Average Revenue Per User (ARPU)

What is Average Revenue Per User (ARPU)?

Average Revenue Per User (ARPU) is a metric commonly used in SaaS to measure the revenue generated by an average customer or user over a certain period. ARPU can track revenue changes over time and compare the performance of different products or services. It also helps inform pricing, marketing, and customer acquisition strategy decisions.

How do you calculate average revenue per user ARPU?

Calculating ARPU starts by defining a standard period to measure. Most SaaS firms measure on a month-to-month basis. Then, divide the total revenue generated during that period by the number of users. 
What is the average expected revenue per user? What is a good ARPU?
Unfortunately, a universal average ARPU doesn't exist. The average ARPU fluctuates based on industry, pricing model, location, and other factors. Unlike many other SaaS metrics, ARPU is an absolute number, not a rate, meaning broad industry benchmarks aren't helpful. So, when assessing ARPU, only compare your business to others with a lot in common. 

What does an investor look for in ARPU?

Since ARPU is about revenue per user, for B2B businesses, investors want to see high ARPU in platforms with a low seat count. Specific teams might use the software, so revenue per user needs to be higher to increase margins. In the B2C space, ARPU can be low if there are a lot of users and volume.

How to increase ARPU

There are several strategies a startup can pursue to increase ARPU. Some of the most impactful ones include: 
Upselling customers: Persuade your customers to update to a premium version of your product or service that costs more but provides more value.

• Cross-selling customers: Similar to upselling, persuade your customers to buy products or services that are complementary to what they already have.
• Offering tiered pricing options: A flexible pricing model allows you to adjust to customer demand or a changing business landscape, ideally, the result of which is a boost to sales.
• Bundling product and features: Take individual but similar products and offer them as a single package at a lower price than buying them separately. That allows you to sell more by attracting new customers looking to gain more by paying less.
• Rewarding users for activity: Gamifying your user experience through rewards increases customer engagement and the likelihood that they'll spend more on your platform over time.  

ARPU vs LTV

Lifetime value (LTV) shows how much money a client generates during their entire relationship with your business. ARPU measures the average revenue a user brings in during a specified period. So generally, LTV illustrates the value of a client to your business over the long term, and ARPU helps you understand your company's current situation.