Average Revenue Per User (ARPU)

ARPU (average revenue per user) is a crucial indicator that businesses cannot afford to overlook. In general, for those in SaaS, ARPU might not get as much love as MRR or ARR, but that doesn’t mean it’s not a key SaaS metric, but ARPU is important for keeping a pulse on the health of your company.

Because determining how much the average customer spends may provide insight on how to improve your product’s budget, price, placement, and optimize your product experience.

What is Average Revenue Per User (ARPU)

Understanding your Average Revenue Per User (ARPU) is the actual secret sauce to understanding your consumer. ARPU enables you to see patterns and make changes that will help you get your company closer to the vast pool of SaaS earnings we all desire.

So, to have a better understanding of ARPU, let’s look at what it is, why it’s essential, and how you can use it to boost the performance of your SaaS business.

Even if you don’t increase you customer base, when you increase your ARPU, you MMR, ARR and LTV are automatically increasing.

ARPU (average revenue per user or average revenue per unit) is a formula for calculating average revenue per user (or unit) over time. This computation enables firms to do a more in-depth examination of per-customer growth potential and to forecast revenue generating capacity. ARPU is one of the most important revenue metrics for SaaS subscription firms because of its importance in growth modeling.

Why Should We Be Concerned About ARPU?

Assume you have a low ARPU of $10 per month. This won’t give you much wiggle room to expand, let alone invest in customer support or acquisition. If the expense of customer support or marketing activities are more than your revenue, your company will face difficulties in long-term.

Low ARPU means, you’ll need to acquire a lot of consumers with a low ARPU to attain the holy $1M ARR. Tracking your ARPU, if nothing else, helps you to go deeper into your consumers’ demands in order to discover what motivates them to spend.

For example, you may observe that your most loyal and finest clients prefer higher-priced plans. Your lowest-value consumers, on the other hand, are the first to leave. These findings have a direct influence on how you represent your product and grow as a result of them.

The takeaway: You’re facing an uphill battle if you’re not aggressively boosting your ARPU. For starters, your average revenue per user has a direct impact on your ability to scale.

How to Calculate ARPU

The APRU calculation is simple: Divide the total number of paid customers by the SUM of all your active customer MRR. Remember that this computation is done on a monthly basis.

Pretty simple, right? Let’s see on graph below.

You can take some actions to improve ARPu and see on graph clearly.

So, which variables we should consider to while calculating ARPU… Be all ears, here is important:

• Free sign-ups and trial users are, of course, welcome in your business. However, since they don’t generate revenue, they shouldn’t be included in your ARPU (yet). If you include them, your figures would be skewed.
• The spendings of the customers are not constant. This is especially true if your company provides a number of different paid plans or add-on services. Customers shifting tiers provide you a better idea of which tiers generate the most income, as well as which ones could be lacking.
• Churn (inactive or lost customers) has an influence on your MRR and ARPU. For example, losing a higher-paying client will result in a steeper decline in ARPU than losing a lower-paying customer.

See you next post:)