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How to Improve Your MRR Growth Rate (without new customers)

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Contrary to what you might see in some case studies, MRR growth is not always linear.

Through working with various SaaS companies, talking to founders and even looking at our journey here at Baremetrics, I’ve seen firsthand how startups can experience periods of flat or even negative growth.

And when it happens, so many companies default to “how do we get more customers?”

There’s a common misconception that the only way to improve MRR growth is by getting more customers. Not only is this untrue, but that mindset can dig you into a hole that’s hard to get out of. I’ll explain why later.

Don’t get me wrong. Getting more users to pay you is a good thing. But MRR growth is about more than just getting new customers. 

In this article, I’ll break down what MRR growth is, how to calculate it and how to improve it without only relying on new customers.

How to calculate MRR growth

I know a lot of you are probably going to jump right past this part. But stick with me for a second.

In order to understand how to improve your MRR growth rate, you need to understand how to calculate the metric.

MRR growth is the change in your MRR over a period of time.

monthly recurring revenue chart

The start and end numbers are helpful, but what a lot of companies (and investors) want to see is your MRR growth rate.

MRR growth rate is your MRR growth expressed as a percentage.

Here’s the formula to calculate your monthly MRR growth rate:

[(Second Month Revenue) – (First Month Revenue)] / (First Month Revenue)

And here’s what a MRR growth rate chart looks like in Baremetrics. You’ll notice it pretty much mirrors the screenshot of our actual MRR above.

MRR growth rate chart - baremetrics

Your MRR growth rate is important because it shows how much you’re growing (or not growing) over time. If your growth rate is slow, or even declining for an extended period of time, it could be a red flag. 

And according to Tim Schumacher, founder of SaaS.group, MRR growth plays an important role in your company’s valuation if you plan on selling.

Tim Schumacher

Tim Schumacher

Founder @ SaaS.Group

quote

From an Angel or VC investor point of view, slow or no MRR growth is definitely a red flag, since all investors look for high-growth companies. For a strategic or financial buyer, it’s a different story. Of course, MRR growth is always better than slow or no growth, but at the end of the day, it merely affects the multiple which is paid for a company.

For a high-growth company (5%+ monthly growth), a seller might be able to get twice the revenue (or profit) multiple compared to the same company which is flat.

Here’s the thing. Your MRR growth rate is just an output.

In order to improve it, you need to focus on the inputs (i.e. the numbers that go into calculating your MRR growth). 

As you saw, the formula for calculating your MRR growth is pretty simple on the surface. You just need to know your starting MRR and your ending MRR. But in order to take action on the number, you need to focus on the period in between.

Here’s a graphic to illustrate what I’m talking about.

mrr growth chart

All of the points on the graph are events that caused your MRR to go up or down. Those are the “inputs” that determine your MRR growth rate. They include things like:

  • Churn
  • New customers
  • Expansion revenue
  • Pricing changes you might’ve made
  • Seasonality

By manipulating these different inputs, you directly impact your company’s MRR growth.  

For example, if you see a drop in your MRR growth, it could be that churn is outpacing new customer acquisition. If you’re flat, it could be a sign that your product isn’t priced for growth. There are any number of possibilities.

Our goal is to optimize all these different inputs so we can see a positive impact on the output (MRR growth). But just getting more customers isn’t always the answer.

Why customer acquisition isn’t always the key to MRR growth

Like I mentioned in the intro, when you see your MRR growth stall or even decline, it’s natural to assume you just need more customers.

And while that can help, here’s why I suggest putting just as much (if not more) effort into the other inputs.

It can get expensive

If you’ve ever worked for a SaaS company that was primarily focused on customer acquisition as a growth strategy, I’m sure you’ve seen how expensive it can get.

The “get new customers at all costs” approach is particularly popular with highly funded companies. When you have millions of dollars to spend, it’s super tempting to throw it at ads and other marketing channels to get more users.

But if the rest of your customer journey is lacking, you could be wasting a lot of money.

Until you’ve built a solid retention strategy that reduces churn and improves LTV, it doesn’t make a ton of sense to focus on getting more people in the door. Assuming you’re not a new company that just needs users of course.

leaky customer journey

It limits you

Another issue with focusing primarily on customer acquisition, is it limits your potential MRR growth. I’ll dive into the specifics in the next section, but one of the keys behind our MRR growth at Baremetrics was our focus on expansion revenue.

