Top 5 Ways to Strengthen ARR Growth for the Long Run
Annual recurring revenue (ARR) is an essential subscription metric that shows how much recurring revenue you can expect, based on your yearly subscriptions. Strengthening ARR growth, therefore, is an objective of every recurring revenue business. In the early stages of building ARR, success usually comes from a hyper-focus on pure customer acquisition and market share. Over time, however, other strategies need to be adopted to drive ARR growth.
We are working with several high-growth clients on their ARR diversification strategies. Steve Terry, Managing Director of our Continuous Customer™ Advisory Practice at Navint, has these recommendations for strengthening ARR growth:
1. Focus on the customers’ perspective of value over time
Often we are so focused on the initial sale, the velocity of the sale, and the volume of initial sales that we inadvertently attune our thinking (and processes and sometimes technologies) to the initial value a customer receives from our products or services. Sure, we might look at metrics like churn and measures of customer lifetime value (CLTV), but often it’s from an inward view of the value that we as a business get from the customer.
In a recurring revenue business, our customers expect us to know them; to keep track of how they engage with our products, services, and support; to help them succeed with their subscribed services; and to offer new alternatives that are personalized to their wants and needs. When we truly understand what the customer values throughout their lifecycle, we can meet or exceed these customers’ expectations and confidently develop ARR growth strategies beyond the initial sale.
2. Map customer value through the Continuous Customer™ journey optic
Our customer relationships are fluid, continuous, and connected in a recurring revenue business. In a continuous customer journey, five types of customer transactions (CRUAT) occur:
- “Create” for the initial sale
- “Renew” for extending the subscription after expiration of the initial term
- “Upgrade” for upgrading to more feature-rich product or service alternatives
- “Add-on” for adding complementary products or services
- “Terminate” for the potential salvage point of keeping a customer just before he or she cancels
We need to offer the right products/services at the right time, and for the right price, in order to keep our customers continuously engaged with our company. By mapping the customer value to the various touchpoints of a Continuous Customer™ journey, we build a blueprint for strengthening ARR growth.
3. Get creative with your offerings
We are all guilty of constraining new pricing and packaging by our existing processes, technologies, and even by our current offerings. Ideation is a critical part of the revenue optimization process, so we need to step outside of these operational constraints.
We need to think about our products/services at a more atomic level, or broken down into discrete components. This allows us freedom to combine elements into distinct offerings that change to meet customer needs and consumption behaviors over time. As we better understand what our customers value, we’re able to get creative about not only our packaging, but our pricing as well. As Jeff Wissink recently wrote in his blog The Secret to Subscription Pricing, “The ability to package your service offerings to diverse customer wants and desires allows you to set subscription pricing based on the value that the customer hopes to derive from your service.” The ability to package and price based on what our customers value is among the most important tactics in strengthening ARR growth.
4. Develop reinforcing offerings that combine to create unique value
You may have heard of the concept of making your products “sticky.” Sticky products deliver consistent value such that users are compelled to use them regularly—essentially becoming habit in a user’s everyday life. Reinforcing offerings are similar: it’s about embedding relevant offerings that go together so well that they are hard to separate, and they actually reinforce each other.
A great example of reinforcing offerings comes from a company called Beachbody. They got their start in the late ’90s and are the creator of the US’s most popular fitness and weight-loss solutions, including the P90X® Series and INSANITY®. As they pivoted their business to a recurring revenue model of on-demand fitness, they also began to add physical goods to their offerings. They now sell nutritional supplements and workout gear, along with their digital fitness workouts. And to really reinforce an individual customer’s success, Beachbody also has over 350,000 independent coaches and an online community that can help subscribers along their fitness journey. It’s a win-win for both the subscriber and Beachbody, who in 2015 reached $1 billion in gross sales.
5. Build your operational backbone for scale and precision throughout the customer lifecycle
When companies think scale, they often think about velocity and volume. But scaling for ARR growth includes a third “v”—variety. We need our processes and systems not only to enable the first-time buying experience, but also to provide pathways for upgrades, add-ons, and renewals throughout the customer lifecycle. These pathways must provide customers with a superior experience and occur without internal operational friction. We want to nurture our customers through these events, and we need timely and accurate information to inform the path.
Supporting a holistic, continuous customer journey usually means changing business processes and systems. Today, at least, no single system can really own the complete lead-to-renewal pathway with all the various touchpoints, so be cautious of vendors who claim they can be the only source of truth for the customer. And while technology plays a role in the tactics of building our operational backbone, don’t start with it. We first need to define the experience we want to create, look at the pathways we need to enable, and then determine the technology we need to make it happen.
Strengthening ARR Growth
As our customers evolve, we must adapt to meet their needs with offers that are timely, suitable, simple, and valuable—from the customer viewpoint. This is how we strengthen ARR growth.
While it sounds straightforward and fairly easy, we know it’s not. We help our clients navigate the strategic and operations challenges of driving ARR growth. We have tried-and-tested playbooks to help you design a frictionless methodology of selling and modifying customer relationships across the customer lifecycle and throughout the entire business operation. If you would like to talk more about your specific situation, we are happy to connect.