Meet the Metrics: Average Revenue Per User
And how to calculate it easily.
Average Revenue Per User, or ARPU, is the amount of income that, on average, is produced by one active user over a specified period of time. This metric is often overlooked, but it could be crucial for growing your businesses.
In order to know if you are actually doing any good, it is important to determine how you are performing. Each use case is slightly different and therefore we made some short guidelines for different types of business on how to identify your users.
In case you are an e-commerce business, where user transactions could be a one-off, you would probably define a user as someone who purchased a product in the selected time period. So you would calculate the average of all visitors that purchased something in the last month.
For a social network, consumer app, and ad-based websites you would probably use visitors to calculate your ARPU. This is important to know because it will tell you what the value of your average visitor is to your business.
SaaS & Subscriptions
For consumer-based monthly subscription models and SaaS companies, we would define a user as someone who had an active subscription that month. For a SaaS company, a user could be either a seat or an account, which depends on the use of your business model. This is a slight change but is crucial in order to determine the (potential) success of your business.
Growing your business with ARPU
In order to grow your business, it is important to determine your ARPU, which helps you to gain valuable insights. After determining the ARPU it is important to determine your level of success because you also have to keep in mind that the value of your ARPU is relative to the number of customers you have.
“Is this a good value? Am I kicking ass or throwing away money?”
Meaning that an ARPU of €20 would be great when you have many users, while a €1000 ARPU could be a waist while having only one customer.
After determining the ARPU, you could either focus on growing the contribution per active or focus on getting more active users. If you achieve to increase both of them you definitely will be winning.
The ARPU formula
The ARPU formula is pretty uncomplicated, but at Sprints & Sneakers, we wanted to make this even a little easier for you. Check out our completely free ARPU calculator at http://sprintsandsneakers.com/resources/ to determine your ARPU. This helps you to calculate an important and often overlooked metric.
You can find our ARPU calculator amongst some of our other calculators, tools and tactics. Simply, because we love sharing and growth.