One challenge with ARPU is that user numbers often fluctuate. Customers might churn, new users might join, and inactive users might return. To address this, businesses can calculate ARPU based on the average number of active users during the time period, rather than a single snapshot.
How to Use ARPU
By knowing how much revenue each user generates on average, companies can make informed decisions about pricing, marketing, and even product development. Ever wondered how much revenue each customer brings to your business? Understanding this can be a game-changer, especially when trying to grow smarter, not harder. It’s a simple metric that tells businesses how efficiently they’re generating revenue per customer. Think of it as a pulse check average revenue per user for your company’s financial health.
Netflix’s average revenue per hour helps the company understand how much revenue it generates per user and evaluate the impact of pricing strategies on its financial performance. In the subsequent step, we’ll calculate the average revenue per paying user (ARPPU), which only includes customers that are on paid monthly subscription plans. Average revenue per user (ARPU) is an important metric for many types of businesses, especially for those that rely on subscription models or have a large customer base. Here’s a closer look at how ARPU can help you assess and run your business.
Whether you’re running a startup or managing a large corporation, ARPU is a lens through which you can assess your performance and plan for the future. In SaaS (Software as a Service), ARPU plays a vital role in assessing whether subscription pricing aligns with customer value. For instance, if ARPU is flat or declining, it might signal that customers aren’t finding enough value to upgrade or renew. SaaS companies often rely on ARPU trends to develop better pricing models and improve user retention. Adjust’s robust suite of attribution and analytics tools make measuring ARPU easy.
Digital ad platforms like Facebook, Instagram, and TikTok earn about $12/month per user globally from ad spend. That number reflects how much advertisers are willing to pay to reach and convert their audiences. Telecom companies have long used ARPU as a core health metric.
Understanding customer value is a great place to start, and that means figuring out your average revenue per user (ARPU). This can mean higher LTVs and more opportunities for your company to monetize these customers through cross-sells and up-sells. High ARPU customers are valuable to your SaaS company for many reasons; namely, they contribute large portions of your MRR. However, high ARPU customers are also a huge asset for your company because higher ARPU is correlated with lower user churn.
However, as the word “user” implies, it’s primarily used by tech companies, which tend to refer to customers or people on their platforms as users. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Unlike other metrics, ARPU doesn’t have a standard to help determine where you are on the scale, e.g. excellent, good, fair, poor.
Example of ARPU
- Average revenue per user can give investors a lot of important insights.
- Both ARPU and accounts receivable reports provide insights into a company’s revenue, however they serve different purposes.
- By combining these strategies, businesses can grow their ARPU sustainably while improving customer satisfaction.
- By focusing your marketing and retention efforts on these groups, you can maximize revenue without spreading resources too thin.
- This includes riders who use it weekly and those who open the app once a month.
If we multiply the average monthly subscription price by the number of users on the paid subscription tier, we arrive at $5 million for our company’s monthly revenue. A rational, well-run company should be reluctant to continue spending significant amounts of capital if the potential return from customers is insufficient. The exception is if growing the user base takes precedence over monetizing the users for the time being, but eventually, the company must become more profitable.
Marketing Against the Grain
Growth in ARPU comes not from more users, but from monetizing the right users better. These platforms have perfected the art of monetizing attention — but not just any attention. Courses that promise career impact often justify higher pricing and longer retention. Margins are often tight, so keeping CAC low and LTV high is vital. For newer platforms, building trust and reducing friction are your best ARPU levers. At just $90/year in ARPU, the math only works if you have millions of users.
- $1.50/month might seem low — but with hundreds of millions of users, mobile gaming is a huge business.
- Unlike subscription platforms, these OTTs aim for massive reach — then layer monetization later.
- This strategic move has significantly boosted HubSpot’s ARPU among customers seeking the enhanced value offered by the wider platform.
- When analyzed in conjunction with other metrics such as CAC, churn, and pricing strategies, ARPU helps to create accurate and realistic financial models.
- ARPU is important for Netflix because it blends revenue from streaming subscriptions and from advertising, although the vast majority of its revenue comes from streaming.
- For product managers and executives, understanding your application’s ARPU is key to understanding your customer base and refining your pricing strategy.
The Average Revenue Per User (ARPU) quantifies the amount of revenue generated on average from each customer. The implied ARPU can be calculated by dividing the total amount of revenue generated by the company by the total number of users (i.e. customers). Average revenue per unit is the amount of money a company can expect to receive from selling one unit of product. It’s calculated the same way as average revenue per unit by dividing the company’s total revenue by the number of units sold.
They want security, compliance, integrations — and most of all, predictability. That’s how companies like Salesforce, ServiceNow, and Workday thrive. Streaming companies don’t just want signups — they want you hooked. They invest heavily in personalized experiences, binge-worthy content, and cancel-prevention flows.
Masters In Marketing
Any company that tracks user interactions and revenue can calculate ARPU to assess the average revenue generated per user, helping to identify trends and inform strategic decisions. ARPU is more than just a number—it’s a lens through which businesses can view their performance, understand customer behavior, and identify opportunities for growth. Whether you’re running a telecom company, a SaaS business, or a streaming platform, ARPU provides a straightforward way to track how much value your users are bringing in. For example, subscription-based businesses or companies in the software industry typically strive for higher ARPU figures as they rely on recurring revenue from a relatively smaller customer base. On the other hand, businesses with a larger customer base and lower-priced products may aim for a lower ARPU but focus on acquiring a high volume of customers.
You may find ARPU a good number to watch over time if you’re considering investing in a telecom or a media company. It’s also a useful point of comparison among competitors in the same space. Which company is doing the best job monetizing its customer base?
Instagram Marketing
As Constant Contact CEO Gail Goodman describes in her talk, “The Long, Slow SaaS Ramp of Death,” a business won’t survive for very long with only a handful of low ARPU customers. You may be absolutely deflating your ARPU by targeting too many small, distracting (and expensive) low-revenue customers. If you’re not in the consumer space or a space with hundreds of thousands (if not millions) of potential customers, then you shouldn’t be chasing sub $100/m customers. Make sure you quantify your buyer personas properly and target the right ones for growth.
ARPU Trends and Financial Forecasting
When assessed alongside the LTV of users, ARPU helps you to calculate the maximum user acquisition cost you can sustain to ensure a positive ROAS. Finally, focus on retaining your existing customers, as it’s usually more cost-effective than acquiring new ones. Focus on customer satisfaction, engagement, and offering proactive support to prevent churn. Try experimenting with different pricing models like ramp pricing or penetration pricing to maximize revenue per user. MRR churn is directly connected to your ARPU, as leaking customers (especially large ones) will reduce your customers and your total revenue.
A similar phrase, average revenue per unit, refers to the amount of money a company can expect to receive from selling a unit of a product. By prioritising customer success, you can ensure that your loyal customer base remains intact. This not only boosts customer lifetime value (LTV) but also creates more opportunities for upselling and cross-selling, ultimately leading to an increase in your average revenue per user (ARPU). It’s a key metric used by all kinds of businesses, particularly those in subscription-based, SaaS, and telecom industries.
Let’s explore some key approaches that businesses can adopt to increase their ARPU and generate more value from their customer base. Average revenue per user is an important user acquisition metric for mobile marketers, as well as an important business metric for product managers and executives. For marketers, comparing the average revenue per user across different campaigns, networks, and channels, can provide insight into the quality of users coming from those sources.
