We previously covered a few key SaaS metrics that are crucial for every entrepreneur to keep track of — they can also be a bit complicated to calculate. Click any of the following you need a refresher or want to review best practices:
Here we explore Average Revenue per Customer (ARPC), or Average Revenue per Account (ARPA), which is a pretty self-explanatory metric, but worth breaking down!
What is ARPC?
As the name suggests, ARPC or ARPA is the average revenue generated from each customer account per month (or per year). Sometimes the metric is 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/Service | ARPC |
|---|---|
Product A | $50/month |
Product B | $200/month |
Service | $150 one-time fee |
Here's what ARPC tells us
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/Service | ARPC | Pricing | Upsell Opportunity |
|---|---|---|---|
Product A | $50/month | $20 to $70 per month | $20 |
Product B | $200/month | $150 to $500 per month | $300 |
Service | $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.
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