Growth through increased ARPU

Growth can come from acquiring new customers – but when they say on average it costs 6 times the amount to acquire a new customer than to retain an existing one, a more effective growth strategy could be to look at the additional value you can offer, and in turn receive, from your existing customer or subscriber base.

ARPU, or average revenue per user (or unit) is a metric used by many subscription businesses to measure of the revenue generated per user or unit, or in other words, how much each of your customers is spending. It’s a particularly useful metric for businesses who are looking for revenue growth from their existing customer base.

Some strategies to increase ARPU include:

Up-selling is the practise of selling a comparable but more premium, or higher end version of the product to your customer. Generally this product or service though more expensive, will include additional benefits that may better meet their needs.

“Would you like fries with that?” – arguably one of the most successful upselling examples of all time. Amazon’s “recommendations for you” feature is another good example of effective cross-selling in action. This is the process of capturing additional customer spend at the point of purchase through add-ons and bundles which represent more value for the customer. When implemented effectively, suggesting complementary products that enhance the customer’s experience will position your company favourably in the eyes of your customer; alert your customer to products they may not have known you offer, and increase ongoing revenue.

A great example of a company growing APRU through increased frequency of purchase is Tontine – who introduced expiry dates to their pillows to prompt customers to replace their pillows every 2 years, which may otherwise have been used for far longer. Dollar Shave Club has used a similar approach through selling razors via subscription.

Increasing ‘share of wallet’ requires in-depth knowledge about your customer and their needs, including how and why they spend within your category. Customers may purchase the same or similar products from multiple suppliers based on factors such as price, or convenience – for example, picking up a cold bottle of wine from a bottle store on the way home versus buying a case of the same wine online, to be delivered, and consumed later. If you know why your customers buy the way they do, you can adjust your offering to better meet your customer needs, and capture more of your customers spend within a category.

A key metric to monitor closely for all subscription businesses is customer churn. Churn can occur due to a range of different factors, such as price, convenience, perceived value or competitive activity (switching). Involuntary churn can also occur – for instance a customer failing to update their current credit card details – and subsequently failing to renew – despite being happy with the service. It is important to have strategies and processes to proactively address potential churn risks before they occur.

Underlying the success of every successful subscription company is a better understanding your customers and their needs. In order to best execute any number of these strategies, it is necessary to have the right underlying business infrastructure, such as customer relationship management and billing systems. Your systems need to be flexible and scalable enough to roll out, test and tweak each or a combination of these strategies to determine what works best for your subscription business.