Average Revenue Per User (ARPU)

ARPU has a significant influence on how you plan your go-to-market strategy. If you have a high ARPU with high net revenue retention (NRR), you can do some very interesting and exciting things to acquire new customers because it’s so profitable to do so.

Why does ARPU matter?

Many businesses use this metric to measure their business performance and make decisions about future growth.

ARPU can be used as an effective tool to measure and compare companies in the same industry or competitive set.

It can also be used to measure the effectiveness of your pricing strategy.

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How do you calculate ARPU?

The simplest way to calculate ARPU is to divide total revenue by the total number of users during a given time period.

ARPU = Total Revenue / Total Number of Users

For example, if you made $1 million in revenue last month and you have 10,000 customers, your ARPU would be $100 per customer. If you made $1 million in revenue last month and you had 100 customers, your ARPU would be $100,000 per customer (as opposed to $100).

What is a good ARPU?

The average ARPU rate varies depending on your industry and product line, but there are some basic trends that you can expect to see across all categories:

• Hardware businesses tend to have higher than average ARPU rates since they tend to sell expensive products with high operating margins and little service costs associated with them (e.g., Apple).
• Software-as-a-service (SaaS) businesses tend to have lower than average ARPU rates due in part to their generally low operating margins and heavy reliance on long-term recurring revenue streams (e.g., Salesforce).

How to increase ARPU?

There are really only two ways to increase average revenue per user. Follow one of these two ways:

1. Sell more product to the same customers
2. Sell the same product at a higher price

That’s it. You either sell more product to each customer, so that if they were spending $10,000/year with you today. Next year, they are spending $15,000/year.

Alternatively, you can sell them the same product for more money. Let’s say you sell your product for $100/user/mo, next year you charge them $125/user/mo.

When you are able to increase your average revenue per user (ARPU), you can increase the amount you are able to spend to profitably acquire new customers. ARPU is a critical input to inform your Demand Generation Strategy Template.

It will enable you to drive massive growth through your sales and marketing orgs.