Average Revenue Per User
The average revenue per user (or ARPU) is a measure of the amount of money a single customer generates for a company. This metric is also known as the average revenue per account (ARPA) and the average revenue per customer (ARPC).
🦄 Pro tip!
If your business offers a free tier, consider calculating the average revenue per paying user (ARPPU). Your ARPU and ARPPU metrics will differ.
ARPU is calculated by dividing the total revenue of a business in a given period by the (average) number of customers in that same period. The ARPU formula is the SUM of all your customers’ MRR / number of customers. If a customer has multiple subscriptions, these are combined and counted as one customer before the ARPA is calculated.
You have 5 customers, all paying different amounts per month. Customers 1 and 2 are paying $1 per month.Customer 3 is paying $3 per month. Customers 4 and 5 are paying $5 per month. $15 (total MRR) / 5 (number of customers) = $3 ARPA. In this scenario, the Average Revenue Per Account is $3 per month.
ARPU vs LTV
There’s a bit of confusion when it comes to the difference between the Average Revenue per User and the Customer Lifetime Value (LTV). LTV tracks the total amount of money an average customer pays you before they churn. As such, it is a measure of how well you’re retaining customers. ARPU is better suited to evaluate the performance of factors such as your pricing, your messaging, and the effectiveness of the channels you’re using to reach customers.
What is a good ARPU?
A good ARPU depends on your business and the niche/industry you operate in. One way to figure out what a good number is to find the ARPU of your competitors and see how you stack against them.
You should also consider is what customers you’re after — if you’re mostly chasing mice and rabbits, then you can expect to have a lower ARPU. But if you’re after whales and elephants, then a low ARPU might be a signal that your strategy is not working as intended.
What is APRU used for?
ARPU is a great indication for the quality of revenue you’re generating from customers. ARPU is also a quick way to figure out how you’re performing vis-a-vis your peers.
Also, the average deal size allows you to split your customer base into segments and analyze how each segment is performing. Or segment customers by the channel they’ve come through and compare the average revenue generated by a customer in each segment.
🦄 Pro tip!
Most investors would expect to see a positive trend in average revenue, especially for younger companies. A falling ARPU indicator (especially in more mature companies) might signal trouble ahead.