Not limited to SaaS businesses, in subscription services where usage fees are incurred continuously over a certain period of time, such as communication services such as mobile phones, and paid social games, the average usage cost of a customer is determined by the growth potential of the business of the service. , It is also important as an indicator of customer loyalty.
However, the average cost per customer you should look at varies depending on the service. Should we look at the number of contracts, the number of users, or only paid users? This time, we will introduce ARPA, ARPU, and ARPPU, which represent average spend per customer.
What is ARPA, ARPU, ARPPU?
ARPA, ARPU, and ARPPU all mean a customer’s average usage unit price, but they differ in what the customer specifically refers to. Additionally, the services utilized for each indicator are different.
①ARPA
ARPA stands for Average Revenue Per Account, and refers to the average usage price per account. Calculate the total usage fee by dividing it by the number of contracts.
In BtoB SaaS, one contracted company is mainly used by multiple users, so it is possible to calculate the unit usage price based on the number of contracted companies (number of accounts) to understand the value that is close to the actual business situation. can.
②ARPU
ARPU is an abbreviation for Average Revenue Per User and refers to the average usage cost per user. Calculate the total usage fee by dividing it by the number of users. It is mainly used for services provided across multiple accounts, such as communication services such as mobile phones and internet services.
Even in BtoB SaaS, there are free users and paid users with trial use and usage restrictions, so we will look at ARRU as an indicator of business profitability.
③ARPPU
ARPPU is an abbreviation for Average Revenue Per Paid User, and refers to the average usage unit price per paid user. It is mainly used in services where there are free users and paid users, such as social games. Even in BtoB SaaS, we utilize ARPPU of only paying users in order to understand the usage unit price that is close to the actual business situation.
ARPPU for paid users only allows you to measure the loyalty of paid users.
Also, by comparing it with ARPU, you can see the percentage of paying users and measure the health of your business.
If the percentage of paying users is high, it can be said that you are monetizing from many users and that your business is stable. On the other hand, if the ratio is small, it means that you are dependent on some paying users, and you will need to take measures to increase the number of paying users.
How to maximize ARPA, ARPU and ARPPU
There are two ways to maximize ARPA, ARPU, and ARPPU: “increase usage frequency” and “promote upselling and cross-selling.” In addition, “improving customer loyalty” is important for the success of these two goals.
①Improve usage frequency
With BtoB SaaS, where you are charged based on the number of times you use the service, onboarding measures that help customers who use the service infrequently and increase their satisfaction will directly lead to an increase in the cost per customer. Customer Success is primarily responsible for the execution part of onboarding.
②Promote upselling and cross-selling
Upsell refers to upgrading to a higher priced plan of the same type of service. Cross-selling refers to getting customers to use additional services related to your service.
In this case as well, improving customer satisfaction through customer success is important for upselling and cross-selling.
③Improving customer loyalty
Improving customer satisfaction, or customer loyalty, is essential for increasing usage frequency and successful upselling and cross-selling. Customer loyalty refers to the trust and attachment that customers feel toward a service.
Customer success is still important in improving customer loyalty. The goal of customer success is a successful experience (a sense of accomplishment) for the customer, and our mission is to accompany them toward that goal.
Proposing the plan necessary for the customer’s success first, building a relationship of trust with the customer, and supporting them until they experience success (a sense of accomplishment) will lead to increased customer loyalty.
Customer loyalty and NPS
NPS is a good indicator to measure customer loyalty. NPS is an abbreviation for Net Promoter Score, which is a management metric that quantifies customer loyalty. NPS has been proven to have a high correlation with business performance in BtoB business, and has been adopted by many companies.
①How to calculate NPS
NPS is calculated by classifying respondents into “Promoters,” “Neutrals,” and “Detractors” based on their scores, and subtracting the percentage of Detractors from the percentage of Promoters.
Specifically, in response to the question “How likely would you be to recommend this service to a close friend, colleague, or family member? Please answer on an 11-point scale from 0 to 10.” Those who answered 9 to 10 points Those who answered 7 to 8 points are classified as “promoters,” those who answered 7 to 8 points are classified as “neutral,” and those who answered 0 to 6 points are classified as “detractors.”
From there, calculate the ratio of promoters and detractors to the total number of respondents, and subtract the ratio of detractors from the ratio of promoters to get the NPS value.
NPS = Promoters (%) – Detractors (%)
②Correlation with NPS performance
NPS was invented by Fred Reichheld of Payne & Company. Furthermore, the company conducted a detailed study of the relationship between NPS and performance for BtoB companies, and the results revealed that promoters have an average lifetime value that is 3 to 12 times higher than detractors. .
Regularly measuring customer loyalty using NPS and increasing customer loyalty is important for increasing usage frequency and success in upselling and cross-selling.
What is “NPS”? About management indicators to measure customer loyalty | MarketTRUNK
summary
- ARPA, ARPU, and ARPPU all mean the average usage cost of a customer. ARPA is the average usage price per account (contract company), ARPU is per user, and ARPPU is the average usage price per paid user.
- For BtoB SaaS, you can use ARPA to calculate the usage unit price based on the number of contracted companies (number of accounts) and understand the average usage unit price that is close to the actual business situation. Also, by comparing ARPU and ARPPU, you can see the ratio of free users to paid users and measure the health of your business.
- There are two ways to maximize ARPA, ARPU, and ARPPU: “increase usage frequency” and “promote upselling and cross-selling.” “Improving customer loyalty” is important for achieving these two goals successfully.
- NPS is a suitable indicator for measuring customer loyalty. It has become clear in BtoB business that NPS has a high correlation with business performance.