and scale revenue.
