How To Calculate Cost of ARR in Sage X3 | Arithmix

Calculating the cost of ARR (Annual Recurring Revenue) is an important task for any business that relies on subscription-based revenue models. It helps you understand the true cost of acquiring and retaining customers, and can inform decisions around pricing, marketing, and customer retention strategies. In this article, we'll explore what the cost of ARR is, when it's valuable to calculate, and how to calculate it.

What Is Cost of ARR?

The cost of ARR is the total cost of acquiring and retaining a customer over the course of their subscription. This includes all marketing and sales expenses associated with acquiring the customer, as well as ongoing expenses related to customer support, account management, and retention efforts. By calculating the cost of ARR, you can determine the profitability of your subscription business and identify areas where you can reduce costs or increase revenue.

It's important to note that the cost of ARR is not the same as the cost of goods sold (COGS), which only includes the direct costs associated with producing and delivering a product or service. The cost of ARR is a more comprehensive measure of the true cost of doing business in a subscription model.

When Is It Valuable To Calculate Cost of ARR?

Calculating the cost of ARR is valuable for any business that relies on subscription-based revenue models, including SaaS companies, subscription box services, and membership-based organizations. It can help you understand the true cost of acquiring and retaining customers, and inform decisions around pricing, marketing, and customer retention strategies.

For example, if you find that the cost of acquiring a customer is higher than the revenue generated by their subscription, you may need to adjust your pricing or marketing strategies to improve profitability. Alternatively, if you find that the cost of retaining a customer is lower than the revenue generated by their subscription, you may want to invest more in customer retention efforts to increase customer lifetime value.

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 the course of their subscription. This can include:

• Marketing and advertising expenses
• Sales commissions and bonuses
• Customer support and account management expenses
• Retention and renewal efforts

To calculate the cost of ARR, you can use the following formula:

Cost of ARR = (Total Expenses / Number of Customers) / 12

For example, if your total expenses for acquiring and retaining customers over the course of a year are $100,000 and you have 1,000 customers, your cost of ARR would be:

($100,000 / 1,000) / 12 = $8.33 per customer per month

This means that the cost of acquiring and retaining each customer is $8.33 per month, on average.

By calculating the cost of ARR on a regular basis, you can track changes in your business's profitability and identify areas where you can reduce costs or increase revenue. This can help you make informed decisions around pricing, marketing, and customer retention strategies, and ultimately improve the overall health of your subscription business.

How Do You Calculate Cost of ARR in Sage X3

Sage X3 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 Sage X3 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 Sage X3, 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 Sage X3 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 Sage X3 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.