ARPU: Average Revenue Per User

What is ARPU?

Average Revenue Per User (ARPU) measures how much revenue a business generates from each user, including both paying and non-paying users. It’s a key metric for understanding business health and growth potential.

Basic Formula and Example

ARPU = Total Revenue ÷ Total Number of Users

Simple Example:

• Monthly revenue: $10,000
• Total users: 1,000

ARPU = $10,000 ÷ 1,000 = $10 per user

Real-World Example:

SaaS Company Example:

• Free users: 9,000
• Basic tier ($10/month): 500
• Premium tier ($25/month): 300
• Enterprise tier ($50/month): 200

Total Revenue = $5,000 + $7,500 + $10,000 = $22,500

Total Users = 9,000 + 500 + 300 + 200 = 10,000

ARPU = $22,500 ÷ 10,000 = $2.25 per user

Industry Benchmarks

B2B SaaS

• Enterprise: $100-500/month
• SMB: $40-100/month
• Small business: $10-40/month

B2C Services

• Streaming: $8-15/month
• Gaming: $1-5/month
• Social apps: $1-3/month

Mobile Apps

• Premium games: $2-5/month
• Utility apps: $1-3/month
• Free apps with ads: $0.10-0.30/month

Ways to Increase ARPU

1. Monetization Strategies

• Premium features
• Tiered pricing
• Add-on services
• Usage-based billing

2. User Engagement

• Feature education
• Upsell campaigns
• Premium content
• Better user experience

3. Value Addition

• New features
• Better support
• Integration options
• Enhanced services

Common Calculation Mistakes

• 1. Time Period Consistency:
  • Wrong: Mixing annual and monthly revenues
  • Right: Convert all to the same time period
• 2. User Count Accuracy:
  • Wrong: Using registered users only
  • Right: Using active users in the period
• 3. Revenue Recognition:
  • Wrong: Including future revenue
  • Right: Only counting earned revenue

ARPU vs ARPPU: When to Use Each

Key Differences

ARPU:

• Includes all users (both free and paying)
• Shows overall monetization effectiveness
• Always lower than ARPPU
• Helps understand total user base value

ARPPU:

• Only includes paying users
• Shows value of paying customers
• Always higher than ARPU
• Helps understand premium user value

When to Use ARPU

Freemium Business Models

• When you have many free users
• Ad-supported products
• Apps with in-app purchases
• Social media platforms

Growth Stage Analysis

• Evaluating overall business health
• Understanding conversion potential
• Planning monetization strategies
• Investor presentations

Market Comparisons

• Comparing similar products
• Industry benchmarking
• Market analysis
• Competitive research

When to Use ARPPU

Premium Services

• Subscription-based products
• B2B services
• Enterprise software
• Professional tools

Revenue Planning

• Financial forecasting
• Pricing decisions
• Revenue projections
• Resource allocation

Customer Value Analysis

• Understanding paying customer value
• Optimizing premium features
• Planning upsell strategies
• Customer segmentation

Using Both Together

Example Scenario:

A mobile game with:

• 100,000 total users
• 5,000 paying users
• Monthly revenue: $50,000

ARPU = $50,000 ÷ 100,000 = $0.50 per user

ARPPU = $50,000 ÷ 5,000 = $10 per paying user

What This Tells You:

• Overall monetization: $0.50 ARPU
• Premium user value: $10 ARPPU
• Conversion rate: 5% paying users
• Growth potential: Room for conversion

Remember: While ARPU provides valuable insights, it should be viewed alongside other metrics like ARPPU, retention, and customer acquisition costs for a complete picture.