Average Revenue Per User (ARPU)

Raising ARPU through pricing, packaging or expansion often grows a business faster and more cheaply than finding new customers. It also shapes other decisions. A higher figure means each customer supports more spend on acquisition and service. It feeds the lifetime value formula: a simple version is ARPU multiplied by gross margin, divided by monthly churn. With 50 euros of ARPU, 80 per cent gross margin and 2 per cent monthly churn, a customer is worth about 2,000 euros. See lifetime value.

The trend is a diagnostic. A rising figure can mean the business is winning more valuable customers. A falling one can mean it is sliding towards cheaper accounts without anyone deciding to.

• Calculate it monthly from MRR divided by active customers, and watch the trend, not one snapshot.
• Split it by plan, channel and customer age, to see whether growth comes from pricing or from a changing mix.
• Separate a rise caused by expansion revenue from one caused by bigger new deals. They point at different levers.
• Read it alongside customer acquisition cost, since the pair decides how much can be spent on the next customer.

ARPU is revenue divided by customers. If a subscription business earns 50,000 euros in a month from 1,000 active customers, ARPU is 50 euros. Use recurring revenue for a clean figure and one-off fees for a separate one.

ARPA, average revenue per account, is the same idea for businesses where one account has many users. A team plan with ten seats is one account but ten users. ARPA shows revenue per relationship. ARPU shows it per seat. State which one is meant, and state whether free users are in the count.

• Mixing periods, such as monthly revenue in one report and annual in another. State the period each time.
• Dividing by all sign-ups, including free users, when you meant paying customers.
• Using ARPU per user when the business sells per account, or the other way round. State whether you mean ARPU or ARPA.
• Including one-off fees in a figure that is meant to be recurring.
• Reading a blended average and missing that it moved because of a change in mix, not in pricing.
• Using ARPU to value a customer without churn and margin.