Average Revenue Per Account (ARPA)

What is ARPA?

Average Revenue Per Account measures the amount of money a single customer generates for a company. This metric is also known as Average Revenue Per User (ARPU) or Average Revenue Per Customer (ARPC).

Why is ARPA important? In short, understanding ARPA can help set or adjust your pricing model and evaluate customer acquisition costs.

Calculating ARPA

To calculate the average revenue per account, divide the total revenue of your business in a given period by the number of customers in that same period. In other words, the ARPA 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 ARPA is calculated.

$$\text{ARPA} = \frac{\text{\textcolor{#007ac4}{Total revenue } in period}}{\text{\textcolor{#007ac4}{# of customers} in same period}}$$

Example

Let's look at a practical example of calculating ARPA.

You have 5 customers, all paying different amounts per month.

• Customers 1 and 2 are paying $100 per month.
• Customer 3 is paying $300 per month.
• Customers 4 and 5 are paying $500 per month.

The total revenue is $1500, and the number of customers in the same period is 5.

$1500 (total MRR) / 5 (number of customers) = $300 ARPA.

In this scenario, the Average Revenue Per Account is $300 per month.

What is included in the ARPA calculation?

ARPA essentially has 2 elements: Monthly Recurring Revenue (MRR) and your total number of customers.

However, your MRR consists of several elements that you have to consider:

• MRR: This includes customers who signed up in previous periods and continue paying for your product, plus any new business added in the current period.
• Upgrades, upsells, and add-ons: People who switch to a higher pricing tier, add additional subscriptions, and/or extra features that are charged separately from their main plan.
• Downgrades: The opposite of the previous elements, those are customers who are now paying a lower monthly rate due to going to a lower pricing tier.
• Churned MRR: These includes the accounts who canceled their subscription during the time period.

These factors are crucial for an accurate ARPA calculation. Although these are already taken into account when you look at MRR, it is important to keep in mind that they affect your ARPA—taking measures to improve each element can have an effect on the overall metric.

Factors affecting ARPA

Pricing Model

It's no secret that a well-designed pricing model is essential for sustainable growth. Pricing is the ultimate growth lever for any SaaS company. Research into the state of SaaS pricing shows that around 42% of companies changed their pricing in 2024. Most businesses should regularly review their pricing strategies to ensure they are competitive, aligned with customer value, and optimized for revenue growth.

Churn Rate

Customer churn can significantly impact ARPA, as losing high-value accounts can lead to a decline in revenue. Businesses should reduce churn by improving customer engagement, offering personalized support, and providing value-added services. By retaining high-value customers, companies can maintain a healthy ARPA and drive long-term growth.

Customer churn rate charts the loss of subscribers. For SaaS businesses, this rate is typically 3–7% per month.

User Base

The size and composition of a business’s user base can also affect ARPA. Companies with a large user base may need to adjust their pricing strategies to accommodate different customer segments, while those with a smaller user base may focus on upselling and cross-selling to increase revenue. Understanding the needs and preferences of the user base is critical for optimizing ARPA.

By considering these factors, businesses can develop effective strategies to increase ARPA, drive revenue growth, and improve overall financial performance.

ARPA vs customer lifetime value

There’s a bit of confusion when it comes to the difference between the Average Revenue per Account and the Customer Lifetime Value (LTV). LTV tracks the total amount of money an average customer pays you before they churn. As such, it measures how well you’re retaining customers.

ARPA 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.

This is how Buffer sustained long-term growth thanks to growing their ARPA.

Joel Gascoigne, CEO at Buffer I see ARPA as one of the components of MRR (ARPA * Customers = MRR). Within that formula, we consciously decided to ignore the “Customers” variable and focus entirely on the ARPA variable, to drive MRR.

What is a good ARPA?

A good ARPA depends on your business and the niche/industry you operate in.

You should consider what customers you’re after—if you’re mostly chasing mice and rabbits, then you can expect to have a lower ARPA. 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’s the best way to use ARPA?

