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ARPU in SaaS: Estimating And Making Sure You Make The Most From Each Client

Updated: May 11, 2022

ARPU in SaaS: Estimating And Making Sure You Make The Most From Each Client

Understanding what your clients need is what will result in success for a software as a service business.

Consider that the vast majority of the successful players in the market know and have information on their clients, and even go as far as pointing out what it is that the customers see as the benefits of purchasing their products.

The first thing they do is to identify the type of customer and keep on collecting information as time goes by.

The main aspect that cannot be ignored is that your business should grasp how much each client is generating in terms of revenue (ARPU – average revenue per user).

This information will enable you to understand the movements and make the necessary corrections to get on the right track for the profits you are going for.

Let’s take a deeper look into what this ARPU metric is and how it can be used to boost your business’ success.

So to better understand ARPU let's take a deep dive into what it is, why it's important, and ways that you can optimize this metric to catapult the success of your SaaS business.

What is Average Revenue Per User?

This metric results from a formula that calculates the average revenue a user or unit generates over a set period.

With this information, the business is able to compare periods and understand the overall growth on the customer level.

To achieve the metric, you should divide the total revenue by user/unit after deciding on a set period.

These numbers are crucial for the decision-makers in order to guide the software as a service business in the right direction.

Different ways to ensure the ARPU is optimal.

Identifying trends and market patterns is the most important aspect that ARPU offers. Having the most complete and detailed information is the best way to ensure that you know exactly how your business is going.

With a complete assessment, you get to increase your MRR/ARR and guarantee that the lifetime value of each customer is as high as it can be.

Here are a couple of actions that you can take to make sure the average revenue per user is the best possible:

Extending capabilities and Upgrades

You should take into account any means that you can increase the amount of revenue that each of your clients is generating over each month.

Calculating the value is key to price your software correctly and ensure that the revenue keeps growing over time. Another way is to plan for offering add-ons and upgrades constantly.

Make sure you are not losing clients

The bigger the client, the more you should keep tabs and guarantee that they’ll keep on being a customer. This, of course, applies to smaller clients as well.

Develop strategies to retain clients by learning from the reasons why clients have left before.

Target the right client profile

Going after clients that are too small is time and money-consuming. These clients will most likely not generate enough revenue to add up to the ARPU.

If you’re in a market with lots of potential customers, always prefer to go after clients with the potential of generating a revenue bigger than $100/month.

Having the right prospects will enable you to grow much faster and more consistently.

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