By creating add-on products like Cancellation Insights, Messaging and Recover, we were able to 

  1. Upsell our existing customers (which also improves LTV)
  2. Reach a new pool of people who might not have bought our flagship product, but are interested in our other products

When all you’re thinking about is “how can I get new customers?”, you completely miss out on other opportunities that can dramatically improve your MRR growth.

Acquiring new customers might not be the problem

Lastly, sometimes the reason you can’t grow just doesn’t have anything to do with your ability to acquire new customers.

Even if your number of active customers is growing each month, that doesn’t mean your MRR growth rate is too. 

You could be experiencing massive MRR churn if your new customers are paying less than the people that churned. Your average revenue per user might be too low. You could be experiencing a lot of contraction from people downgrading their accounts.

The point is, you should never just assume your MRR growth isn’t trending upwards because you’re not getting enough new customers.

Now that we’ve established that, let’s talk about some other ways to improve your MRR growth rate besides getting new customers.

3 Ways to improve your MRR growth (besides getting more customers)

Now that you know the what and why, let’s talk about the “how”. Just knowing your MRR growth rate is fine. But ultimately, your goal should be to improve it. 

Like most things in business, data can be your best friend here. Let’s take a look at some practical ways to boost your MRR growth.

1. Reduce churn

If you can’t control your churn, acquiring new customers isn’t going to fix your MRR growth problems. It’s like trying to work out to compensate for your poor diet. You might get some short term results, but eventually you’re going to plateau.

When you have a balance of low churn plus an effective customer acquisition strategy, you’re in a position for real growth. Let’s talk about how to start chipping away at your churn.

Obviously, you want to decrease your churn overall. But that’s a big mountain to climb. 

Instead, let’s break it down into a series of “hills”. That way, you’ll be able to get some smaller wins on your way up the mountain.

First, we’ll need to identify where most of your churn is coming from. That means tracking the cancellation reasons that are costing you the most money.

You can do that with a tool like Cancellation Insights, which sends a cancellation survey to every user when they cancel their account.

baremetrics cancellation reason form

Once you start gathering responses, you’ll be able to see exactly which cancellation reasons are resulting in the most MRR loss.

compare cancellation reasons

Now, instead of asking “how do we decrease churn?” you have specific action items you can build a plan around. 

Whether it’s the lack of a specific feature, bad onboarding or whatever the main cause, you know exactly why people are churning and can work towards fixing it.

Even if your customer acquisition stays flat (meaning you’re acquiring the same number of customers each month), if you can decrease your monthly churn you’ll see an improvement in your MRR growth because you’re losing less MRR.

Here’s an example of this in action from our own company.

You can see here that as our churn rate has gone down over the past six months, our MRR growth has increased. 

While some of the improvement in our MRR growth rate is from our increase in expansion revenue (from our add-on products), decreasing churn plays a major role.

Our churn over the past six months

user churn six months

Our MRR growth rate over the past six months

mrr growth rate six months

The main point I’m trying to illustrate is that “more customers” isn’t the only (or even best) way to improve your MRR growth rate. 

If you can lose fewer customers each month, while keeping your acquisition and expansion revenue at least steady, you can still see growth. If you want more ideas on how to reduce churn, check out these articles:

2. Expansion revenue

Sometimes, increasing revenue doesn’t mean getting new customers. Why not sell to your existing customers who already use and like your product?

Expansion revenue is revenue you get from existing customers through:

  • Add-ons: Additional add-on products outside of your customer’s subscription (like Cancellation Insights and Recover 😉) 
  • Upsells: Upgrading to a higher priced plan
  • Cross-selling: Revenue from additional products to give customers a more complete solution (ex. Product training, setup fee)

According to data from KeyBanc, in 2018 the average SaaS company generated 37% of gross new ARR bookings from expansions and upsells (for companies with $5M+ in ARR). 

And the companies in the $15M+ ARR club tend to do even more.

average expansion ARR

An added benefit of expansion revenue is it costs less to upsell and expand your existing customers than to acquire new ones.

Think about it. You’re essentially selling to people who’ve already shown they’re willing to buy from you, versus trying to convince new people that your product is worth paying for.

