When it comes to making money, one of the most important things to track is your average revenue per user or ARPU. Like most financial metrics, ARPU can help you assess the performance and profitability of a company or product. But what is ARPU?
ARPU (Average Revenue Per User) is the average income generated by each user or subscriber within a given period. It’s the total revenue generated from users divided by the number of users in that period. For example, if a company earned $50,000 from 100 users in a month, its ARPU would be $500.
This post will explain the definition of ARPU, how to calculate it, and why it’s crucial for businesses to track. Keep reading to learn everything you need to know about ARPU.
ARPU means Revenue Generated Per User
ARPU, or average revenue per user, is a metric used by businesses to measure the average income generated from each user. The metric can be calculated by dividing a company’s total revenue by the number of its users over a specific period.
ARPU is often used in industries with recurring revenue streams, such as:
- Subscription-based services: streaming platforms, software-as-a-service companies
- Mobile telecommunications: phone plans, data plans
- Gaming: in-app purchases, subscription fees
Calculating and tracking ARPU can give businesses essential insights into the financial health and growth potential of their customer base.
A high ARPU may indicate that a business is successful at monetizing its users and has room to expand its user base. On the other hand, a low ARPU may suggest that the company needs to reassess its pricing strategies or find ways to increase revenue from existing users.
Here’s an excellent YouTube video roundup of what ARPU means for your business:
How to calculate the ARPU for your business
Now that you know what ARPU is, let’s dive into how to calculate it for your business.
- Determine the period you want to measure (monthly, quarterly, annually).
- Calculate your total revenue over that time.
- Divide that number by the total number of users during the same period. That will give you the average revenue per user for that period.
For example, if a mobile telecom company had total revenue of $10,000 in a month and 1,000 active users, the company’s ARPU for that month would be $10.
Note: It’s important to note that some industries may calculate ARPU slightly differently, as not all industries have the same types of revenue streams. For example, a mobile telecommunications company may only include voice and data plan revenues in its ARPU calculation, while a gaming company may also include in-app purchases and subscription fees.
ARPU can also be calculated for specific segments of users, such as by device type or geographic location, to give businesses more granular insights into their revenue generation strategies.
In addition, ARPU can change over time as a company’s user base grows or shrinks and its revenue increases or decreases. Tracking ARPU over multiple periods can give businesses a better understanding of the overall trend in their revenue generation.
Why ARPU is important for your businesses
Calculating ARPU can help businesses understand the profitability of their customer base and make strategic decisions about pricing, marketing, and product development. As this journal article points out, you can also use ARPU to compare the performance of your business against competitors in the same industry.
Here’s a rundown of some of the critical insights ARPU can provide for businesses:
The ARPU shows your business monetization potential
ARPU measures the average revenue generated per user, giving companies a clear picture of their monetization potential.
If a business has a high ARPU, it means it’s effectively monetizing its customers and potentially has room to increase prices or add additional value-adding features. On the other hand, a low ARPU may indicate that the business needs to reevaluate its pricing strategy or add more products and services to its offering.
ARPU can help with customer acquisition and retention
By understanding the average revenue generated per user, businesses can make informed decisions about acquiring and retaining customers.
For example, a high ARPU may indicate that it’s worth investing in customer acquisition strategies to attract more high-value users. On the other hand, a low ARPU may suggest focusing on retaining existing customers and improving their lifetime value.
ARPU can help identify growth opportunities
Comparing ARPU across different customer segments or product lines can reveal potential growth opportunities for a business. For example, if one segment or product has a significantly higher ARPU than others, the business may want to invest more resources in that area to drive growth.
Similarly, tracking changes in ARPU over time can give businesses insights into the overall trend in their revenue generation and help inform strategic decisions.
ARPU can provide benchmarking insights
Comparing your company’s ARPU with competitors in the same industry can give valuable benchmarking insights. A high ARPU compared to competitors may indicate that the business is effectively monetizing its users, while a low ARPU may suggest the need to reevaluate pricing or product strategy.
For instance, if a gaming company has a significantly lower ARPU than its competitors, it may want to consider raising prices or adding in-app purchases to its offering.
Caveat: ARPU isn’t the only metric to consider when evaluating a business’s performance. It’s essential also to consider factors like customer acquisition cost and churn rate. Before making any strategic decisions based on ARPU, you should consider the bigger picture and all relevant metrics.
For example, it wouldn’t make sense to focus on acquiring high-value customers if they also have a high churn rate and cost the business more in the long run.
For more tips on increasing your business revenue, check out The Sales Acceleration Formula (available on Amazon.com). This guide provides insights into data-driven sales approaches and strategies for growing your customer base, making it a valuable resource for maximizing ARPU.
ARPU measures the average revenue generated per user and can provide valuable insights for your business. It can help with making strategic decisions about pricing, customer acquisition and retention, and identifying growth opportunities.
However, when calculating ARPU, consider the varying value of different customer segments as well as potential seasonal fluctuations in revenue. Additionally, you shouldn’t rely on ARPU as a sole metric for success; instead, use it in conjunction with other key metrics to gain a complete picture of your business’s performance.