How to find the Average Revenue Per User?
By James Bell
- Finance , Higher Level Management , Metrics and Ratios ,
- 25 Feb
Average Revenue per User, or ARPU, is a metric that helps us look at the average monthly amount of revenue being generated by each user. This metric originated from the telecommunications business sector. It quickly takes available information and communicates it effeciently and effectively.
It may sound surprising that some companies do not know the actual revenue from each user nor know how many users they actually have! With complex product bundling and offerings in software, digital media, and other SaaS models, calculating the actual Revenue Per User may take a lot of time and resources. Plus, by the time you get it right, the metric may no longer be relevant. This is where ARPU comes in. In using this metric we get to look at the average monthly revenue per user as a data point to compare month over month, by product and more.
This metric can also help us forecast and budget revenue targets by product lines, business units, etc. This helps us make meaningful decisions in regards to these targets to better allocate resources.
Average Revenue per User
![\[ ARPU=\frac{MRR}{\Sigma{Customers}} \]](http://stumptownfin.com/wp-content/ql-cache/quicklatex.com-f3072eb46613794a16d7624b10df736d_l3.png "Rendered by QuickLaTeX.com")
where
Total Number of Customers
Monthly Recurring Revenue
This is the amount of revenue that comes in each month. Click here to learn more about MRR!
Total Number of Customers
This is the total number of customers for that month. I argue against averaging beginning and end. You can simply use the beginning number of customers for the period as this variable. Remember, in a subscription based model, users exist for the entire period they pay for. Therefore, they are either there or are not when it comes to this metric.