ARPU (Average Revenue Per User) is a metric system for SaaS companies that helps grow your business.
As a system, ARPU is mostly used by companies that are subscription-based. In this way, ARPU is useful when you want to monitor the business value of new and existing users.
If you know the total revenue and the number of active customers for a given period, ARPU can be used as a predictive tool for company growth.
If you are stuck between two business models, ARPU can guide you to determine the most beneficial ways to gain revenue and grow your business.
What is ARPU good for?
ARPU also help you compare revenue between competing companies. However, it only gives you the total revenue, not the cost related to revenue.
ARPU tells you if a product is good on revenue-per-customer. It also shows you whether a product is being purchased by existing or new customers.
When segmenting your customer base, you can compare business segments such as subscription types to assess differences in ARPU for choosing the right business model.
User or Unit?
ARPU can be calculated as Average Revenue Per User or Average Revenue Per Unit.
Average Revenue Per User gives you the revenue a company can generate from each customer.
As a subscription business, you should always consider the timeframe. How long is the subscription period for your company? Most subscription companies have a time frame of one month. Therefore you must calculate the revenues based on the number of new customers each month.
Average Revenue Per Unit is the total number of units sold in a given period of time. If you are selling a different product, you can use ARPU to compare, which product has the highest revenue. This can help you decide whether a product is favourable for the business or not.
How to calculate ARPU?
ARPU (User) = Total revenue / # of users
ARPU (Unit) = Total revenue / # of units sold