Average Revenue Per User
This could include adding in extra features to attract users to more premium plans, or lowering the monthly rate if a user pays upfront for the year. ARPU in its purest form is pretty simple math as we mentioned above. It’s the ratio between revenue generated in a specific time period and the number of users in that same time period. In terms of mobile user acquisition, ARPU also complements the cost of media metrics such as cost per install , or cost per action . Comparing between them helps to determine your marketing bottom line, or return on ad spend , and show if you are spending your marketing dollars wisely. You can likewise include this sort of VIP service as part of your pricing plans.
If you haven’t raised money and your preference is to stay bootstrapped, you can’t afford to spend more than 10x what a new customer pays you per month. Average revenue per user is the amount of revenue your app generates from each active user. In simple terms, ARPU tells you how much revenue the average user is generating over a particular period of time. For a more granular view, you can also separate the revenue streams.
What Is A good Arpu?
If you’re not in the consumer space or a space with hundreds of thousands 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.
- However, there is another way to calculate ARPU and that is based on cohorts, which is particularly helpful for mobile marketers.
- Proving the ROI of personalization is never about increasing a single metric.
- ARPU is most commonly used to analyze subscription-based businesses and SAAS companies.
- On the flip side, your lowest-value customers are the first to churn.
- The formula for calculating APRU isn’t terribly difficult, all you have to do is take your total MRR and divide it by the number of customers you have.
Improving the efficiency of marketing and sales – As your value proposition gets clearer and your sales pitches get better, ARPU for SaaS should be increasing over time. If it isn’t, it may indicate that there’s an issue with the effectiveness of your marketing and sales teams. From getting granular with your customer data to making more accurate sales forecasts, our platform breaks all of the above down in easy-to-read reports. This means paying attention to your dashboards using tools like Baremetrics.
Get A Demo Customized To Your Subscription Workflow
Low ARPU might be a sign that you’re not adequately extracting value from certain buyer personas for the service that you’re providing to them. For example, enterprise clients are likely seeking a lot of value from your product, which you should monetize by pricing according to the value they’re receiving. For example, if you have an MRR of $7,500 and you have a total of 30 users, then your ARPU is $250.
Calculate ARPU by dividing the total revenue by the number of active users over the course of a certain time period, usually a week or a month. ARPU is most commonly calculated on a monthly basis and is similar to monthly recurring revenue , although it is a more granular metric that is measured at user level, not app level. ARPU can be calculated by dividing the total revenue generated during a specific time period (e.g. week, month, quarter) by the total number of active users during that same time. In our article comparing ARPU vs. ARPPU, we highlight that ARPPU was originally designed for subscription-based businesses, for example a game in which users pay a monthly recurring charge. The idea of using ARPPU is to examine the value and quality of paying users by removing non-paying users from the equation, while ARPU gives you an average including all users. ARPU is a term referring to the amount of revenue generated by a user across a specific period of time, usually a month or a year.
Streamlining buyer personas – ARPU can help you understand your customer base in a little more depth. For instance, if your ARPU is too low, you may be focusing too much on low revenue customers and need to work on extracting more value from your product/service. In short, the metric gives you an idea of how much the average customer spends per subscription. Average revenue per user measures how much revenue you’re generating for each active customer. This starts with quantifying your customer personas and trickles down deeper into your SaaS metrics as time passes and the business grows.
Where do YouTube get their money?
YouTube, like most other Google properties, earns the bulk of its revenue through advertisements. YouTube is able to embed targeted advertising directly into the video clips that its users watch, as well as promoting featured content.
They provide a recurring, high-engagement communication channel where you can build trust, cross-sell and decrease churn. Remember that the total revenue includes new users, existing users, upsells, and cross-sells. You calculate that there were 5,000 users who engaged with your brand at least once in the same time period. As a marketer, knowing the ARPU of your lowest and highest value users enables you to optimize your marketing activities according to which campaigns are performing well and which are underperforming. ARPU-driven measurement allows you to re-examine the channels, networks, campaigns, etc. you are using and to keep or remove based on ROI.
What Is Arpu Average Revenue Per User?
To calculate ARPU, you simply divide your total MRR by the total number of users. Along this same vein, there is no standard unit of time that you should be measuring ARPU.
In this case, ARPU can be useful to set acquisition cost limits based on how much revenue you generate on a user-by-user basis. Average revenue per user is useful in financial modeling, as it can make revenue assumptions easier to determine.
Adjust Your Pricing Plans
Not only is it a key indicator of profitability and growth, but it can also be the missing piece to truly understanding your customers. The large majority of subscription-based businesses track ARPU, especially if the company is charging for the product or service by user. While commonly thought of as an eCommerce metric, ARPU is an unbelievably valuable indicator across industries. Much of Facebook’s stunning ascension to Wall Street darling derives from the fact that they grew ARPU by nearly 75% in 2016 to nearly $20!
Not to mention, ARPU allows you a direct comparison to your competitors. If you have a higher ARPU than the behemoth you frequently compete with , then it’s safe to say you’re heading in the right direction. We’ll dig into what ARPU is, the difference between ARPU and ARPA, and how to consistently improve your ARPU over time.
Rethink Your Free Or Freemium Plans
When a company raises funding, they can afford to invest in future growth. Many times this means they’ll pay more now to get a customer who will have a very long customer lifetime value .
Does ARPU include churn?
Ensure your retention is on point, especially for larger customers. MRR churn is directly connected to your ARPU, as leaking customers (especially large ones) will reduce your customers and your total revenue.
That said, LTV definitely has some added benefits when it comes to measurement. ARPU and LTV are very similar metrics, and are sometimes used interchangeably with some slight differences. For example, your business generated $10,000 between the 1st and the 30th of June. We’ve talked before about how to reach $1 Million ARR based on your average contract value strategies. They also manage to frontload the statement with a mention of new features to their free plans. Despite popular belief, it’s possible to make changes without turning your free users into an angry mob.
Proving the ROI of personalization is never about increasing a single metric. The key is thinking about all elements of your conversion funnel that impact the bottom line and understanding how personalization can drive incremental increases in each. For example, if you generated $200 last month and had 4000 active user during that month, your Average Revenue Per User would be $0.05.
ARPU is 100% focused on helping Recharge merchants send custom-branded, high-converting notifications that increase average revenue per user with one or two clicks. Average revenue per user can be used on a trended basis to examine profitability and revenue generation capability.
Ensure Your Retention Is On Point, Especially For Larger Customers
Perhaps there is a specific bundle that is attractive to a particular cohort, and measuring ARPU can help highlight that. Exploring pricing experiments – Analyzing your business’s ARPU can also help you to understand whether your pricing strategy is working. For example, if you have a low ARPU it may indicate that you’re underpricing your products.
- The ability to see your ARPU at a moment’s notice makes it a cinch to both track trends and ensure that your efforts to improve it are quite literally paying off.
- ARPU is powerful for evaluating both the app’s overall financial viability and as a comparative business metric.
- ARPU is a ratio of revenue to paying users and is important because it tells you how much money you are making and evaluates which channels are delivering valuable customers.
- This is an important distinction — especially if a business is charging by user — as there can be multiple users per account.