Average Revenue Per User (ARPU)
Lower is better
How is Average Revenue Per User (ARPU) calculated?
To calculate ARPU, you'll want to take your current MRR and divide that by the total number of users.
What is Average Revenue Per User (ARPU)?
This metric is the sibling to ARPPU but includes all of your users, not just your paying customers. ARPU is a high-level metric used to inform businesses of how well they are monetizing their user base. For businesses with freemium pricing models, the gap between ARPU and ARPPU is used to determine a business's efficiency of converting free users into paying customers. If the gap between these two metrics is large, you might want to invest resources into product marketing or other monetization efforts.
ARPU is most helpful for businesses that attempt to monetize the majority of their user base. Businesses that rely on revenue from a small percentage of their user base, like enterprise software, may not find as much value from tracking ARPU.
ARPU also differs from metrics like LTV in that it assesses current revenue, not estimated or projected revenue. Therefore it is best used to benchmark the efficiency of your monetization efforts against your competitors or identifying areas of opportunity for future monetization efforts.
There are two main ways to increase your ARPU.
Raising the price of your product can be a little controversial, but your LTV/CAC may be suffering if you're undercutting your pricing too much. Interviewing the power users of your product may help you learn of new opportunities to build add-ons that benefit those already invested in your product.
Increasing your ARPU may be as simple as understanding the features that are most valuable to your customer base and marketing them more. For example, if you sell a bike with two different types of brakes, but only one is marketed at all, there's probably room for improvement in selling potential upgrades or add-ons.
Why is Average Revenue Per User (ARPU) important?
ARPU is an important metric to pay attention to because it helps you understand how well your business can monetize its users. If your ARPU is high and you have a freemium pricing model, then your business has a good balance between free and paying customers and can provide value for both groups of people.
Start tracking your Average Revenue Per User (ARPU)
Create a KPI for Average Revenue Per User (ARPU) to monitor it over time and an OKR to track your impact against it in Commonality.
Average Revenue Per Paying User (ARPPU)
Increase your revenue by ensuring that your paying customers are finding enough value in your product to pay higher costs.
Lifetime Value (LTV)
Ensure that you're delivering value that customers are willing to pay for by measuring the average revenue that a customer will generate throughout their lifespan as a customer.