Average Revenue Per User (ARPU) | Definition
RPU (Revenue Per User) is the amount of money (revenue) a company gets from each user, and is a metric most common for subscription-based services. ARPU (Average Revenue Per User) is the average RPU, a measurement used primarily by consumer communications, digital media, and networking companies. This metric answers the question “How much is a single customer/user worth to a business?”.
Why is ARPU important?
The ARPU metric is important because it indicates how profitable a product or service is based on how much revenue is gained from each user, and it gives you helpful insights into a businesses growth and success. It also helps companies determine the popularity of its pricing tiers as well as the effectiveness of upgrades and add-ons. ARPU can help marketers measure how much revenue a company can generate, overall customer engagement, and help understand the potential growth of the company at a per-unit level.
To calculate the ARPU, first define a time period such as month-to-month or year-over-year. Then, take the average revenue generated within that set time period and divide it by the number of users.
ARPU is calculated by taking the total revenue divided by the number of subscribers/users
Average Revenue Per User (ARPU) = Total Revenue / Total Number of Users
For example, a company produced $30 million in revenue with 20,000 customers, the ARPU is $1,500.
ARPU = $30 million / 20,000 customers = $1,500
Each customer contributed $1,500 in revenue.
What is a good ARPU?
While a high ARPU is ideal, this metric alone doesn’t tell the whole story. To get the most accurate picture, ARPU should be analyzed with other metrics such as customer churn rate (CCR), customer acquisition cost (CAC), and customer lifetime value (LTV). Without looking at these metrics, your APRU could be misleading. You can have a high ARPU and at the same time have a high churn rate or acquisition cost.
Solely focusing on your average revenue per user can give you a false view of your company’s growth and profitability. Be sure to analyze other metrics that can help bolster or refute your ARPU value so that you can determine if you’re on the right track.
What to consider (and not consider) in your calculation
When calculating ARPU, be sure you are looking at the whole picture of your business so that you can get the most accurate result. There are some things that should be considered and other things that are better to leave out such as:
How to increase ARPU
A higher ARPU shows long run growth of a company. If your ARPU is not growing or if it’s decreasing here are some ways to boost ARPU:
- Increase the average selling price – You can increase the average selling price of your product or service to help increase ARPU, but make sure that the price isn’t more than what your customers would spend. This tactic can be risky but if done well, it could slowly boost ARPU.
- Create pricing tiers or subscription plans – If you don’t want to increase the price of your main product or service, consider creating pricing tiers that offer different features and benefits. This allows you to retain customers even if they have a lower budget and potentially upgrade them to a higher paying plan in the future.
- Increase user retention – Working to reduce user churn and increase customer retention is a major part of improving ARPU. Find ways to keep your customers coming back with enticing incentives, effective campaigns, and other successful strategies.
- Find the right customers – If you’ve been working to improve user retention and decrease churn but nothing seems to be working, it could be that you’re targeting the wrong audiences. Make sure that your marketing efforts are focused on high-value customers that will buy your product or service.
- Continuously evolve your product – If your customers are not seeing a change/improvement in your product or service, they might look elsewhere for something new. Develop a plan to introduce new product features and improvements and let your customers know about them.
Not all of these strategies will work for your customer base so be sure to test different tactics to determine which one(s) work for your company.
ARPU and Kochava
Gain the most accurate perspective of your campaign performance with Kochava measurement and attribution tools. Kochava measures your ARPU as well as an expansive list of key performance indicators such as:
- Total Installs by Network Partner
- View-through Conversions
- Click-through Conversions
- Conversion Rate (CVR)
- Click-to-Install (CTI)
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Revenue Per User (RPU)
- Revenue Per Install (RPI)
Having all of these KPIs within the Kochava dashboard allows you to easily analyze and measure a variety of metrics to gain a holistic view of your company’s growth and what contributes to the success of your marketing efforts.
Get started with Kochava or Contact us!