Expansion revenue has also been a big part of our growth here at Baremetrics. Here’s a look at MRR from our current active customers using two of our add-on products.

cancellation insights and recover revenue

And if you take a look at our MRR over the past six months, you’ll notice that our expansion revenue is greater than our MRR from new customers most months.

baremetrics new vs expansion mrr

Expansion revenue is also key to MRR growth for companies that charge on a per-user basis. For example, take a look at Hubstaff.

Their monthly pricing plans are pretty low (most users are on their Basic or Premium plans).

hubstaff pricing

But take a look at where their MRR comes from. A good chunk of it is expansion revenue from upgrades and additional users.

hubstaff expansion mrr

For comparison, look at a company like Proofhub. They charge a flat rate for unlimited users.

proofhub pricing

In order for them to get positive MRR growth, they’re almost completely dependent on how many new customers they’re able to acquire each month, minus churn and contractions.

That’s a more challenging situation for growth.

Expansion revenue gives you another lever you can pull on to improve your MRR growth. Whether it’s through upgrades, charging per user, or additional products, think of ways you can expand beyond your current plans and offerings.

3. Experiment with your pricing

Pricing your SaaS product is one of the biggest struggles startups run into. 

Are you charging too much? Not enough? What happens if you raise your prices and customers start to churn?

I won’t dive into the specifics of how to price your product in this article, because our Head of Growth already wrote a super in-depth guide to SaaS pricing here. But here’s a good way to experiment with your pricing and improve your MRR growth.

Use your data!

Some companies like to use surveys using Van Westendorp’s Price Sensitivity Meter to determine how much users would be willing to pay. But if you already have paying customers, why not use that data instead?

Start by identifying which pricing plans have the lowest churn rates. If you have Baremetrics, you can find this data under Metrics > User Churn. Sort the table by churn rate.

find lowest churn rate plans

Lower churn (and longer time to churn) is an indicator that users under these price plans are getting enough value from your product to justify keeping it long term. But it could also mean that you’re priced too low.

The plans with low churn and a long time to churn are the ones that you can experiment with first.

Slightly increase the pricing on one of these plans (for new customers only) and monitor:

  • Signups: Are more or fewer people signing up for this plan now that the price is higher?
  • Churn: Are customers who’ve signed up with this higher price plan churning at a higher rate than the original priced plan?

If the number of signups you’re getting each month stays consistent, it means people aren’t being put off by your slightly higher pricing. And if your churn rate stays relatively unchanged, then your value:price ratio is in a good spot.

Even if you keep all your current customer’s pricing unchanged, you’ll be able to boost your MRR growth going forward if your changes work.

Keep an eye on your MRR growth rate

Your MRR growth rate is a vital SaaS metric that gives you an indication of how your business is doing over time.

You don’t have to obsess over the number on a daily basis. Check it month to month to see how you’re trending. Then use the insights to create action items for the next few months. 

You could focus on churn for one quarter, then do some pricing experiments another quarter. But at least you’ll have a plan. And since you have metrics in place, it’s easy to measure what works and what doesn’t.

If you’re curious about what your MRR growth rate is, or want to put the tactics we went over to use, take the first step by grabbing a free trial of Baremetrics.

Source: https://baremetrics.com/blog/mrr-growth

SaaS

How to Write a Subscription Cancellation Email for SaaS

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Saying goodbye sucks.

This is especially true when you’re bidding farewell to paying customers you thought would be around for the long haul.

The reality, though? Just because a customer cancels doesn’t mean they’re gone for good.

That is, if you know how to write a subscription cancellation email that gets to the root of why they’re walking away (and encourages them to stay).

Listen: cancellations are inevitable in SaaS. Rather than send canceled customers an autoresponder that says “see ya,” your messages should be designed to reduce churn and leave a positive impression on them.

In this guide, we’ll break down how to write a solid subscription cancellation email from scratch.

8 Tips for Writing Subscription Cancellation Emails to Boost Retention

Below are some key tips to crafting cancellation messages, including an email template that you can totally steal for yourself.

1. Make a point to say more than “sorry” or “goodbye”

So many subscription cancellation emails consist of little more than “sorry to see you go.”

Here’s the reality, though: cancellations aren’t the time to be all woe-is-me. 

