In the world of e-commerce and online business, there probably isn’t another metric that is as important as ARPU. The Average Revenue Per Users (sometimes users can be referred to as units) can indicate whether a business is doing greatly or poorly. SaaS businesses, in particular, have to compete for every penny earned. Pretty much every niche is stacked with cutting-edge & best-in-class solution providers. It can be a challenge just to set yourself apart, let alone be profitable. So, what data can you use to get an edge on your competitors? Yup, you guessed it - it’s the ARPU we mentioned earlier. Let’s look at ways to use the ARPU metric for your benefit.
First up - understand what ARPU means
Although every single business can calculate their average revenue per user, it’s online business and SaaS companies that pay most attention to this metric. Recent data suggests that there are over 16,000
different SaaS businesses worldwide, which means that ARPU is a big deal.
Accountants and entrepreneurs use a simple formula to calculate ARPU.
Average Revenue Per User (ARPU)
ARPU = Total Revenue / Average Users Count
Usually, businesses tend to calculate and measure this metric every month or every quarter. If you choose to calculate per monthly basis,
divide the MRR (monthly recurring revenue) by the total number of subscribers
These calculations aren't done in vain. You can use obtained data to pinpoint the weaknesses in your pricing plans, notice & take advantage of new trends, evaluate user engagement, consider benefits of features, etc.
If you want to know much ARPU do the world’s biggest digital brands, generate, here’s a cool chart from Monday Note
As you can see, ARPU varies greatly. It is dependent on the niche and individual business characteristics, competition in the field, trends, pricing policies, etc.
In all fairness, you have to know that you have to simultaneously compare ARPU with customer acquisition and customer churn rates, CAC & CCR, respectively. If you don’t factor these in, standalone ARPU metrics could be misleading for an entrepreneur, investor, or accountant
Analysing & understanding the context
Having a high ARPU does not automatically mean that your business is doing well. If a company earns seven-figure revenue, it doesn’t guarantee financial stability by itself. Let us give an example:
- A company generates 5,000,000 $ per month
- It has 500,000 customers
- So the ARPU is 10 USD/month (OK, right?)
- However, if CAC is 11 USD/month while the churn rate is 50%, the ARPU now seems terrible.
Such an example (while greatly oversimplified) proves that the company while generating 5 million dollars of revenue per month, is like a leaking bucket. Fill it up all you want; it’s still going to leak... Such businesses need to invest in solutions that reduce CAC and churn rates whilst raising the bar for ARPU at the same time.
Luckily, there are multiple ways to do this. No one way is better than the other. It’s best to combine different techniques and solutions to have them all work in your favour.
Solution #1 - curbing customer behaviour
We know that about 40% of users will leave the website within 15 seconds if they find the design unattractive. We also know that you have to follow a particular design pattern to convert most visits into sales. This means that you have to prove your credibility, show off the best features and provide value to visitors in mere 15 seconds. Otherwise, they’ll just leave.
Here’s a cool, simple guide from an online blog - CXL
, that describes the basics of designing a web that converts.
A short rundown. Your primary goals with the website are to:
- Make original and visually appealing graphic
- Prove credibility and build trust
- Have engaging and easy-to-follow headings
- Have CTA’s in all of the right places
- Write strong and clear copy (not all users are fluent in English)
- Show more, tell less.
Solution #2 - better customer service & customer experience
Look at this chart.
As you can see, more than 2/3rds of customers that stopped using a certain service said they believed the service provider didn’t care about them. And that was the primary reason why they left. Imagine that you would be able to reduce your customer churn rate by 68%?!?! And it’s not impossible.
The direct most way in tackling this problem is by offering live customer support on your site. If the user is aware that they can reach out and get answers ASAP, they’re less likely to be disappointed. Furthermore, direct communication allows you to better understand your clientele’s needs and wishes right on the spot. Instead of dealing with an issue post-factum, you can use a copywriter’s service to write a kick-ass script that support agents can use to deter your customer from downgrading into a lower-tier pricing plan, deleting an account, etc. Live communication can be tailored to the benefit of the business. Churn rates decrease ARPU increases.
This is where Atlasmic Chat
comes into play. You can use our innovative & affordable tool to grow your business, build a stronger network and reduce the CCR by showing your customers that you care.
Solution #3 - adjust pricing plans
If you went through options #1 and #2, you could also try adjusting your pricing plans. This requires a thorough analysis of your revenue and understanding which plans do best and which ones are lagging.
Maybe you should offer more perks, and perhaps you should cancel some plans altogether to split the perks between other pricing plans? It will become clearer once you dive in a bit deeper.
Let us be frank. Your business won’t do well if your ARPU and related metrics are off. You have to be able to convert first-time buyers into long-term clients to survive in SaaS businesses’ competitive landscape. You can change your marketing strategy (or buy more digital space & air time), use dedicated software to better user-experience and adjust pricing plans to achieve higher ARPU figures.
Hope this was useful to you,
Until next time!