Value metrics increase ARPU across all-sized subscription companies including those in both B2B and B2C. As the data suggests, if you aren't using a value metric you're losing out on some of your key revenue growth potential.
On this episode of the ProfitWell Report, John Bonini, Director of Marketing at Databox asks us to look at how value metrics can drive higher ARPU (average revenue per user) at signup. To answer his question, let’s look at the data from just over 5,000 recurring revenue companies.
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Value metrics' impact on ARPU
Love this question John - value metrics as a lot of you know are one of my favorite topics in the world of recurring revenue and pricing. To answer your question, we looked at just over five thousand recurring revenue companies.
To get right to the point - value metrics are the most effective way for you to drive ARPU. A value metric is what you charge for - per user, per dashboards, per 100 visits, etc.
Those companies deploying a value metric tend to have much higher ARPUs than their feature differentiated counterparts in both B2B and B2C with each blended category seeing over 20% higher ARPU.
We’re seeing this trend, mainly because expansion revenue is baked directly into the pricing model where as a customer consumes more and more of what you’re selling, he or she is more than happy to pay more.
In fact, when looking at expansion revenue based on pricing model, those companies deploying a value metric are seeing 40 to 100% higher expansion revenue as a percentage of their revenue than those simply using feature differentiation.
Higher conversion rates at signup
So value metrics are great for ARPU and expansion revenue, but what about the signup element John asked us about? Well, value metrics are actually extremely useful for conversion.
Those individuals encountering a value metric based pricing model are also converting at a much higher rate.
Across different ARPU levels, conversion rates for value metric models tend to be a minimum of 10% better with some interquartile ranges extending to nearly 40% higher.
That’s pretty impressive and the efficiency stems from greater flexibility in upgrading those users over time. You’re not trying to push the user up to a plan they aren’t ready for, because they’re presumably only getting charged for the value they’re using.
Plus, if you throw a free plan into the mix, then a user can be nurtured while using a low amount of your value metric until triggered through increased usage, indicating they’re ready to convert as a customer.
Ultimately, value metrics are the way to go, because they get right to the very root of the recurring revenue model, which is the relationship. If you price based on a value metric, you’re essentially creating a symbiotic relationship with your customer, giving them and charging them for exactly the amount of product they’re looking for - no more and no less.
Well, that's all for now. If you have a question, ship me an email or video to firstname.lastname@example.org and let's also thank John from Databox for sparking this research by clicking here to share and give him a shoutout. We’ll see you next week.
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