Many financial models involve first forecasting your users based on acquisition, customer acquisition, and retention assumptions. By simply multiplying that number by your ARPU, you get a revenue forecast. The best use for ARPU is in comparison to competitors and companies in other verticals. It’s an easy, high-level way to compare how much one company makes off its users compared to another.
Tools for Measuring ARPU
Simply put, it measures the amount of revenue generated by a customer over a certain period. Several factors can lead to changes in ARPU, including shifts in pricing models, introduction of new services or features, changes in customer demographics, and competitive pressures. For instance, offering discounts or lower-priced plans might decrease ARPU, while upselling premium features could increase it. While ARPU is a valuable metric within a specific industry, comparing ARPU across different industries can be misleading due to varying business models, pricing strategies, and customer behaviors.
Social platforms like Twitter (X), Snapchat, and even Threads earn just $10/year per user on average — driven mostly by ad revenue. The real revenue growth comes from layering services — mental health, chronic care, prescriptions — into one platform. Online fitness platforms like Peloton (app), FitOn, or Centr average about $15/month in ARPU.
The more your platform supports that journey — with tools, communities, and certification — the higher your ARPU goes. Most boxes succeed by owning a niche and curating expertly. Personalization boosts perceived value, which helps justify price.
Average Revenue Per User (ARPU): Definition and How to Calculate
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, average revenue per user 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.
How Often Do Startups Change Their Pricing? Real-World Stats
That makes them sticky and high-value — especially when they replace multiple tools. They’re tightly integrated, hard to replace, and constantly updated. That means long-term customers and strong revenue predictability. Cybersecurity tools — including endpoint protection, network security, or compliance software — tend to have an ARPU of $4,000/month per company.
The difference is that SaaS models tend to look at this based on account level (which may have multiple users within one business), while consumer apps tend to monetize individual users. ARPU is short for Average Revenue Per User, while ARPPU stands for Average Revenue Per Paying User. It is a metric used to measure revenue generated by paying users and players over a specific period.
- Average revenue per user can be used on a trended basis to examine profitability and revenue generation capability.
- High ARPU customers are valuable to your SaaS company for many reasons; namely, they contribute large portions of your MRR.
- By focusing on increasing ARPU, businesses can not only drive their profitability but also deliver enhanced value to their customers, fostering long-term success in the competitive business landscape.
- Let’s explore some key approaches that businesses can adopt to increase their ARPU and generate more value from their customer base.
- If you’re in SaaS, and not sure whether to go SMB or enterprise, mid-market may be your fastest route to scale.
Retention and churn reduction
A month is the most common time period for calculating ARPU because most subscription based companies have a monthly billing plan. If this is your business, you’d take your total monthly revenue and divide by the number of users in that month. The Average Revenue Per User (ARPU) is the revenue generated (on average) by each active person using your app. This is a very similar metric to Average Revenue Per Account (ARPA), generally used for SaaS models.
- The longer a customer stays, the more revenue they’ll generate for your business.
- In situations where customers lose trust and confidence in a SaaS product, they are likely to seek alternatives, especially if the cost of switching is low.
- In a successful ad free freemium SaaS business model, ARPPU will always surpass ARPU significantly.
- For example, the ARPU for Meta Platforms (META -0.6%) on Facebook is much higher than that of peers like Snapchat (SNAP 0.18%) and Pinterest (PINS 1.85%).
- This means that, on average, each user generates $10 in revenue for the company during that month.
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.
How Each Metric is Calculated
This metric allows you to identify trends and implement change that can shift the trajectory of your business toward that large pool of SaaS profits we all dream of. It works best when paired with other metrics, like ARPPU or AMPU, to paint a fuller picture of your revenue and profitability. By regularly tracking and analyzing ARPU, businesses can make smarter decisions, adapt to market trends, and create better experiences for their customers. For example, if a SaaS company earns $100,000 in revenue in January and had 5,000 active users that month, the ARPU would be $20 ($100,000 ÷ 5,000). This gives the company a clear idea of how much revenue, on average, each user is contributing. Price increases are another way to increase ARPU, like adding new features or upgrading your overall product or service.
