3 ways to increase your average revenue per account (ARPA) for B2B SaaS
Using price increases, price nudging, upselling, cross selling, churn alerts, customer success and much more to increase your ARPA
Every SaaS business wants to increase its monthly recurring revenue (MRR) or annual recurring revenue (ARR). So in order to grow the revenue, you need to understand what influences your SaaS growth.
Joel York defines the growth of a SaaS company as the following:
SaaS Growth = Acquisition Rate x Average Customer Lifetime Value
This means you can influence your SaaS growth by optimizing at least one of the following parts:
1. Net Growth Customers:
… Adding more new customers (new customer growth)
… Reduce churn of customers (churn rate)
2. Average Revenue per Account (ARPA)
… Upselling & Cross-selling
3. Customer Lifetime (Churn Rate)
… or simply said by a) adding new customers, b) reducing the loss of existing customers (churn), and c) increasing the average revenue per customer (CLV).
So as you can see there are different ways how you can positively influence your SaaS growth.
In this article we will cover how to calculate your ARPA, the differences between ARPA, ARPU, MRR, and ARR, and 3 ways how you can increase the average revenue per account (ARPA) for your B2B SaaS business.
What is ARPA (average revenue per account)?
ARPA is the average revenue per account and one of the most relevant SaaS metrics. It shows the average revenue you generate from your customers on a monthly (or yearly) basis.
Maybe you’ve already come across the term ARPU, which means the average revenue per user. But ARPA and ARPU are not the same, there is a slight difference between both metrics. While ARPA indicates the average revenue you make with an account, ARPU is the average revenue per user. Here is an example: You are selling a CRM software to SMB companies with 5€ per user per month pricing and you have 3 accounts (customers): Company A with 10 users; Company B with 20 users and Company C with 90 users, then you will have:
ARPA of 200€ ((5€10 + 5€20 + 5€*90)/3)
ARPU of 5€
By increasing your ARPA you are obviously also increasing your MRR (monthly recurring revenue) and ARR (annual recurring revenue). MRR and ARR are always the total revenue you’re generating. To use the example above, you will have:
MRR of 600€ (50€ + 100€ + 450€)
ARR of 7200€
So to make it easy:
MRR = Total monthly recurring revenue
ARPU = MRR / total users
ARPA = MRR / total customers (accounts)
3 ways to increase your ARPA
Working on your pricing strategy gives you great opportunities to increase your ARPA. Here are some examples of how to use pricing to positively influence your ARPA.
If you increase your pricing, obviously your average revenue per account will increase too. But increasing your prices needs to be done carefully and well prepared, especially if you have already (a large number of) customers. Here are some things you should consider:
Price increases only for new customers (grandfathering) or also for existing customers?
Enough notice period for existing customers (minimum 3 months in advance)
Combine the price change with the release of a powerful new feature and a strong focus on value selling (Why the new pricing is better for them)
Make it super simple and clear about how it works (Do they need to upgrade? How can they cancel? What are the consequences of the new pricing (e.g. new features, limited access...)?
Prepare yourself for churn & increased support issues
Increasing prices normally lead to a short-term peak in churn, but the overall positive effects (increased ARPA) outweigh the negative ones.
Nudging to higher pricing tiers
If you’re having more than one pricing tier, think about ways how you can nudge customers to your more expensive pricing tiers. Here are some ways to do so:
Highlight the most popular tier (Isolation Effect)
Price anchoring (make your more expensive tier 'relatively' cheap compared to the cheaper options, so your customers get the feeling that this is a 'great deal')
Incentivize annual payments
Remove your free/cheapest plan: try to hide your cheapest plan (and see if the conversion rate gets negatively affected, if not you should see an increase in your ARPA)
Less advertising of cheaper plans (especially if most of your existing customers use your free/cheapest plan)
Scalable pricing model (value metric)
Make sure that you have scalable pricing in place. Scalable means that the more your customers use the product, the more value they get from your product and the higher the pricing should be.
It’s crucial to identify the value metric for your product. Wes Bush says that the right value metric needs to be
easy to understand
aligned with the value that the customer receives in the product
grows with your customer’s usage of the value
So in case, your current pricing isn’t scalable, change the value metric to a ‘scalable’ metric like bookings, (active) users, revenue generated, views, etc.
Restructure your pricing plans
Sometimes the pricing tiers are not aligned with the usage patterns and different types of customers. Make sure that every pricing tier fits perfectly to a specific customer type, e.g. perfect plan for small companies and startups vs. a plan for larger companies. If you’re choosing the right value metric for your pricing, this normally happens automatically. A CRM Software provider charging based on the number of leads, a newsletter tool charging based on subscribers, or an accounting tool based on revenue is automatically appealing for small companies as well as larger companies because the more they use the product (e.g. more leads, more subscribers, more revenue) the higher the value for them and the more they are willing to pay. So your interest (more MRR) and the interest of your customer (more value) are aligned.
Using features as your value metric is also possible, but it is always challenging to know which feature is part of which pricing plan. How do you know what features your customers want and which ones to include in each tier?
