What is Average Revenue Per User (ARPU)?
Average Revenue Per User is the measure of the revenue generated per user or unit. It is used by businesses to measure the factors that are contributing to the organization’s overall revenue. ARPU is calculated by dividing total revenue by the number of customers you have. ARPU helps companies analyze their growth patterns and compare their success to competitors.
Why is ARPU important?
Tracking ARPU allows you to plan for the long-term and the short-term. On one end it can be the base for accelerating your Monthly Recurring Revenue (MRR) growth through higher paying customers. Higher ARPU is also a source of fuel for your Customer Lifetime Value (CLTV) goals, ensuring that your SaaS business is on the trajectory path that it needs to be for optimal success in the long term.
What is a good ARPU?
ARPU doesn’t have any optimal value. But there’s a rule. If ARPU is small, you need a huge amount of customers. If ARPU is big, you can manage with less. So when you evaluate ARPU, the biggest question is: “how many customers can you reach and acquire?”
If your ARPU is $20 then you need 500 customers to make $10,000 per month. But if ARPU would be $80 then you’d only need 125 customers to make $10,000 - and if you’d get 500 customers that would mean $40,000 per month.