馃攳
How To Increase Your Average Revenue Per User (6 Tips) - YouTube
Channel: Dan Martell
[0]
- Hey there, Dan Martell here,
serial entrepreneur investor,
[2]
creator of SaaS Academy.
[3]
In this episode, I'm gonna share with you,
[5]
what does ARPU mean?
[7]
How do you calculate it?
[8]
And most importantly, how do you grow it?
[9]
Because we don't understand
this core SaaS metric.
[13]
Trust me, you're gonna have a hard time
[14]
building that business and
be sure to stay at the end.
[17]
Where I'm telling you how to
get access to my exclusive
[19]
"Precision Scorecard Template",
[22]
to be able to measure all your metrics
[24]
in this beautiful place
and more importantly,
[26]
set the targets accurately,
[28]
especially if you're just getting going
[29]
in your SaaS business, let's get into it.
[31]
(upbeat music)
[44]
So the term ARPU, I first heard
it from one of my mentors.
[47]
This guy named Dharmesh Shah.
[49]
Dharmesh is the co founder of HubSpot.
[51]
Maybe you've heard of it, if
you're in the software space,
[53]
you kind of probably did many of you
[55]
are probably already customers.
[56]
'Cause it's a big CRM and support software
[59]
for a lot of software companies out there.
[61]
Anyways, this was 2009 in San Francisco.
[66]
I'm sitting in my office, he came to visit
[67]
and we were talking about
strategy and he mentioned,
[70]
he's like, "You know, one of
our big initiatives right now
[72]
is increase our ARPU."
[73]
And I was like, "Okay, I should
probably Google that term."
[76]
I had heard other kind of
three and four letter acronyms
[79]
around finances, et cetera,
[80]
but I kind of figured out what it was,
[82]
but then I got confused.
[83]
'Cause I kept hearing other
terms that are similar.
[86]
Anyways, I figured out
essentially what it means
[88]
at a high level is
[90]
how much revenue does your
user generate for you?
[94]
That's where the term ARPU comes from.
[96]
And what I really loved
about my conversation
[99]
with Dharmesh is understanding
the ways to grow it.
[102]
He shared with me their exact strategies
[104]
that I've seen them execute
over the last 10 years,
[106]
flawlessly at HubSpot to actually grow it.
[109]
And it's something now
that I teach my clients
[112]
is called the Strategic P3,
[114]
product, packaging and pricing
[116]
to help clients grow their ARPU as well.
[119]
These are the strategies,
these are the definitions
[121]
and here's how to grow it.
[122]
Number one, ARPU versus ARPA.
[125]
Now this is where I was
confused because when you Google
[128]
this term, you'll
sometimes come across ARPA,
[130]
which is average, revenue, per account.
[132]
ARPU stands, average, revenue, per user.
[134]
Now, if you have a user and
account that are the same,
[138]
what's the difference?
[139]
Well, if you go into the
black hole of the internet
[143]
and you start searching around this,
[144]
essentially some people argue,
[146]
well, some accounts have multiple users
[148]
or different sub-accounts underneath them.
[150]
And other places it is it's
honestly, at the end of the day.
[153]
I'm telling you for
the rest of this video,
[154]
I'm gonna use ARPU. I like the word ARPU.
[157]
It's just interesting.
[158]
It has a better phonetics behind it
[160]
and from my point of view, it's the same
[163]
for 97, 98% of you out
there it's gonna be the same
[168]
and that's the difference
between both of them.
[170]
'Cause you may come across them
[171]
I'm just telling you
right out of the gate,
[172]
it's technically the same thing.
[174]
So you don't have to
be confused like I was
[176]
and now I'm gonna tell
you how to calculate it.
[178]
Number two, the formula.
[179]
So it's really simple.
[180]
You ready for this?
[182]
Take the sum of your revenue.
[184]
So your reoccurring
revenue on a monthly basis,
[186]
and then divide it by the
count of your accounts.
[191]
So essentially like that's the equation.
[192]
You can literally put
that into a spreadsheet
[194]
and say some revenue.
[196]
And hopefully you have some
kind of reoccurring revenue,
[198]
you know, tally.
[199]
And then also the number of accounts.
[202]
And that'll give you your
average revenue per user
[206]
or per account, ARPU.
[207]
I'm gonna say ARPU, I
might say per account,
[209]
but correct me if I'm wrong.
[211]
Here's the thing.
[211]
So now you're asking what's a
good ARPU or what's a bad one.
[214]
Here's the way I would say it.
[215]
If your SMB, small to
medium size business,
[218]
your revenue per user or
ARPU on a monthly basis,
[223]
you wanna try to get
it between 20 to a 100.
[227]
Well, I mean, SMB is pretty broad.
[230]
Depending what you charge from on
[231]
some people call it SMB zero to $10,000
[234]
in annual contracts value,
another three letter acronym ACV.
[239]
Essentially, if you
take the monthly charge
[241]
your average customer, your ARPU times 12,
[243]
that's your annual contract value.
[245]
Mid market is between 10
and $100,000 per month.
[248]
And then enterprise is a
100,000 per month or larger.
[250]
That's a very broad stroke definition
[254]
of the kind of three sizings.
[256]
But I would say if you're on the low end,
[258]
try to find ways to increase it.
[260]
If you're, well, I can't really
tell you what's good or bad
[263]
without understanding
your specific situation.
[266]
If you're interested in
getting on a phone call,
[267]
just go to danmartell.com/call.
[269]
If you're B2B SaaS founder,
that's my specialty.
[272]
That's where I know I can help the most
[274]
and I can dig into it.
[275]
But the formula is really simple.
[277]
MRR per month, divided by accounts,
[279]
that's gonna give you your ARPU.
[280]
Number three, growth ceiling.
