The average revenue per user measures the total revenue over a period of time divided by the number of customers or subscribers. The main purpose of calculating ARPU is to estimate user spending.
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.
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.
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 of ARPU as a metric:
Disadvantages of ARPU as a metric:
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:
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.
ARPU will generally rise with growth-based strategies that focus on audience cultivation, product development, retention, and engagement.
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.
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.