The old advice in sales is that it is easier to sell more to your existing customers than to find new ones. This is the essence of the revenue per customer metric.

Three factors generally drive the revenue per customer:

Average sales price per customer;
Success in cross-selling;
Ability to monetize free users through ads or other means.

There are numerous ways to affect each of the factors, and in fact, there exists a whole industry focusing on maximizing revenues per customer. Still, the key utility of the metric is to avoid the trap of empty user growth, which brings no added benefit to the company. By keying in on keeping your revenue per customer high, one can rest easy that the customers value the products and the business model is working.

Definition of a customer

When using the metric, it is beneficial to define what the meaning of a customer is clearly. For paid single-user software, this is simple. The difficulty comes when either multi-user or free-to-use customers are involved. In the case of multi-user licenses, which are usually used in a corporate setting, defining the revenue per customer as revenue per end-user or revenue per company is possible. Our recommendation would be to align the definition of the user to the billing unit. For instance, if the price that corporate clients pay is mostly linked to the number of end-users, revenue per customer should be formulated as “revenue per end-user”. If the billing is tied to corporate license or loosely based on user count (license for under 100 users), then the metric should be formulated as “Revenue per Company”.

In the case of free users, the issue is likewise messy. In general, our recommendation is to formulate the metric as “revenue per user that is being monetized”. This would mean that if free users are monetized through ads or otherwise, they should be included. On the other hand, if the free users are not being monetized, they are yet to become customers, and their usage can be viewed as part of the marketing process that hopefully leads them to become paying users.

Example

Company A was benchmarking its success to a key competitor. From public information, the company learned that they were far ahead in user count, but regardless, they were not making more sales. When benchmarking the business models, it was revealed that the competitor offered various add-on functionalities that complemented the core offering. These add-on functionalities brought the competitor’s product on the same footing as Company A’s offering. This seemed to indicate that the competitor effectively reached a higher price for a comparable product by offering a base product with a price slightly undercutting Company A but later selling expensive add-ons. Engineering and sales teams hatched a strategy to modularize the product so that specific niche, but high value-adding, parts could be sold separately to those who needed them.

Revenue Growth	Is your business growing?
Revenue per Customer	Are you getting the most out of your customers?
Revenue per Employee	What is the employee efficiency in terms of revenues generated?
Scope Change	How good is your Product Backlog Item prioritization?
Sprint Goal Success	Is the team cooperating in achieving a common goal?
Velocity	Is your product team stable?
Velocity Fluctuation	Are you context switching?

Metrics Library