The best way is to analyze the current user behavior and track the usage of different features. Can you see specific patterns (e.g. the more users use feature A, the more they need feature B? Or feature A can only be used with feature C? Customers will less than 10 users almost never use feature D...). Once those patterns are identified, you can restructure your pricing plans.
Also, check out the article on a powerful SaaS Pricing strategy.
2. Upselling and Cross-selling (Expansion Revenue)
Often times all your focus lies on adding new customers and your existing customers don’t get enough attention. Figure out ways to add more value to them and ultimately increase your ARPU.
Upselling to higher tiers
There are different ways how you can upsell to your existing customers. Upselling (in contrast to cross-selling) means selling more of the existing product. Most of the time this means you need to focus on helping your customers to become more successful (e.g. getting more bookings, increasing their subscriber base...) because this results in higher usage of your product.
Here are some ways to do so:
Dedicated Customer Success/ Account Management with regular Customer meetings (for Mid-market and Enterprise)
(Product) Webinars for existing customers (show them new features, success stories, best practices)
In-product messaging (incentivize to use premium features or to increase the activity of features)
Notifications for Sales/Customer Success Team on specific product usage (e.g. customer XY added 200 more users but they never activated their accounts —> huge upselling potential)
When you’ve chosen the right value metric (that scales with product usage, e.g. more users) think about ways how you can get more users in the product (e.g. using viral features like inviting coworkers, sharing dashboard/links with nonusers, sending emails or notifications from the tool). Those viral features not only increase the ARPA for these specific customers but most probably also helps you to get new leads to your SaaS Funnel.
Olof Mathé (How to master product virality) gives a great overview of the different types of viral features.
Increase of Activation
Especially when you have a scalable pricing metric (e.g. active users) there is huge revenue potential in activating your customers. Actually, this strategy is part of Upselling but is so important that I’ve added it as a separate point.
One of the best ways to identify the revenue potential is to look for ‘potential’ that’s currently not captured within your tool. Here are some examples to make it easier to understand:
Communication Software for Teams: The company size is 200 FTE but currently only 20 employees are active users —> huge revenue potential in the missing 180 employees
Sales CRM software: currently only the MDR and SDR roles using your sales prospecting feature, rest of the sales team using another CRM tool —> huge revenue potential in getting the other team members to use your features
Employee Benefits Software: only one of the benefits is being used by the company, the other benefits are managed somewhere else —> huge revenue potential to activate the users to use more of your benefits
Cross-selling a complimentary service
Cross-selling refers to selling new additional products to existing customers. Here are some great ways to increase your ARPA with cross-selling:
Promote your other products to your customers (ideally contextual, e.g. after they asked the support team a specific question, or after they clicked on a specific feature, or as part of a specific product webinar...)
Add a marketplace to your product (with integration partners) and maybe earn commissions
Create product bundles and offer discounts/free trials
Account Manager: Understand customer needs and offer valuable products (or services)
Offer Add-ons like Premium Support, Quarterly training, Priority Onboarding, Migration Service...
3. Retain Customers and reduce churn
Depending on what kind of churn (logo churn vs. revenue churn) you’re looking for, churn can actually influence your ARPA. Imagine that especially customers with high MRR are churning, your ARPA will decrease. On the other hand, if you manage to lower the churn (from your top accounts) you will increase your ARPA.
P.S. Make sure you understand the difference between logo churn and revenue churn (check out Ryan Law’s blog post on logo churn vs. revenue churn).
Here’s a list of methods you can use to prevent churn:
Analyze patterns of customer churning and identify activities that indicate churn potential, e.g. decreasing usage over weeks (fewer log-ins, messages, or bookings) or low NPS score. Use that information to trigger counter initiatives (e.g. call with customer success, email campaign...)
Remind of Value
Never forget to always communicate the value of your product. Also, existing customers want to get reminded of the value of your product. Just imagine the difference between getting an email with the invoice and just seeing the amount they need to pay compared to an email with the invoice, but putting the value in the center, not the costs.
💯 Last month we helped you to get 500 new leads and close 15 new deals which have led to a 15000€ new MRR. Thanks for trusting XYZ CRM software. We’ve invoiced you 499€ for last month.
So make sure you always add the value of your product in your communication (e.g. on your invoice, in your product update emails, on your product dashboard...). If customers are aware of the value of your product, the chance they churn is way lower.
Account Manager / Customer Success
If you are in the mid-market or enterprise market you probably need to have an account manager for your customer. Make sure to regularly talk to your clients and make sure to provide value to them. Maybe you’re analyzing their data, sharing best practices with them, or offering additional training for their employees. But most importantly proactively make sure they are happy with the product and actively using it. If you see a drop in usage or customer satisfaction, offer them support.
But also if you’re in the prosumer and SMB market it can make sense to establish a dedicated customer success team that fully focuses on activation, upselling, and cross-selling, not on a 1:1 level, but rather on a 1:many level (e.g. via webinars, academy content, etc.)
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References: This article is inspired by Wes Bush (What the Heck Are Value Metrics? And How To Find Yours?), Ryan Law (Customer Churn vs. Revenue Churn), Olof Mathé (How to master product virality), Joel York (SaaS Growth Strategy A Customer Lifecycle Approach)
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