Average Revenue Per User
What is Average Revenue Per User?
Average Revenue Per User (ARPU) is a company's generated revenue that is averaged across all users and reported as a monthly or yearly value. ARPU is a top-level metric, that can easily be normalized and is often cited as a comparative measure between similar companies.Alternate names: Average Revenue Per Unit, Average Revenue Per Subscriber
How to calculate Average Revenue Per User
Consider a B2C SaaS company has 1000 individual customers and is generating $200,000 in revenue per month, Average Revenue per User would be; ARPU = $200,000 / 1,000 = $200 per user (monthly)
More about this metric
Average Revenue per User is a core metric for determining customer value to the organization and developing an understanding of customer behavior. Use it to determine behavior-based customer segments (best/growth/rest) and then develop segment-specific strategies – to recognize and appreciate best customers, grow the middle, and minimize effort and investment on the low-value customers. When tracking ARPU, it is helpful to group customers into key behavior-based segments, such as quartiles or deciles, based on their average (annual) spend, then determine your best, growth opportunity, and least valuable customers.
Note that ARPU describes the average revenue for all users - paying or not. This is particularly relevant to companies with a freemium model. Whereas, Average Revenue Per Paying User only includes paying users. When combined with Costs to Acquire a User or expressed as Margin Per User, ARPU paints a clear picture of the unit economics and the viability of a business or product line. This metric is used as an indication of revenue generation capability and the ability to meet targets. It is an indicator for margin growth.
The ARPU trend over time gives a perspective on how the business is either improving or worsening. Most industries are looking for an increase in the ARPU over time. Changes in ARPU can be a reflection of changes in prices, expansion or contraction within accounts, or even changes in initial purchases.
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