The following chart shows that the steeper the ARPU, the better for your business.
To summarize what’s shown here, it’s ideal for a software company to make as much money as possible from each customer during the period the customer is a customer. This amount is also that customer’s LTV. It’s ideal to lower both your cus- tomer acquisition costs, and your cost of doing business over a customer’s lifetime (salaries, office space lease and so on).
In getting a start-up off the ground and planning for growth, you should give some thought to whether you should concentrate on being revenue-positive, or cash-flow-positive. To start off revenue-positive, you might need to take out a loan from a bank, find some investors or borrow from Mom and Dad. (The last option is one you really ought to avoid!)
It’s almost always true that you can create a more stable and low-stress company culture if you concentrate on being cash-flow positive from the start. That way you can pay your debts when due, and everyone gets their salary on time. Later on you can turn your focus to being revenue positive – as long as you always make sure you have all the cash you need to pay current bills.
For more on this particular point, pay a visit to David Skok’s great blog, www.forentrepreneurs.com. It’s full of fascinating posts, ideas, diagrams and discussions on this and many other subjects.