As a result of thumb, here are four things any subscription cancellation email should accomplish (hint: it’s more than saying “sorry”):

  • Thank them for doing business with you
  • Confirm that their cancellation is being processed
  • Reassure them that the door is always open to do business again
  • Ask for feedback to determine why they’ve decided to cancel 

That’s it. 

This four-part formula is standard for most SaaS companies, and based on it, we can put together a quick subscription cancellation email template below:

Hi [customer name],

First of all, we appreciate you being part of the [company name] community.

As per your request, your subscription has been canceled. The good news is that your account will be active until [date] and you can still access [feature] in the meantime.

We’d like to learn the reason behind your cancellation so we can better serve our customers (and hopefully you!) in the future [+link to survey, form, etc].

Thanks

The goal here is to suggest some sort of next step with your customers rather than just wave goodbye or apologize. 

Proactive, actionable messages signal that you’re still open to working with customers and actually value their opinions. This is obviously preferable to slamming the door on your cancellations by sending a lifeless autoresponder.

2. Figure out why your customers canceled in the first place

This is a big one.

Before you get into the nitty gritty of writing a subscription cancellation email, you should first figure out why cancellations are happening at all.

Because as noted in our guide to churn analysis, your cancellations are a treasure trove of insight. 

Think about it. You were able to gain someone’s trust and ultimately their business, right? When you lose that, it’s probably not “just because.” There’s a reason behind it.

Perhaps it was pricing. Maybe a customer was underwhelmed by your premium features.

Either way, tracking the reasons behind individual cancellations empowers you to reduce churn and better service all of your subscribers in the future.

And no, you don’t need to do any Jedi mind tricks to figure out why someone has canceled. 

Instead, just ask.

Below is a solid subscription cancellation email example from WP Stagecoach. Not only is it packed with personality, but also directly asks for feedback from customers via a cancellation survey.

wp stagecoach free trial email

Upon clicking through, customers are prompted to explain why they’ve canceled and provide additional feedback to the company.

wpstagecoach cancellation survey

Don’t be shy about asking customers for their opinions. People are more than happy to sound off when they’re happy. Even if their criticism seems harsh, it’s better to hear it privately from a single source instead of a mob of angry customers.

The trick to gathering feedback from customers is making the process as quick and painless as possible on their part. 

This is actually where a tool like Baremetrics is a game-changer. 

For example, our Cancellation Insights feature follows up automatically with canceled customers and prompts them about their reasoning.

cancellation email

The takeaway here? Learn what’s going on with your customers before letting them slip away.

3. Don’t assume the worst of your canceled customers

Again, cancellation doesn’t mean the end of your relationship with a customer. 

Not by a long shot.

This again speaks to why your subscription cancellation emails should be about clarification, not defeat. 

Because unless you’ve really screwed something up (think: your service drained someone’s bank account or broke their site), chances are there’s an opportunity to win your customers back.

For example, let’s say someone canceled because of a billing error or misunderstanding about a specific feature. In these cases, it makes perfect sense to reach back out and try to make the situation right.

This is again where Baremetrics can help. In short, you can set up different autoresponders based on your customers’ cancellation feedback. Here’s how the setup looks:

create cancellation follow-up email

You can also set up time-triggered follow-ups (think: a week or month later) to canceled customers to serve as a sort of “second chance” to win them over again.

winback email custom audience

For every subscription cancellation email you send, follow-ups and confirmations should follow. Many SaaS companies unfortunately fail to do so, leaving plenty of money on the table as a result. 

4. Follow-up personally with VIP customers who’ve canceled

As a side note, not all cancellations should be treated equally.

For example, consider what happens when your most loyal or highest-spending customers cancel their service. Should they receive a generic, one-size-fits-all message?

Obviously not. Make a point to monitor and flag your VIP accounts to ensure that you can follow-up personally via email or phone in case of a cancellation. 

Sure, you should strive to put your subscription cancellation email campaigns on autopilot. Even so, long-term and loyal customers deserve to be nurtured beyond an autoresponder.

If you use Baremetrics, you can set up daily emails or even real time Slack notifications whenever customers cancel. Keep an eye out for any long-term or high-value customers and follow-up with them immediately.

