In the first four phases of this sales funnel series, we covered the significant aspects of the AARRR framework – Acquisition, Activation, Retention, and Referral of the users. The series is used with an aim to scrutinize each stage of the AARRR framework making it more understandable and adaptable for businesses of all sizes. Now in this fifth phase of the sales funnel series, it’s time to concentrate on the last metric of the AARRR framework- Revenue.
Revenue – Generating revenue from users
This is an important stage of the funnel where you start generating the revenue. For a consultant, this would be when you get the signature on the contract, and for a SaaS company, this would be when your customers make their first payment for the subscription. Whatever it is, but it is surely not the end of the customer journey. Don’t stop here; you are only 4/6th of the way through the funnel. Be very careful at this stage as it can have an impact on the bottom line of your business. You need to continue delighting your customers by offering attractive annual plans and best-in-class support. 86% of customers will pay more for better customer experience.
Once someone makes the payment, your job gets much more comfortable as you know who your customers are and what they need. It is cheaper to drive a repeat purchase from a present satisfied customer then acquiring a new one. Businesses have a 60 to 70% higher chance of selling to an existing customer while the probability of selling to a new prospect is only 5% to 20%.
Few mistakes and you will get demoted to the acquisition stage of the funnel where you will have to start it all over again with a new prospect. 33% of Americans say they’ll consider switching companies after just a single instance of poor service.
How is revenue linked to the other AARRR metrics?
By now you must have realized that none of the AARRR metrics are self-standing, that is why we look at it as a framework. For a company to succeed, it is mandatory to do well at all the stages of the funnel.
Let us see how revenue is affected by the other metrics of the AARRR framework:
Your revenue will grow with each new customer, but the cost will go up faster. High acquisition cost decreases the net revenue of the company; the more you spend, the less profit you earn. What is the point of getting $300 from a sale when your customer acquisition cost was $250? Therefore, it is necessary to optimize your acquisition strategies and invest in the channel that introduces you to lucrative opportunities.
Wrongly acquired lead is like that piece of a jigsaw puzzle that doesn’t fit. You put in all the efforts to complete the puzzle and in the end realize your efforts were in vain because of a single incorrect move. Similarly, during sales activation, a wrong lead can lead to a waste of time, money and resources. They might abandon you at any stage of the funnel, which directly affects the revenue of your business. Read how to activate the right people here.
“Retention is the single most important thing for growth”- Alex Schulz
If people are unsubscribing your service in a few months or not returning to your store, then how will you increase your revenue? You are just stuck in a vicious circle of acquiring and losing customers. Retention in the only way to reduce churns and boost your revenue. Increasing customer retention rates by 5%, increases revenue by 25% to 95%.
Turn your existing customer into a referral magnet to increase your revenue in a short time. There should be some USP of your product that motivates your users for recommending it to their networks. It is difficult to rely on the customers coming from random sources for steady revenue growth; they might quit at any point. However, the ones referred by a satisfied customer are more likely to stay loyal. Referred customers have a 16% higher lifetime value.
Analyze revenue to find out what’s best for you
Using various advanced reporting tools, you can create insightful revenue reports to see how much money you made in the last quarter. While looking at your revenue report ensure you dig deeper and find the source of revenue to know what you need to do to expand your profit margins.
Break down the revenue to understand where it is coming from:
Compare the performance of different channels and see from where you are getting maximum revenue. This will help you in spending your marketing budget smartly.
Track your campaigns and identify the best-performing ones that are generating revenue. Optimize and re-run those campaigns to attract high-quality leads and convert those leads into sales.
Which offers or discounts are encouraging prospects to invest in your product? Determine when you need to give these discounts or offers to influence buying decisions.
Keep an eye on the customer with the highest lifetime value to understand how they buy and what they prefer. Scrutinizing you valuable customers will aid in improving your sales process for embracing revenue growth.
How can you increase revenue?
Any entrepreneur will want its business to bring in more money. But the question is how? The best way to see the revenue graph going up is by increasing your customer lifetime value (CLV) and decreasing your customer acquisition cost (CAC).
Customer lifetime value
It is the estimate of the average gross revenue that a customer generates over the entire lifetime at your company. The longer the lifespan of a customer, the more revenue inflow.
To increase the customer lifetime value, you need to-
- Listen to your customer and make constant improvements based on their feedback
- Keep innovating and adding new features to provide a better experience than your competitors
- Keep engaging your customers with informative newsletters and content
- Reward your loyal customers with special offers and discounts
Customer acquisition cost
It is the amount you spend on acquiring a new customer which includes the cost of marketing, sales, traveling, and meetings.
For reducing your acquisition cost, you need to-
- Identify and target the right prospects
- Optimize your sales funnel
- Reduce human touch by automating most of the processes
- Conduct A/B test on your landing pages, call to actions, trial processes and website content
If you have given attention to all the five stages of the AARRR framework, then you won’t face any difficulty in generating revenue. As mentioned above all the stages are interlinked. So, use the right strategies and take every step wisely to avoid hurdles on the way to success.