How To Calculate Cost of ARR in Freshbooks | Arithmix

Calculating the cost of ARR (Annual Recurring Revenue) is an important step in understanding the financial health of your business. By determining the cost of acquiring new customers and retaining existing ones, you can make informed decisions about your marketing and sales strategies. In this article, we will discuss what cost of ARR is, when it is valuable to calculate it, and how to calculate it.

What Is Cost of ARR?

Cost of ARR is the total cost of acquiring and retaining customers over a period of time. This includes all expenses related to sales and marketing, such as salaries, commissions, advertising, and software tools. It also includes the cost of customer support and retention efforts, such as customer service salaries and software tools.

Calculating the cost of ARR helps you understand the profitability of your business. If the cost of acquiring and retaining customers is higher than the revenue generated from those customers, then your business is not profitable. By calculating the cost of ARR, you can identify areas where you can reduce costs and increase revenue.

When Is It Valuable To Calculate Cost of ARR?

It is valuable to calculate the cost of ARR when you are looking to make informed decisions about your marketing and sales strategies. By understanding the cost of acquiring and retaining customers, you can determine the most effective ways to allocate your resources.

For example, if you find that the cost of acquiring new customers is too high, you may want to focus on retaining existing customers instead. This could involve investing in customer support and retention efforts, such as improving your product or service, offering loyalty programs, or providing personalized support.

How To Calculate Cost of ARR

To calculate the cost of ARR, you need to determine the total expenses related to acquiring and retaining customers over a period of time. This can be done by adding up all sales and marketing expenses, as well as customer support and retention expenses.

Once you have determined the total expenses, you can divide it by the total ARR for the same period. This will give you the cost of acquiring and retaining each dollar of ARR.

For example, if your total expenses for acquiring and retaining customers over a year are $100,000 and your total ARR for the same period is $500,000, then your cost of ARR is 20%. This means that for every dollar of ARR generated, it costs you 20 cents to acquire and retain customers.

By regularly calculating the cost of ARR, you can track changes over time and make informed decisions about your business strategies. It is important to remember that the cost of ARR is just one metric to consider when evaluating the financial health of your business. It should be used in conjunction with other metrics, such as customer lifetime value and churn rate, to get a complete picture of your business performance.

How Do You Calculate Cost of ARR in Freshbooks

Freshbooks 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 Freshbooks 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 Freshbooks, 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 Freshbooks 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 Freshbooks 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.