As a SaaS entrepreneur, there are countless numbers, statistics, and metrics that you need to track and calculate to assess the health of your business, but the sheer number of acronyms can be overwhelming. In this series on key SaaS metrics, we’ll walk you through the most common—and helpful—metrics you need to know to successfully run and grow your SaaS business.
The past five weeks, we have looked at a few key SaaS metrics that are crucial for every entrepreneur to keep track of, and are also sometimes a bit complicated to calculate. So far, we’ve discussed monthly recurring revenue (MRR), customer churn rate, MRR churn, customer lifetime value (LTV), customer acquisition cost (CAC) Ratio, and committed MRR (CMRR).
Now lets take a look at Average Revenue Per Customer (ARPC), which is a pretty self-explanatory metric.
What is ARPC?
As the name suggests, ARPC is the average revenue generated from each customer per month (or per year). Sometimes the metric can be further broken down by customer segment or product type, such as the ARPC for enterprise level customers, or the ARPC for a particular product.
Why ARPC is important
Knowing the ARPC for different products can help SaaS businesses to identify their most valuable offerings. For example, assume your company offers a mix of products and services with the following ARPCs:Product/ServiceARPCProduct A$50/monthProduct B$200/monthService$150 one-time fee
Product B is definitely the cash cow in terms of revenue generation. Assuming products A and B have similar expenses, your company should focus on growing the customer base of Product B.
In addition, knowing the ARPC of different products and services helps SaaS businesses identify upsell opportunities. Expanding on the previous example, we added a pricing column for the different products and services showing the lowest and highest price for each product.Product/ServiceARPCPricingUpsell OpportunityProduct A$50/month$20 to $70 per month$20Product B$200/month$150 to $500 per month$300Service$150 one-time fee$150 one-time fee$0
Product A has an upsell opportunity of $20/customer/month and Product B has an upsell opportunity of $300 (subtracting the highest price from the average price). This obviously means the company should be paying a lot more attention to upsell opportunities for customers of Product B.
How to calculate ARPC
Calculating the ARPC is pretty straightforward and is done as follows:
ARPC = Total Revenue/Customer Count
Note that total revenue could be based on customer segments or product types. Customer count needs to match the breakdown of total revenue. So the formulae would look as follows:
Large Clients’ ARPC = Total Revenue from Large Clients/Number of Large Clients
Product B ARPC = Total Revenue from Product B /number of Product B customers
A good business practice is to monitor the change in the ARPC over time. To do this, set a certain time period for calculating changes in ARPC. For example, you could look at the ARPC of Product A in the last 6 months vs. ARPC of Product A in the last 12 month. This can help SaaS businesses to see how the revenue generated from Product A evolved over time.
Alternatively, the time period could also be set to certain events (such as shipment of a major upgrade of Product A, or completion of a major marketing campaign) to see how your customers react.
Want More SaaS Metrics?
This guide explains the core metrics used to measure SaaS company success. Using simple examples, we’ll show you how to calculate each metric, and describe why specific indicators are important to investors.