Learn how to calculate average revenue per user as well how to improve this important metric
One of the metrics that you can calculate via our Lido app is the average revenue per user (ARPU). While ARPU is not used solely to measure the health of your business, it is an important and straightforward metric that you should calculate. In this article, you will learn how it is calculated, the reasons for using ARPU, and even some tips in improving your ARPU.
Most businesses, from the biggest multinational companies down to your favorite restaurants, need to track how much they earn from their clients and customers. One metric you can use is the average revenue per user, or ARPU. ARPU is a relatively simple metric you can use to calculate how much you earn per customer or user for a given time period. It can be calculated as follows:
Where total revenue is the total revenue for a given time period and the number of units or clients is the total number of clients served during the given time period. Often, there are clients who are active during a given time period but are dormant in another one; they need to be carefully filtered out when calculating the ARPU for a given time period as it can artificially lower the value, giving you an inaccurate picture of the performance of your business.
ARPU is mostly used by mobile network operators, social networks, and other Internet-based services to measure the success and sustainability of their businesses.
One objection to using ARPU is that it calculates revenue per unit instead of profit per unit. But ARPU is still a useful metric! Here are some reasons:
Analyzing ARPU requires some context. The next section discusses this further.
Unlike other percentage-based quantities, ARPU needs to be contextualized in order to interpret whether the ARPU is high enough or still too low. The first thing you need to consider is the size of your customer or user base. A relatively high ARPU while having a small customer or user base means that there is a potential to expand your business to capture more customers or users. If, instead, you have a massive customer or user base, a relatively small increase in ARPU means a potential gain of upwards of hundreds of thousands of dollars per month or any time period set in your calculations.
For instance, the ARPU per month of mobile broadband in Europe ranges from $19.02 to $14.20. This may sound small, but if you have millions of users, the value can easily surpass tens of millions per month.
ARPU can even differ by region. For example, Netflix’s ARPU in 2020 differs per region. The US&Canada region has an ARPU of $13.51 while the Asia-Pacific region only has $9.32.
There are several ways to improve your ARPU, and all of them involve improving how your business works. Some of them are listed below.
Designing your product or a service such that it is relatively easy to expand and improve in the future is one of the main ways to improve your ARPU. Users would prefer to subscribe to a product or a service that is continuously improved over time.
Besides increasing your ARPU, a product or service that allows future improvements also reduces the costs on your side, which will allow you to gain more profit and perhaps even offer some of these improvements for free, which your users will surely appreciate. This simply helps your business in general.
A relatively low ARPU can mean that your product is sold at a price too low to reflect the value it brings. You should consider increasing the pricing of your products and services, but you should do so with due consideration to your current customer or user base. An improperly-handled price increase will backfire!
If you need to adjust your product pricing by increasing its price, you may consider the following:
If you can make your customers or users stick to your product or service, it will reflect in an increasing ARPU over time. These are some of the ways you can retain more users over time:
While it’s easy to calculate and create graphs for your ARPU, it’s just one metric. To maximize your overall revenue, you still need to compute the other metrics. Lido can help you with that! It can build dashboards to monitor your data and compute different metrics like ARPU. Try Lido by signing up here for free!
Average Revenue Per Unit (ARPU) Definition
What is ARPU? Calculate & Optimize Average Revenue Per User
Netflix Revenue and Usage Statistics (2021)