Calculating Average Revenue Per Unit: Formula & FAQS

Virginia Miller
Virginia Miller
May 31, 2024
In this article

FAQs

What exactly is average revenue per user?

Average revenue per user (ARPU) measures the revenue generated per customer or user on average over a period of time. It provides insight into customer behavior and spending habits.

How do you calculate ARPU?

To calculate ARPU, divide total revenue from customers over a period like a month or year by the number of active customers or users in that same period.

Why should businesses care about ARPU?

Monitoring ARPU helps businesses evaluate pricing, identify high-value customers, gauge market potential, set performance benchmarks, and optimize operations to reduce customer acquisition costs.

What are some ways to increase ARPU?

Strategies like offering premium products/features, upselling additional services, reducing churn, targeting high-lifetime-value segments, and providing loyalty incentives can all help drive up ARPU.

What are some challenges with calculating ARPU?

Key difficulties include clearly defining the user base, choosing the right measurement period, identifying all revenue streams, carefully tallying total revenue, and factoring in costs like promotions and refunds.

Is a higher ARPU always better?

While a higher ARPU generally indicates the ability to extract more revenue per customer, businesses should ensure increases don't alienate customers or hurt growth. The goal should be optimizing ARPU, not necessarily maximizing it.

Should ARPU be monitored regularly?

Yes, ARPU is most effective for guiding business decisions when tracked over time rather than viewed at a single point. Monitoring changes in ARPU shows whether strategies to boost it are working.

What’s a good ARPU benchmark?

Ideal ARPU varies greatly by industry. SaaS businesses often target $100+ ARPU, while free apps may aim for just $5-10. The key is tracking your metric over time, not comparing to universal benchmarks.