Revenue Projection is an expected billing level for existing customers by month for the next 12...
ARPA (Average Revenue Per Account) Defined
Average Revenue Per Account AKA ARPA is a measure of single accounts total annual billing/revenue.
A single account could be a corporate with multiple subsidiaries and it could use the service providers products and services from different divisions/business groups/subsidiaries.
ARPA is a figure representing the full annual revenue.
Winning higher ARPA with customers is a path towards strategic customer relationships, organic growth and profitability. Higher ARPA at annual level makes an impressive impact on long term Lifetime Value.
Gaining growth in ARPA can be accomplished by:
- Upselling more and higher share of wallet with products the customer is already buying
- Cross-selling offerings that the customer is not currently buying but has potential to buy (See: penetration)
The challenge with ARPA as a financially relevant KPI figure alone, is that it doesn't give any view towards future prospects. It only gives you a current value figure which can be a source of Blind Spots. This is why ARPA should be analyzed in connection to Penetration and Potential.
ARPA: MANAGEMENT AND SEGMENTATION CONSIDERATION
Sales and businesses in general are mostly managed with financial data and goals and priorities are often defined based on current situation. For customer care model resourcing management and development, majority of companies have adopted current value based solution.
This ARPA driven approach feels incredibly intuitive, which is probably why current value is dominating in the companies segmentations.
A -customer represents a strategic account managed with a KAM and account team.
B-customer is often also managed with a named salesperson, but doesn't have the level of resources and systematic management as A -customers.
The challenge with this approach is that, it creates blind spots. These two customers (below) are both A-customers, but have dramatically different prospects:
These two A-accounts are different. The blind spot also has to do with new customer acquisition targeting and the development of C and D-accounts. Their current ARPA can be low, but their Potential could be worth a million or more.
Connecting ARPA with Potential gives you a more actionable view for management consideration.
The customers in the bottom right corner have low ARPA now, but strong potential for future growth. This combination is actually rather valuable source of segmenting and resourcing insights as well as budgeting and goal setting. The combination of current state and prospects allows us to better evaluate how do we resource and define care-models for different types of customers.
In case the company is currently using current value segmenting and set equal goals for all sales representatives, this could easily lead to unfair outcomes. Actually, according to Salesforce's State of Sales 2023 research, the most important reason for salespeople to leave their job, is unrealistic goals and expectations. If the company gives an X% growth goal for all sales people, at individual sales person level the realities in meeting those goals can be dramatically different:
Salesperson A: Mostly manages Farming/Low growth accounts that have no growth potential. The best he/she can do, is to retain business or try to slow down decline in them. If this person gets a 10% growth goal for 2024, he/she is likely to leave the company
Salesperson B: Mostly manages Growth and Strategic accounts. He/She has multiple up-sell and cross-sell opportunities to meet goals. Projection for sales is likely to be X% on the positive side. He/she is likely to get great bonuses.
ARPA alone can be used as a KPI, but it must be connected to other realities. As a single figure it is a dangerous indicator that easily leads to Blind Spots and false expectations.
NEXT: Take a look at other influencing factors:
- ARPA (Average Revenue Per Account)
- Revenue Projection
- Offering Risk
- Offering Readiness (Best Next Action)