How to Increase ARPU: Best Strategies & Growth Hacks

The Average Revenue Per User (ARPU) describes how much revenue a company generates per user over the given time period, which is typically monthly or annually. 

‍

This metric is closely connected to Lifetime Value (LTV) and Customer Acquisition Costs (CAC) when it comes to building a successful, lasting business. Keep reading to learn more about this metric and how you can increase ARPU.

What is Average Revenue Per User (ARPU)?

‍

SaaS and eCommerce businesses depend on retaining customers to have sustainable growth. If customers only make one purchase or subscribe for one month, then leave, the business is constantly seeking new customers to replace them — and that’s no easy task.

‍

That’s why the ARPU metric is crucial to understand for any business in eCommerce or SaaS. This vital metric describes the average revenue per user (ARPU) and is closely related to other essential eCommerce and SaaS metrics that form the foundation of a successful business. 

‍

Monitoring and striving to increase ARPU allows organizations to understand why customers are leaving and how to retain them, and ultimately sets the stage for sustained growth. 

‍

It’s important to note that you may see similar metrics, such as Average Revenue Per Account (ARPA) and Average Revenue Per Customer (ARPC). These metrics are the same as ARPU and can be used interchangeably.

The ARPU Formula

The ARPU calculation is relatively straightforward and should be conducted over the same recurring interval so you can evaluate how well your growth strategies are working. The ARPU formula is:

ARPU = Revenue / Total Users

It’s crucial to use the same period of time when gathering both metrics. Many organizations will calculate monthly, while others opt for quarterly or annually. You can certainly do all three, provided you separate each period’s results and don’t compare varying periods to each other.

For SaaS businesses, the Monthly Recurring Revenue (MRR) is well worth using instead of overall revenue. For eCommerce businesses, overall revenue is likely the best option.

Below, you can see how Varos enables you to dive deeper into your results alongside your peers to see how much customers spend when they return.

‍

Strategies and Hacks to Boost ARPU

Understanding ARPU is only the beginning; you need to know how to increase ARPU to start reaping the benefits of this metric. So let’s explore the best strategies and growth hacks to attract and keep customers to help boost business growth.

Refine Your Product or Service for Growth

The more value you provide to your customers, the more likely they will stick around. It’s crucial to understand why customers need or want your product or service and continually enhance your offering’s appeal.

‍

If you’re a SaaS business, continually evaluate current users’ pain points both with your platform and the problem your platform solves. If your customers discover a competitor better addresses their needs, you’ll struggle to keep customers around.

‍

For eCommerce businesses, you need to consider your product line and how it can be enhanced to encourage repeat customers. ARPU can undoubtedly be increased by continually attracting new users, which should still be a goal. However, keeping users coming back and making more purchases will do wonders for increasing your revenue while keeping customer acquisition costs at a minimum.

Optimize Pricing Structures

Unappealing pricing is a common reason why customers might cancel a SaaS subscription or eCommerce subscription box or decide to buy their following product at a competitor.

‍

If you need to maintain a specific pricing level to remain profitable, look for ways to create pricing tiers to appeal to budget shoppers. Is there a way to offer a cheaper plan with minimal capabilities that will keep customers around? Segmenting features and pricing them accordingly can help create a compelling structure suitable for different users.

‍

Alternatively, can your overall pricing be decreased to better compete? If there’s room in your profit margin, it can be worth dropping prices to better retain customers.

‍

Organizations need to continuously evaluate competitors' and customer expectations to understand if they’re pricing too low, too high, or just right.

Leverage Upsells and Cross-sells

Keeping customers coming back is crucial, but it’s not the only way to tackle ARPU. Increasing your customer’s average order value (AOV) also boosts ARPU. One of the tried and tested ways to encourage customers to spend more is upselling and cross-selling.

‍

Upselling is when a customer is considering buying a specific product or service plan, and then they’re encouraged to pivot to a more expensive option. This can be done by highlighting why the higher price tag is worth it, offering discounts, and generally making the price difference worth it.

‍

You can also cross-sell, a strategy focusing on add-ons, upgrades, and extras on top of the base purchase. A simple example is if someone is buying athletic shoes, offer athletic socks to go along with them. Discover opportunities to add more value to specific purchases to encourage customers to spend more.

Provide an Amazing Customer Experience

Ultimately, keeping customers around depends on giving them a great customer experience (CX). The experience begins when they first discover your business and ends when they decide to cancel services or never return for another purchase.

‍

What you do in between those events determines how long they’ll stay customers. Providing a positive CX sets your company apart from competitors and retains your users.

‍

There are several moving pieces involved in providing a great customer experience, such as:

‍

• Providing a frictionless buying experience, which can significantly affect mobile ARPU
• Customer support is readily available and painless
• Pricing is competitive, and the customer feels like they’re getting their money’s worth
• Minimal friction points when using your SaaS platform or buying a product from your eCommerce site
• Forgiving and straightforward refund policy

‍

Below, you can see the 12-month LTV in the Varos dashboard. Our platform shows your results right alongside your peers, so you always know if you’re leading the pack — or falling behind.

‍

Partner with Varos for Real-Time Insights to Help Find and Retain Customers

Monitoring and increasing ARPU can do wonders for creating sustained growth for any organization, whether you sell a cloud-based platform or custom-built computers. ARPU allows you to take a high-level view of your entire operation so you can more easily understand any issues, then take corrective action.

‍

Measuring and growing your own ARPU is excellent, but you can reap further benefits by using real-time competitor benchmarks to see how your peers are performing. Varos is a unique platform that aggregates and analyzes results from your peers, then shows them right alongside your own performance.

‍

With Varos, you’ll be able to break out of the vacuum and understand if your results are being affected by overall industry trends, if you’re spending too much in one area, or if your paid ads are underperforming. When only looking at your past performance, it’s hard to have the full story behind your KPIs.

‍

Below, you can see how Varos allows you to drill into Shopify Lifetime Value (LTV) and shows your performance alongside your peers.

Ready to unlock real-time benchmarking? Contact us today to talk to an analytics specialist and see how Varos can help your business grow.

‍

About the Author

Sarah Clowes-Walker 

Head of Marketing at Varos

LinkedIn