What is average revenue per user?
Average Revenue Per User (ARPU) is a performance metric that calculates the average revenue a company earns from each customer within a specific time frame.
Synonyms
- Average Revenue Per User (ARPU)
- Average revenue per customer (ARPC)
- Average revenue per paying user (ARPPU)
- Average revenue per daily active user (ARPDAU)
Why is average revenue per user important?
ARPU is a vital metric because it shows how much value each customer brings. By looking at ARPU, companies can check their financial health and see if their pricing strategies are working effectively. It also helps them spot trends, measure the effect of new products or services, and see how well their marketing or sales efforts are doing.
In retail, it is especially useful in tracking how much each shopper is spending on-site and finding growth opportunities such as pricing changes, upselling or cross-selling efforts and reducing churn rates.
How to calculate average revenue per user
To calculate ARPU, use the following formula:
ARPU = Total Revenue / Number of Users
In this equation, “Total Revenue” refers to all income generated over a specific period, such as a month or quarter. The “Number of Users” represents the total customer base or active subscribers during that same period. For example, if a business earned $100,000 from 1,000 users in a month, the ARPU would be $100. Variations of this calculation exist, depending on industry practices. For instance, retailers may calculate ARPU monthly or annually, while SaaS companies often use ARPU to assess long-term subscriber value.
Key differences between ARPU and other metrics
While ARPU measures revenue per customer, other metrics provide additional insights. Customer Lifetime Value (CLV) assesses the total revenue a customer is expected to generate over their entire relationship with a business.
Average Order Value (AOV) focuses on the average amount spent per transaction. Churn Rate tracks the percentage of customers who stop using a service. Together with ARPU, these metrics offer a more comprehensive view of business performance and customer behavior.
Frequently Asked Questions (FAQs)
How often should ARPU be calculated?
ARPU is typically calculated on a monthly or quarterly basis, depending on the business model. For subscription-based services, monthly ARPU is common, while longer periods may be used for industries with less frequent transactions.
What is a good ARPU for my industry?
ARPU varies by industry. For example, telecom companies may have a lower ARPU due to a large user base, while SaaS businesses often aim for a higher ARPU through premium offerings. Benchmarking ARPU against industry standards helps determine whether your ARPU is competitive.
Can ARPU decrease even if total revenue increases?
Yes, ARPU can decrease if the number of users grows faster than the revenue, indicating lower revenue per user even as total revenue rises.
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