Baremetrics Slack notifications

5. Send your emails from a personal account

Just like with onboarding and winback emails, sending a subscription cancellation email from an individual account (think: [name]@[company.com] versus a generic business address [requests]@[company.com]) is a subtle yet significant way to make your messages stand out.

Not only does it grab your customers’ attention in their inbox, but makes the process of asking for feedback seem a bit more personal. Here’s an awesome example from Pat Walls of Pigeon.

Pat Walls Cancelation Email

Here’s another example from ContentKing:

ContentKing subscription cancellation email

This approach makes your messages feel like they were written by individuals, not part of a company-wide blast. 

Likewise, this encourages you to curate more authentic, off-the-cuff feedback that you might not get from a cancellation survey.

6. Be straightforward with your subject line

Subject lines are a barrier to entry with any sort of SaaS emails, and cancellation messages are no exception.

However, cancellations are a rare occasion where creativity might not do you many favors.

Sure, subject lines like “Oh no! We’re sorry to see you go!” or “Is this really goodbye? :-(“ are all the rage in ecommerce to make connections with lapsed customers. 

These types of headlines might seem a bit cynical to SaaS customers, though. If you’re shelling out your hard-earned money for a tool, chances are you’re more interested in your cancellation being confirmed versus cute, branded messages. 

If nothing else, vague subject lines could also leave customers with the impression that their cancellation isn’t being processed which would likely result in  confusion or anger.

Below are some examples of simple, straightforward subject lines for cancellation emails that work:

  • “Canceled?”
  • “Your [company] account has been canceled”
  • “Confirm your cancellation request”

This isn’t to say you can’t inject some personality into your cancellation subject lines.

Heck, doing so might make sense for your brand (ex: “[Customer name], your subscription is ending” or “Following up on your cancellation, [customer name]”).

The takeaway here is that your subject lines shouldn’t leave customers second-guessing

7. Keep your messages short and sweet (~50 words)

The common thread between pretty much every subscription cancellation email we’ve covered so far?

They’re short. Like, really short.

As noted earlier, you only need about four sentences to say what you need to say to your customers when they cancel. Rather than hit them with a wall of text, be economical with your words.

This cancellation email from Enchancv is a great example of how to be brief while still being proactive and positive.

enhancv subscription cancellation email

See how that works?

8. Show customers you actually care with empathetic language

Of course, just because your messages should be brief doesn’t mean they have to be cold.

For example, this automated cancellation email from invoicely gets the job done but could benefit from more of a personal touch.

invoicely subscription cancellation email

So, how do you find a balance between brevity and personality?

For starters, using “you” and “we” is an easy way to make your customers feel like they’re talking to a human versus a robot.

Ex: “We value your feedback and want to do everything in our power to help customers such as yourself.”

Also, make a point to emphasize that there are no hard feelings. There’s nothing to be gained by guilting your customers: a little bit of empathy goes a long way.

Ex: “We don’t want to see you go, but totally understand that cancellations happen. Just know that your account and settings are saved so the door is always open to get going with [company name] again!”

Last, always say thanks! This might seem like a no-brainer, but anything you can do to leave a positive impression on your customers is a plus.

Ex: “We want to thank you for being part of the [company name] community.”

How much thought goes into your subscription cancellation emails?

Cancellations happen. No secrets there.

But it’s how you respond to those canceled customers that ultimately determines whether or not they churn.

By paying attention to the fine details of your cancellations and giving your confirmation messages some much-needed personalization, you can keep more subscribers around long-term. 

Doing so starts by rethinking your subscription cancellation emails. With the tips above and insights from tools like Baremetrics, you can take a more proactive, positive approach to handling customers who cancel.

Source: https://baremetrics.com/blog/subscription-cancellation-email

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Public SaaS Companies Are Now Worth $1 Trillion

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Microsoft, Google, Apple and Amazon have made the headlines for a while for crossing $1 trillion in market cap each.  That’s crazy growth — almost all fueled by the crazy growth of the Cloud.

No SaaS company is yet worth $1 trillion, through perhaps that is coming.  What has happened though is the Top 30 SaaS companies together are now worth $1 Trillion.. That’s up from $800 billion just a little while back when we took a look at Cloud Decacorns.

That’s $1 Trillion in market cap from the SaaS leaders.

These are the best of times in SaaS indeed:

Given the incredible IPOs in the pipeline, we could be at $2 Trillion in the next 24 months.  We’ll see.

