Varos Glossary

Average Revenue Per User (ARPU)

What is ARPU?

ARPU is a statistic used to measure the profitability of a business. In a nutshell, it's the typical monthly or annual income made by a single app user.

  • Revenue earned per customer or product is expressed as ARPU.

Despite ARPU's origins in telecommunications, it has found widespread use throughout the digital economy, from software as a service (SaaS) companies and social media platforms to mobile app developers.

When discussing the worth of a customer to a mobile marketing campaign, average revenue per user (ARPU) is a good proxy. It's a method for estimating how much money your customers are worth to your business. ARPU is a shorter-term metric than the lifetime value (LTV), which considers a customer's contributions over the course of their whole relationship with a business.

How to calculate ARPU?

It is determined by dividing total revenue by the total number of users for a certain time period (one week, one month, or one year, for example). MRR is the standard metric for calculating ARPU on a monthly basis.

Average Revenue Per User formula:

  • ARPU = MRR/users

ARPPU (Average revenue per paying user) is another similar measure. Same with the ARPU metric, ARPPU is derived only from paying customers. In the case of applications that use a freemium monetization model, the ARPPU should be much greater than the ARPU, therefore understanding the difference between the two is crucial.

Besides the standard ARPU calculation, app marketers have access to alternative variants, such as ARPDAU, that might provide more nuanced results.

Pros

  • Investors may easily compare companies using ARPU analysis.
  • A benchmark from which to evaluate a firm's internal strengths and deficiencies.

Cons

  • One possible indicator of a company's future success is the rate of new users and the rate at which existing users leave.
  • The digit can be manipulated.
  • Since it is a top-level metric, ARPU may be reported without the granularity that provides context.

Improve your ARPU

To increase revenue, SaaS businesses may use any of these tactics.

  • Provide extras - Giving customers new ways to spend money on your business is a certain way to boost lifetime value. Because of this, more and more SaaS providers include a la carte features in their subscription packages.
    It not only makes clients feel more in control but also generates new business from satisfied customers.
  • Focus on your most valuable customers -  All of your clients deserve your full focus. However, not all ideas are created equal.
    If you want your biggest customers to stick around for a while, you may want to mark their tickets and queries as important. Instead of putting all of your focus on freebies, prioritizing fast, personalized care for these accounts may have a good effect on average revenue per user. Your price options may also include VIP treatment.
  • Change your prices to entice loyal, high-spending customers - There's a lot more we could say about SaaS pricing strategies, but it's probably most important to remember that you can't attract new customers by offering one type of pricing.
    Offering several membership tiers ensures that leads with different budgets can still afford to use your service.
  • Free service- There is a strong demand for free forever plans among SaaS suppliers. However, the monthly average does not include earnings from free plans.
    If you're trying to increase your ARPU, you may want to consider whether or not the free service you provide does too much for no charge. There's no need to completely scrap the free resources, but there may be ways to make them more enticing to users.

Bottom line

Finally, you can't increase your average revenue per user ecommerce until you track it. Does the line continue to climb? Downward? You shouldn't be kept in the dark either way.