How to maximize the ARPU for your business.

It starts with measuring it the right way.

In an ideal world, each transacting customer would be equally valuable to a business. But we know that isn’t the case, and it can’t be. (image credit)
With referrals, Dropbox went from 100,000 to 4,000,000 users in 15 months.

HEALTHY LTV/CAC

Having a healthy LTV/CAC ratio determines the ability of the business to survive while scaling up. It helps justify spending hundreds of thousands of dollars into acquiring customers. If each customer you are acquiring is going to end up costing your business money, then the whole concept of building a business goes for a toss. After all, businesses are in the business of making (and not losing) money.

ARE ARPU AND LTV THE SAME?

It is perfectly understandable why you would think that way; they are indeed metrics that are closely related to each other. But while they are related, they are not the same. Not by a far stretch.

HOW SHOULD YOU TRACK ARPU?

Let us answer another question first. How do you track CAC? Do you simply divide your total spend into customer acquisition activities by the number of customers acquired? Or, are you measuring the CAC for different marketing channels and campaigns and activities individually? More often than not, businesses are doing it the latter way, and that is the right way of doing it. This helps you identify the marketing channels and campaigns that are working for you, the ones that make sense and weed out the ones that aren’t. That is how Dropbox knew they needed to get rid of the traditional ads if the business was to survive.

WHY ARE WE EVEN TALKING OF MULTIPLE ARPUs

Because our business will have a bunch of different customer types. Clusters of consumers that act similarly to each other, and yet completely different from a different cluster. That is the reality.

SO DO YOU DITCH THE CHANNELS WITH LOW ARPU?

Well, that is quite a subjective question, to be honest. I, for one, have never been much in favor of ditching a channel completely because it is not yet performing at the optimum/desired benchmark. What I would do is reduce its contribution to the overall pool and focus a majority of my resources and bandwidth on the channels that are performing exceptionally, and allocate a restricted resource pool to the low performing channels to experiment and see if their performance can be improved.

That’s it for today, see you tomorrow!

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Abhishek Anand

Helping businesses grow 10x faster, and scale efficiently. Top Writer — Quora, Medium. Drop in a line if you’d like help with yours. mail@abyshake.com