How To Calculate Cost of ARR in BQE CORE | Arithmix

Calculating the cost of ARR (Annual Recurring Revenue) is an essential task for any business that relies on recurring revenue streams. By knowing the cost of acquiring and retaining a customer, businesses can make informed decisions about pricing, marketing, and customer retention strategies. In this article, we'll explore what cost of ARR is, when it's valuable to calculate, and how to calculate it.

What Is Cost of ARR?

Cost of ARR is the total cost of acquiring and retaining a customer over a specific period. It includes all the expenses associated with marketing, sales, and customer retention efforts. The cost of ARR is usually expressed as a percentage of the total ARR generated by the customer over the same period.

For example, if a customer generates $10,000 in ARR over a year, and the cost of acquiring and retaining that customer is $2,000, the cost of ARR is 20% ($2,000/$10,000).

When Is It Valuable To Calculate Cost of ARR?

Calculating the cost of ARR is valuable for businesses that rely on recurring revenue streams, such as subscription-based services, SaaS companies, and membership-based organizations. By knowing the cost of acquiring and retaining a customer, businesses can make informed decisions about pricing, marketing, and customer retention strategies.

For example, if the cost of acquiring and retaining a customer is higher than the revenue generated by that customer, the business may need to adjust its pricing or marketing strategies to improve profitability. Alternatively, if the cost of acquiring and retaining a customer is lower than the revenue generated by that customer, the business may want to invest more in marketing and customer retention efforts to acquire more customers.

How to Calculate Cost of ARR

Calculating the cost of ARR involves adding up all the expenses associated with acquiring and retaining a customer over a specific period. These expenses may include:

• Marketing expenses, such as advertising, events, and content creation
• Sales expenses, such as salaries, commissions, and bonuses
• Customer retention expenses, such as customer support, account management, and loyalty programs

Once you have a total of all these expenses, you can divide it by the total ARR generated by the customer over the same period to get the cost of ARR as a percentage.

It's important to note that the cost of ARR may vary depending on the customer segment, product or service, and marketing and sales channels. Therefore, it's essential to calculate the cost of ARR for each customer segment and product or service to make informed decisions about pricing, marketing, and customer retention strategies.

In conclusion, calculating the cost of ARR is an essential task for any business that relies on recurring revenue streams. By knowing the cost of acquiring and retaining a customer, businesses can make informed decisions about pricing, marketing, and customer retention strategies. To calculate the cost of ARR, add up all the expenses associated with acquiring and retaining a customer over a specific period and divide it by the total ARR generated by the customer over the same period.

How Do You Calculate Cost of ARR in BQE CORE

BQE CORE itself isn’t naturally geared towards letting you calculate complex metrics like Cost of ARR. As an alternative, teams typically use products like Arithmix to import data from BQE CORE and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like BQE CORE, combine it with data from other systems, and create calculations like Cost of ARR.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Cost of ARR in Arithmix

Calculating metrics like Cost of ARR is simple in Arithmix. Once you've created your free account, you’ll be able to import your BQE CORE data, and use it to create natural language formulas for metrics like Cost of ARR.

Arithmix is designed to give you the power to build any calculations you want on top of your BQE CORE data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.