5 Proven Ways To Increase ARR for SaaS In 2023

Financing
Mar 23, 2023 · by Alisher Akbarov
5 Proven Ways To Increase ARR for SaaS In 2023

Annual recurring revenue (ARR) is one of the key metrics used to measure the growth of a SaaS business. For any recurring revenue business model, growing ARR would be a priority, especially for those who offer annual contracts. In today’s article, we`ll explore five strategies you can implement right now to increase your annual recurring revenue.

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What is ARR?

Annual Recurring Revenue (ARR) is a metric used to measure the predictable, recurring revenue from customers over a 12-month period. It is the sum total of all subscription revenue from active customers at a given point in time, excluding one-time charges or fees.

How to Calculate SaaS ARR?

Here`s a detailed formula to calculate your SaaS ARR:

ARR formula: Total subscription revenue per year+Additional ongoing value-revenue lost from churned customers

To calculate ARR using this formula, you would add up the total subscription revenue you earned from all of your active customers in a year, add any recurring expansion revenue from those customers who have increased their subscription levels during that year, and subtract the revenue lost from customers who have churned or canceled their subscriptions during that year.

Make sure to include both new and existing recurring subscriptions, as well as any upgraded or downgraded accounts. However, exclude any one-off upgrades or non-recurring charges.

Example:

Renewed annual subscriptions worth $500 000 + new annual customers $300 000 + upgrades $50 000 – churn $100 000 = $750 000.

5 Best Methods to Boost Your SaaS ARR

  1. Reduce Customer Churn
  2. Increase Customer Lifetime Value
  3. Optimize Your Customer Acquisition Cost
  4. Optimize Your Pricing Strategy
  5. Offer Flexible Payment Methods

1. Reduce Customer Churn

Reducing customer churn, or the rate at which customers cancel their subscriptions, can have a significant impact on your SaaS ARR. 

A study by Recurly from January 2021 to July 2022 found that, on average, SaaS companies lose 5% of their customers every month. However, the best-performing companies have a churn rate as low as 2.9%, while the worst-performing ones recorded as high as 7.5%.

This suggests that you need to aim to retain more customers so they generate more revenue over a longer period of time, which is key for achieving sustainable growth. 

Infographics of churn rate statistics. Overall churn rate: 5.57%. Voluntary 3.95%. Involuntary 1.38%. Voluntary vs. involuntary churn: 4.0%, 1.4%. Voluntary churn indicates customer dissatisfaction, while involuntary churn points to payment issues. Reducing customer churn increases SaaS ARR

While some level of churn is unavoidable, there are things you can do to retain your customers.

Sell to the right customer

Instead of trying to sell to everyone, target your proactive sales and marketing efforts toward your Ideal Customer Profile (ICP). For a B2B SaaS business, your ICP should describe a company that is most likely to benefit from your product. 

This can include attributes such as the number of employees, revenue, or industry. By focusing on your ICP, you can prioritize your resources more effectively. Here is an example of a good ICP from Zipline.

A table with ICP example. Title: B2B Ideal Customer Profile ICP Example. Selling to the right customer increases SaaS ARR.

Improve customer onboarding

Make sure customers have a smooth onboarding process that helps them understand the product’s features, benefits, and how to use it effectively. This can reduce confusion and frustration and increase customer satisfaction.

A product tour is a great way to welcome new users and guide them about the key features of your SaaS. This will ensure a smooth, yet automated onboarding experience, that also helps avoid feature blindness. But make sure that they are skippable, since some avid customers might already know their way around your dashboard. Here is an excellent example by Appcues.

Screenshot of Appcues website page showing an example of good customer onboarding

In addition, you should also incorporate tooltips on each feature or a block that provide short a description on what it does or how to use it.  

Screenshot of a website page showing incorporated tooltips in order to increase SaaS ARR.

Offer incentives to your existing customers

B2B space is all about maintaining personalized and long-term relationships with your customers. One way to do this is to launch an incentive program tailored to your existing user base. You can, for example, provide discounts on add-ons, early access to new features, or free trials for upcoming products to your most loyal and long-term clients.

2. Increase Your Customer Lifetime Value 

The cost of acquiring new customers is often higher than that of retaining your existing ones. 

Therefore, here are 3 strategies you can implement right now to boost your customer LTV, that eventually leads to an increased annual revenue. 

Cross-sell and upsell

To give your users more opportunities to invest in your product or service, consider implementing the following: 

-Optional add-ons to pump up the subscription price. 

-Advanced features that can only be accessed through upgraded plans. 

-Creating different subscription tiers based on specific business needs. 