A few other things we can learn from this analysis:

  1. Power Laws are here, too.  The Top 10 SaaS companies have 70% of the market cap and value.  A $2 billion market cap is amazing.  But $20 billion is now becoming “common”, if that term can be used.
  2. Shopify is the crazy one.  From $8 billion in market cap in 2017 to $117 billion today!
  3. Go long.  Most of these names were worth a fraction of their current market cap at IPO.  Zendesk IPO’d at $1 billion.  Today, ti’s worth $11 billion.
  4. You Can Grow Your TAM.  Almost all the leaders here started off doing something “smaller”.  Salesforce just did SFA.  Slack was a single org self-service app.  Veeva added an entire, larger second product.  Twilio expanded into contact center and email and more.  Shopify added a wildly successful enterprise offering.  RingCentral went from SMB to enterprise-grade contact center. Zoom used to be a B2B app 🙂

The Era of the SaaS Decacorn is Here

Published on July 28, 2020

Source: https://www.saastr.com/public-saas-companies-are-now-worth-1-trillion/

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Average Revenue Per User (ARPU)

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Average revenue per user (ARPU) is an underrated metric that companies can’t afford to ignore.

Although metrics such as monthly recurring revenue (MRR) receive most of the spotlight for those in SaaS, ARPU is crucial for keeping a pulse on your business’ health. 

Because digging into how much the average user spends can clue you in on ways to optimize your support budget, pricing and product positioning.

What is ARPU?

Average revenue per user measures how much revenue you’re generating for each active customer.

Companies typically calculate ARPU on a monthly basis. In short, the metric gives you an idea of how much the average customer spends per subscription.

But unlike MRR, ARPU is more granular as it puts your individual customers’ spending under a microscope.

ARPU formula

To calculate your ARPU, simply divide your MRR by the total number of active users over the course of a particular month.

MRR / # of active customers = ARPU

Pretty simple, right? 

Let’s look at an actual example using a company from Baremetrics’ own open startups with an MRR of $3,459 and 146 customers.

$3,459 (MRR) / 146 (# of customers) = $23.69 (ARPU)

And here’s what the calculation looks like in Baremetrics:

ARPU calculation

What variables should I consider when calculating ARPU?

Good question! While calculating ARPU might seem straightforward, there are some key factors to keep in mind as you compare your MRR, ARPU and user-base at large.

Paying customers versus free users 

This is important. Sure, free sign-ups and trial users are obviously welcome to your business. That said, they shouldn’t calculate into your ARPU since they’re not actually generating revenue (yet). If you did include them, they’d skew your numbers.

Upgrades and downgrades

Customer spending isn’t static. This is especially true if your business offers a variety of paid plans or add-on features. Keeping an eye on customers moving tiers not only gives you a better sense of which subscription tiers drive the most revenue, but also which ones might be lacking.

Customer churn 

Inactive or lost customers (churn) impact your MRR and likewise your ARPU. For example, losing a higher-paying customer is going to drop your ARPU more steeply than a smaller one. 

Why does ARPU matter so much?

ARPU might not get as much love as MRR or ARR, but that doesn’t mean it’s not a key SaaS metric.

For starters, your average revenue per user has a direct impact on your ability to scale. 

Let’s say you have a relatively low ARPU of $5/mo. This isn’t going to give you much wiggle room to grow, let alone spend on resources related to customer support or acquisition.

If the cost of your support staff or marketing campaigns outpaces your revenue, your business is in trouble long-term.

Think about it. As soon as a low-cost customer requires attention on behalf of your company (think: support calls, emails), they’ve already consumed their value. 

Low ARPU means that you’re going to have to acquire a ton of customers to reach the holy grail of $1M ARR. This also means that you’re going to have less to spend on support and marketing infrastructure that enables you to scale in the first place.

If nothing else, tracking your ARPU encourages you to dig deeper into your customers’ desires so you can learn what drives them to spend.

For example, you might notice that your best and most loyal customers gravitate toward higher-priced plans. On the flip side, your lowest-value customers are the first to churn. These revelations have a direct impact on how you position your product and ultimately grow.

The takeaway here? If you aren’t actively increasing your ARPU, you’re fighting an uphill battle. 

