What Is Average Revenue Per Account?
Average revenue per account, or ARPA, is a key performance metric for SaaS companies to assess the revenue of a business. ARPA calculates the income generated by each subscription during a specific period, typically on a monthly or annual basis.
Why Average Revenue Per Account Is Important For SaaS Companies
Here are seven key reasons why Average Revenue Per Account is a crucial metric for assessing SaaS revenue:
- Assessing the revenue inflow from each paid account is a key indicator of a SaaS company’s profitability and growth potential. With ARPA, one can quickly identify the revenue trend, whether it is rising, falling or remaining static.
- Based on ARPA numbers, SaaS companies can develop strategies to ensure revenue growth.
- ARPA provides valuable insights into customer behaviour and preferences, top revenue drivers (products and subscription tiers), unique demands and declining customer segments. It helps SaaS companies realign their operations for optimal revenue growth.
- ARPA can help with a SaaS player’s sales and marketing efforts to get positive revenue results. A higher ARPA indicates that sales and marketing teams successfully upsell and cross-sell products.
- SaaS companies can compare ARPA numbers to industry averages to understand their business performances. It helps set benchmarks and indicates whether their pricing and value propositions are competitive.
- A growing ARPA may grab investor interest by demonstrating SaaS players’ capability to generate more revenue from each paid account, ultimately leading to enhanced growth potential.
- ARPA can also estimate customer lifetime value (CLTV) – the total revenue a customer generates throughout their engagement with the company. A rise in ARPA often leads to a higher CLTV, as customers are likely to generate more revenue over time.
What’s The Formula To Calculate Average Revenue Per Account
ARPA is calculated by dividing a company’s monthly or annual earnings by the total number of paid accounts at that given period. As the number of paid accounts may change frequently, companies often use the average account count for that period. Therefore:
ARPA for October 2023 = Total revenue in October ÷ Number of total paid accounts in October.
The Difference Between Average Revenue Per Account & ARPU
ARPA measures the average revenue earned from each paid account without considering how many people use that paid account to leverage the service/services on offer. This essentially means SaaS companies get an overview of the total revenue contributed by each customer account but not the per-user contribution at a micro level.
On the other hand, ARPU (average revenue per unit/user) is calculated by dividing the total revenue by the total number of individual users for a given period. This is especially relevant when a SaaS company’s pricing is based on user count and/or usage span, thus providing insights into each user’s contribution.
3 Golden Rules To Increase Average Revenue Per Account
- Grow your revenue by tapping into existing customers. SaaS companies typically persuade businesses to upgrade subscriptions, opt for add-ons and improve overall tech stacks based on cross-selling.
- Minimise customer churn through cutting-edge retention strategies. This can be achieved by improving customer experience, offering incentives to key clients and fostering customer communities.
- Develop different buyer personas to attract prospects likely to pay more for innovative SaaS products or services. It can help save money and efforts spent on low-revenue opportunities, which may not drive ARPA growth.