This approach not only offers customers greater flexibility but also creates additional revenue streams from existing users. By doing so, you can foster a sense of loyalty among your customers, while simultaneously boosting your business’s bottom line.

JustCall, for example, does an excellent job scheduling a demo for all their add-ons.

Screenshot of a website page showing available add-ons customers can implement.

Monitor customer reviews

Reviewing what your clients say about your product and timely responding to complains or positive feedback can help you foster stronger relationships with your users. Software review platforms, such Capterra, G2, and TrustRadius can provide valuable user insights and feedback, so do consider getting your business or product listed and make sure you connect with your customers. 

Another effective strategy is to turn positive mentions into case studies, which can be used to highlight your product’s benefits and showcase its success stories. On the other hand, negative mentions can provide valuable insights into areas where your product can improve, allowing you to address any issues and enhance your offering.

3. Optimize Your Customer Acquisition Cost

Reducing CAC provides you with more cash in hand that can be used to invest in SaaS ARR growth. Here are a few tactics you can use to optimize your customer acquisition cost: 

Adjust marketing tactics

To optimize customer acquisition cost you should adjust your marketing tactics. Analyze your current marketing channels to find the most and the least efficient ones. 

Your goal is to identify channels that have an imbalance between the acquisition cost and the customer lifetime value. For example, let’s say acquiring new users through Google Text Ads costs you $500, compared to inbound channels which are around $250. 70% of customers acquired from Google paid ads sign up to your lowest tier, whereas more than half of all customers that came through inbound efforts sign up for your mid-to-highest subscription plans, meaning they bring you more revenue at a lower cost. Of course, there are other important metrics that you should take into account, such as the average churn rate of each acquisition channel, or the time it takes to convert leads to customers. 

Magic, a company that provides outsourcing powered by AI, reported that they reduced their CAC by 23% in a quarter by getting rid of inefficient marketing channels. In addition, you can try to monetize your customers, and increase your sales funnel conversion rates to lower customer acquisition cost.

Retarget your website traffic

Retargeting web visitors is a powerful digital marketing strategy that can cost you less than targeting a cold prospect. Essentially, retargeting involves showing targeted ads to people who have already visited your website or interacted with your brand in some way. 

There are a number of powerful tools and platforms available that can help you implement a successful retargeting campaign, including Google Ads, Facebook Ads, AdRoll, Criteo, and Perfect Audience. These platforms offer a range of retargeting options and can help you tailor your campaigns to reach the right audiences at the right times.

4. Optimize Pricing Strategy

Consider experimenting with different pricing strategies to see what works best for your business. The job here is to optimize your SaaS pricing to find a balance between profitability and a good customer experience.

For most SaaS businesses, it is better to have multiple price levels with three or four distinct tiers. If you haven’t implemented it yet, here is the sign you’ve been waiting for. 

Motivational graphic art that says Do it Now

There is a simple design tactic to subtly direct prospects and users to the plan you want to sell most. 

  • First, place the recommended plan in the center of the pricing table. 
  • Next, make it more visible – slightly larger than others or use a different color to highlight it. 
  • Last, use badges such as “Most popular” or “Recommended” to draw the viewer’s attention to the desired plan.
Screenshot of Xero website pricing page. Example of pricing page design to increase SaaS ARR.

You can read more on How to price your SaaS product and When and how to raise prices for your SaaS product in our blog.  

5. Offer Payment Flexibility To Promote Your Annual Plan

Payment flexibility can make annual contracts more affordable for potential customers and increase your conversion rate. By allowing customers to choose from a variety of payment plans, you can better accommodate their customers’ unique needs and financial situations. According to Zuora, the more payment methods your company has, the higher your revenue growth rate.

Infographics of dependance of number of payment methods on revenue growth. Offer payment methods to increase SaaS ARR.

Apart from providing multiple billing options, consider implementing a software financing program, in the form of Buy Now Pay Later, where your customers can sign up for annual, but pay monthly in installments over a fixed period of time. This provides your customer with a secured runway,  whereas it pushes your ARR, since you get paid upfront, if you partner with B2B SaaS BNPL vendors such as Comfi

With Comfi, your customers can split payments into 12 installments over 12 months, while you get the whole sum upfront within 7 days.

This will also increase your sales velocity and help you close annual deals faster. 

Let’s talk your revenue together
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Amal Abdullaev

Co-founder at Comfi

We hope that the strategies we provided above will help you grow your SaaS business. If you are a bootstrapped B2B startup, check out this guide:

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Freebie

5-Step Guide on Revenue Growth for Bootstrapped & Seed Stage Startups in 2023
Alisher Akbarov

Alisher Akbarov

Co-founder, COO

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