How to increase your ARPU

Below are some tried-and-tested tactics for increasing your ARPU. Each of these strategies is fair game for SaaS companies looking to maximize their earning potential.

Tweak your pricing to attract higher-paying, long-term customers

We could talk forever about SaaS pricing models, but perhaps what matters most is that you don’t build your customer-base on bargain pricing alone.

Ideally, you should be able to point customers to a variety of subscription plans so you’re not freezing out leads with lower budgets. Adding in a “recommended” or “popular” pricing tier creates a sort of bandwagon effect for customers to get the most bang for their buck.

Sendinblue’s pricing is actually a great example of this. Notice how they highlight their second-highest pricing tier with bright colors and a “POPULAR” tag. 

Their other pricing tiers are still present, but their most valuable one is front-and-center for good reason.

Sendinblue pricing

If you aren’t sure which of your pricing plans provide the best value, you can use Baremetrics to compare your different plans and see in black-and-white which ones are driving the most revenue.

compare plan segments - baremetrics

Rethink your free (or freemium) plans

Forever-free plans are all-the-rage in SaaS, and rightfully so.

That said, free plans don’t factor into your average revenue per month. 

If you’re looking to raise your ARPU and you offer a free service, it might be time to examine whether or not that service is doing too much at no cost. 

This doesn’t necessarily mean gutting your free tools or eliminating them altogether, but making some small tweaks to features offered.

Despite popular belief, it’s possible to make changes without turning your free users into an angry mob.

For starters, don’t change features without at the very least giving those users a heads up and providing context to your changes. It’s also a good idea to brainstorm features you can actually add to your free plans as a sort of give-and-take.

Check out this statement from Typeform, for reference. They manage to frame their free account changes as a giving priority to their paid users (while inviting free users to become paid ones themselves). 

They also manage to frontload the statement with a mention of new features to their free plans.

Typeform free changes

See how that works?

Start offering add-ons or “a la carte” features

No surprises here.

The more opportunities you give your users to spend money on your service, the more likely you are to increase your LTV (and ARPU).

This is exactly why we’re seeing a rise in SaaS companies offering optional add-ons in addition to their subscription plans. 

Not only does this provide customers with a sense of flexibility, but also provides an additional avenue to drive revenue from existing customers.

Here’s an example from ZenDesk, offering a variety of individual, add-on services. These add-ons manage to close the gap between ZenDesk’s main pricing tiers ($5/mo per user and $89/mo per user), allowing prospects to only pay for relevant features.

zendesk add-ons

Give your most valuable accounts the attention they need

All of your customers deserve your attention.

However, some might deserve more attention than others.

Make a point to flag tickets and questions from your biggest accounts for the sake of keeping them around for the long haul. 

If you use Intercom for your customer support, you can combine it with our integration to see your customer’s MRR, total charges, and other information whenever they message you.

baremetrics intercom integration

Providing speedy, one-on-one service to these accounts spells good news for your ARPU versus dedicating all of your resources to freebies.

You can likewise include this sort of VIP service as part of your pricing plans. For example, check out how Marketo highlights their response times based on their users’ subscription tiers.

marketo support

Adjust your personas to focus on higher-paying customers

We’ve talked before about how to reach $1 Million ARR based on your average contract value strategies. 

Simply put, you can either acquire a hundred elephants or 100,000 mice.

how to build 100m business

This speaks to which sort of customer personas your business is targeting. For the sake of upselling and increasing your ARPU, perhaps it’s time to start looking toward customers with bigger budgets.

When you know your customers well, price correctly and sell effectively, ARPU increases. To understand the “why,” you need to talk to prospects and customers to learn more about what pain points are driving their purchases.

Start tracking your ARPU to uncover trends and opportunities

Finally, you can’t improve your ARPU without keeping an eye on it.

Is the needle ticking upward? Downward? Either way, you shouldn’t be in the dark.

This means paying attention to your dashboards using tools like Baremetrics.

ARPU graph

From getting granular with your customer data to making more accurate sales forecasts, our platform breaks all of the above down in easy-to-read reports. 

The ability to see your ARPU at a moment’s notice makes it a cinch to both track trends and ensure that your efforts to improve it are quite literally paying off.

Written by: Brent Barnhart

Source: https://baremetrics.com/academy/average-revenue-per-user-arpu

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