Average revenue per user optimisation techniques
However, it is important to note that the concept of a “good” ARPU may vary depending on industry, business model, and specific circumstances. Therefore, companies should consider their unique objectives and market dynamics when assessing their ARPU goals. By focusing on increasing ARPU, businesses can not only drive their profitability but also deliver enhanced value to their customers, fostering long-term success in the competitive business landscape. Furthermore, it may only sometimes be the most appropriate metric for businesses to use, depending on the nature of their revenue model and the industry in which they operate. For example, average revenue per hour may be less relevant for companies that rely on one-time purchases rather than periodic revenue.
The ARPU trend over time gives a perspective on how the business is either improving or worsening. Most industries are looking for an increase in the ARPU over time. Changes in ARPU can be a reflection of changes in prices, expansion or contraction within accounts, or even changes in initial purchases. Use a summary chart to visualize your Average Revenue Per User data and compare the current value to a previous time period. OneMoneyWay is your passport to seamless global payments, secure transfers, and limitless opportunities for your businesses success.
For decades, stock analysts have been using ARPU to analyze and compare subscription-based businesses, like telecom providers. Average revenue per unit differs from ‘per user’ because it focuses on revenue generated by one unit (so, one product sold). Telecoms and media companies analyze their internal numbers to identify the demographic groups that are of greatest value to them. The company will target Gen Ex consumers for growth if they or their families with children appear to be their most valuable customers in terms of their contribution to ARPU.
Take your business to the next level with seamless global payments, local IBAN accounts, FX services, and more. Despite these limitations, ARPU remains a valuable metric when used alongside other performance indicators. It’s not about relying on ARPU alone but integrating it into a broader strategy to guide decision-making.
How Pricing Affects Churn Rates With Stat Benchmarks
It is often used in industries like telecommunications, SaaS, and subscription-based services to measure the effectiveness of pricing strategies and user monetization. A higher ARPU indicates that a company is generating more revenue per customer, which can be a sign of successful upselling or pricing adjustments. ARPU (Average Revenue Per User) calculates the average revenue from all users, including those who may not be paying customers. In contrast, ARPPU (Average Revenue Per Paying User) focuses solely on the revenue generated from users who make payments. This distinction is crucial for businesses with freemium models, as ARPPU provides insights into the spending behavior of paying customers. In this article, we will delve into the concept of ARPU, how to calculate it, and how businesses can increase ARPU to drive growth.
It is a measure of the revenue generated by one customer phone, pager, etc., per unit time, typically per year or month. Most businesses seek to maximize revenue or profits, but one of the most important key performance indicators (KPIs) is average revenue per user (ARPU), a key driver of both revenue and profits. Arguably, ARPU is even more important than total revenue because it shows that the company isn’t adding revenue by simply bringing in new customers, possibly at a discounted price.
You might update pricing because of market competition or production/material costs, but these instances are less of a value-add than performance or feature upgrades. So, the key to increasing your ARPU is having a well-rounded buyer persona and understanding of your persona and a product designed to meet your audience’s exact needs. Then, when you go to market, you’ll attract the right users looking for the exact solution you offer, building your ARPU. Many businesses find that lower-tier users generate the same support cost per user but only a fraction of the ARPU, hence why you see companies like Optimizely eliminating low-level plans. This metric is used by businesses to measure the factors that are contributing to the organization’s overall revenue. ARPU helps companies analyze their growth patterns and compare their success to competitors.
ARPU is commonly compared between similar companies operating in the same industry to assess how well the company is doing in comparison to its peers. ARPU grows when the product saves time, simplifies life, or improves outcomes. If you’re building in B2B, cybersecurity is a great space to emulate for pricing power and retention. That makes cloud infrastructure one of the most elastic ARPU models in tech.
For product managers and executives, understanding your application’s ARPU is key to understanding your customer base and refining your pricing strategy. If your ARPU is lower than expected, it may indicate an overemphasis on acquiring low-revenue customers or suggest that your products and services are underpriced. Average Revenue per User is a core metric for determining customer value to the organization and developing an understanding of customer behavior. As previously touched on, ARPU is an important KPI for subscription-based businesses.