[282]
So here's where companies get in trouble
[284]
is if you hit a point where what's called,
[287]
there's three variables
that you should understand.
[291]
New stats, that's the amount
of new customers you get
[295]
on a monthly basis, okay?
[297]
That you add your ARPU,
which I just shared with you,
[301]
the formula to measure that.
[302]
So that's your ARPU.
[303]
How do you measure the
value per month on average,
[307]
that your accounts make
[307]
'cause you might have different plans.
[309]
You have different pricing,
add ons, structure, et cetera,
[311]
but you need to just figure out your ARPU.
[313]
Multiply times your, or the
equation uses also the churn.
[317]
So your logo churn, your account churn.
[319]
How many people do you
lose on a monthly basis?
[322]
'Cause a growth ceiling means
that your ability to replenish
[327]
or replace the amount of
new clients per month,
[329]
that you're losing,
[331]
it's gonna hit a ceiling and eventually,
[333]
and you can actually, there's
a mathematical equation.
[335]
If you search growth ceiling
[337]
or what I call the churn flatline.
[340]
You will come across some calculators
[341]
that you can run in the numbers and say,
[343]
"Okay, well, how many new
customers do I have per month?
[345]
What do they pay me on average per month?
[349]
What's my churn?
[351]
And how many customers do I have now?"
[353]
And you'll actually map out
the exact point in the future
[357]
to the day that you're
gonna hit the gross ceiling.
[360]
Where you won't be able
to grow without increasing
[362]
the amount of new starts.
[364]
Increasing your ARPU
or reducing your churn.
[367]
In this video, I wanna share
with you exactly how to think
[370]
about increasing your ARPU
so that you can push up
[373]
that gross ceiling further.
[375]
Number four, grow ARPU.
[377]
How do you actually make
your average revenue
[379]
per user, per account grow?
[381]
Well, you only have a few options.
[383]
Number one, you've got your
product, plans and pricing.
[386]
What I call the Strategic P3.
[388]
This is understanding the plan levels.
[391]
A lot of you may have never.
[392]
I mean, one question I
love to ask new founders
[394]
that I work with is when's the last time
[395]
you increased your price.
[397]
The average that people say to
me, "Is three to five years."
[401]
That's the average.
[401]
I've had one client hasn't
changed their price in 15 years.
[404]
And then a client that
worked with me yesterday.
[407]
It was really fun, 'cause they were like
[408]
"Last week, 'cause I watched
your Strategic P3 training
[411]
before our call."
[412]
I was like, "Money. Let's do that."
[415]
So you wanna look at your
product, plans and pricing.
[418]
And that is to drive the second area,
[420]
which is upsells and cross sells.
[422]
So, one of the things that
I was learning from Dharmesh
[424]
back in the day was his philosophy
[427]
on creating other modules
or hubs they called it.
[431]
You know, Salesforce has
these different areas
[434]
or product suites that they sell, right?
[436]
So they have the support force.
They have the Salesforce.
[438]
They have other different
big catalogues of products.
[442]
So if they sell a customer on this hub,
[444]
they can cross sell them to another one.
[446]
Or they can upsell them into a higher plan
[449]
or they can look at add ons.
[451]
Add ons. If you do not offer
premium support as an add on
[454]
right now to all levels of your tier.
[456]
It's a huge opportunity
to increase your ARPU
[459]
because a lot of people want
it and they're willing to pay
[461]
a premium for that and it
doesn't take much more effort.
[464]
You don't have to write any code,
[465]
you just kind of change
your support structure
[467]
and you're good go.
[469]
And then the last, the
other thing I wanna say,
[471]
is product bundles.
[472]
So, understanding how to do
promotions, to bundle things,
[477]
to move the ARPU up.
[479]
If you put more things
together that can increase
[482]
your average revenue per user,
[483]
sell the more things on a monthly basis.
[485]
Seldom think about maybe
there's some aspect
[488]
of the transaction, the value metric,
[490]
but that's how we grow the ARPU
[493]
and really build the business.
[496]
'Cause like I said, we have new stats.
[497]
We have revenue per user, the ARPU,
[499]
and then we have churn.
[500]
Those are three variables to
help increase the gross ceiling
[503]
so that we don't hit it anytime soon.
[505]
You wanna push that out three
or five years in the future,
[508]
but that's how we grow it.
[509]
So quick recap on some definitions.
[511]
ARPU versus ARPA.
[513]
Number two formula for
measuring your ARPU.
[516]
Three, how to calculate the gross ceiling
[518]
and number four, how to grow
your ARPU if you're stuck.
[522]
So as I mentioned, the
beginning of this episode,
[523]
I wanna share with you my
precision scorecard template.
[527]
It is essentially the specific
metric you wanna measure
[530]
per core function of your
business over the monthly periods
[534]
the quarterly periods.
[535]
And more importantly, the
way you structure the report
[538]
so that you have your actuals
and you have your targets.
[541]
The targets is what you
need to hit per quarter
[543]
and then break it down
per month and per week
[545]
so that you can actually
hit your MRR goal.
[548]
So click the link below
to download your free copy
[550]
of my "Precision Scorecard Playbook".
[551]
And I'll walk you through
exactly how to set it up.
[553]
And also if you're at
pre million in revenue
[556]
versus past a million of revenue,
[557]
there's two different sets of metrics
[558]
that you're gonna wanna know about that.
[559]
So click the link below.
[561]
And if you like this video,
[562]
be sure to smash the like button,
[564]
leave a comment and let me
know what was your biggest
[566]
takeaway from this episode.
[568]
And as for usual, I wanna challenge you
[570]
to live a bigger life
and a bigger business,
[572]
and I'll see you next Monday.
Most Recent Videos:
You can go back to the homepage right here: Homepage