Average Revenue per User - How is ARPU calculated?
What is the average revenue per user (ARPU)?
Average revenue per user (ARPU) is the total revenue generated by a business divided by the total number of users or customers. It is a measure of how much money a company is making from each individual customer on average.
ARPU simple calculation example
ARPU is calculated by dividing total revenue over a period of time, by the number of users over the same period. For example, if a company earns $100,000 in revenue throughout the month of January, and has one million users, the calculation of their ARPU would look like 100,000 (amount of revenue in USD) ÷ 1,000,000 (number of users) for a total of .10 or 10 cents per user per month.
What variables should I consider when calculating ARPU?
Calculating your average revenue per user (ARPU) requires only two variables, the total revenue, and the number of users, but judging ARPU as a metric is slightly more complicated. Consider comparing a calculated ARPU against the average ARPU of similar companies with similar audiences. When comparing internal ARPUs such as different audience segments or time periods, it can be valuable to consider affecting factors such as acquisition campaigns, seasonal holidays, and cultural events.
Who uses average revenue per user (ARPU)?
Average revenue per user is a valuable metric for data analysts who want to understand the value of different user segments and predict the lifetime customer value of those users. ARPU is also valuable to investors who want to measure the profitability of a company. A rising ARPU is considered an indication of increasing profitability.
Advantages and disadvantages of ARPU
Advantages of ARPU as a metric:
- Simple to calculate
- Can indicate which strategies are generating high-value audiences
- A high or rising ARPU is a sign of a successful company
Disadvantages of ARPU as a metric:
- ARPU only represents one piece of the puzzle of profitability
- It can be difficult to compare ARPU across businesses even within the same industry.
- As an extremely broad measurement, ARPU does not offer insights into user sentiment, engagement, or needs.
How can a company increase ARPU?
There are many strategies that companies can use to increase their average revenue per user, which are generally focused on company growth and audience cultivation. Here are a few:
- Turn browsers into buyers- Conversion efforts such as streamlining the purchasing process, or targeting first-time-buyer user segments can help raise ARPU.
- Cultivate audience engagement- The more engaged an audience, the higher their retention rates and overall spending. (Psst Storyly can help!)
- Offer upgrades and add-ons- Customer acquisition is expensive, so focus on increasing the value of existing customers by creating opportunities for them to increase their order values and frequency.
- Think long term- Overall, strategies that focus on product growth, audience development, and potential partnerships will contribute to an increase in ARPU.
Average revenue per paying user (ARPPU)
The average revenue per paying user is not the same as the average revenue per user. ARPPU is a calculation that eliminates any users who do not make purchases and so do not contribute to revenue. Only paying users are included in ARPPU, so it is calculated by dividing the total revenue by the number of users who made a purchase.
How to increase average revenue per user (ARPU)
ARPU will generally rise with growth-based strategies that focus on audience cultivation, product development, retention, and engagement.
Average revenue per user (ARPU) example calculation
A simple example of ARPU would be that if a restaurant brings in $200 in revenue during their first hour of business and has 10 customers during that time, one would calculate the ARPU by dividing $200 by 10 for a total of $20.
Why does ARPU matter so much?
ARPU matters because a high ARPU can indicate a deeply invested audience of valuable customers, and a rising ARPU often indicates growth in profitability for a company.