Average Revenue Per User (a.k.a. ARPU) is an important KPI that every startup founder in the SAAS business must measure and monitor in their company.
ARPU is calculated by dividing the total revenue generated during a specific period (for example, a week, month, or quarter) by the total number of active paying users in that tenure.
Kindly note the following:
"Average Revenue" includes the revenue earned from first-time and repeat customers.
"Users" must be active and paying users.
In Formula terms:
ARPU = Monthly Revenue/ Monthly active paying users
For example, if your last month's revenue is $100K and active paying users are 5K, ARPU = $20
ARPU is an important metric that helps us to:
Determine if the current monetization strategies are working as intended.
Assess the ROI on marketing initiatives.
Get insight into the quality of users.
Compute Customer Lifetime Value (LTV).
The amount of ARPU decides the number of customers you need to meet your business goals. Therefore, the higher the ARPU, the better it is for the company in the long run.
The following are the possible ways to improve ARPU:
Increasing selling price per unit.
Reducing churn rate.
Upselling/Cross-Selling.
Strategic High-value Customer Targeting.
Strong Branding offering Premium Priced Products.
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