ARPA is a great indication for the quality of revenue you’re generating from customers.

There are multiple ways in which you can use it to guide your decision. Here are a few applications for using ARPA.

Compare yourself to competitors

ARPA is a quick way to figure out how you’re performing vis-a-vis your peers.

That doesn’t mean that your number should compare directly to that of a competitor—you might be pursuing different strategies and going after different customer segments as a result.

However, if you’re benchmarking yourself against a competitor who’s employing a similar approach, ARPA is a great quick way to figure out how you’re performing and take action if necessary.

Improve customer segmentation

The average deal size allows you to split your customer base into segments and analyze how each segment is performing.

For example, you can isolate customers on a free plan and only look at the behavior of those of your customers who are already paying for your solution, thus uncovering important insight about what drives conversions and what makes them happy.

Or you can segment customers between cheaper self-service plans and a higher enterprise tier and analyze their behavior on that basis—how long each deal takes to close, where customers of different sizes fall out, etc.

This can also help you identify new customer groups to focus on and/or find opportunities to optimize your pricing. Maybe you notice there’s a group of clients on the most expensive tier you offer who have very high engagement—because the value they’re getting from your product is very high.

Such insight can be a great starting point for figuring out how to organize your pricing around a value metric.

Evaluate acquisition channels

ARPA is a great way to evaluate the effectiveness of each marketing channel you’re using.

Segment customers by the channel they’ve come through and compare the average revenue generated by a customer in each segment.

This is similar to performing a CAC vs. LTV analysis for each channel—insights about channel ARPU can guide your decisions about how much of your marketing budget to invest and what channels to prioritize/scrap.

Assess the quality of the revenue you generate

ARPA can be useful when talking to investors or when analyzing the performance of your business.

The dynamics of ARPA are a great indicator of the quality of revenue you’re generating. Most investors would expect to see a positive trend in average revenue, especially for younger companies.

A falling ARPA indicator (especially in more mature companies) might signal trouble ahead.

Forecast revenue

The average sale you generate can also be used for a quick back-of-the-envelope estimation of how much revenue you can expect to generate in a given period.

For example, if you know you’ve brought 500 customers at $100/mo ARPA in the first six months of the year, you can expect to bring just as much in the second half.

Say your marketing department is planning a big initiative in the second part of the year—using ARPA to quickly estimate how much you should generate without the campaign can help you come up with a reasonable goal for how much new business the campaign should generate.

Churn prediction

Monitoring changes in ARPA can provide early indicators of potential churn. A sudden decrease in ARPA from a specific customer segment might signal dissatisfaction or the need for additional support. Improving customer retention by reducing churn is essential for maintaining a healthy ARPA and driving long-term growth.

How SaaS startups grow from $1M to $10M ARR

The majority of SaaS startups grow from $1M to $10M ARR by growing their subscriber base. For any startup, there are only two components to growth—subscriber growth and ARPA growth. Most startups grow by increasing their subscriber base. A small subset (<5%) of startups grow predominantly by increasing their ARPA.

Focusing on existing customers by offering optional add-ons or 'a la carte' features can help increase ARPA and drive growth.

For businesses with an ARPA over $1K/month, ~40% of revenue added comes from expansion

At higher ARPAs, companies are able to upsell and cross-sell much more. This means higher expansion revenue. As you’d expect, this drives up the net retention rates at higher ARPAs.

Tracking ARPA and other SaaS metrics

The ultimate goal of a SaaS business is driving revenue growth—so it’s only logical to set up a reliable, accurate system of tracking metrics.

By leveraging ARPA to its full potential, your SaaS business can make data-driven decisions that optimize revenue and customer satisfaction, ultimately driving sustainable growth.

ARPA indicates the quality of revenue you’re generating from customers. ARPA 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 active users by the channel they’ve come through and compare the average revenue generated by a customer in each segment.

ChartMogul helps to keep track of all of these and beyond. Get started with ChartMogul today.