What is it? ARPU stands for Average Revenue Per User, that is, the average revenue per user. This metric is usually used in cloud services, but can also be used in other areas of e-commerce and offline business.
Why is it needed? ARPU is used to determine the effectiveness of advertising campaigns and changes in website design. The metric is also used for segmentation and forecasting customer reactions to price changes.
The article explains:
The concept of ARPU
Rules and nuances of calculating ARPU
Examples of using the ARPU metric
ARPU related metrics
Examples of ARPU engineer data package calculation and similar metrics
Relationship between ARPU and product value
Methods to Increase ARPU in E-Commerce
Frequently asked questions about ARPU
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The concept of ARPU
ARPU in marketing is an indicator that shows how much money a specific customer spends on purchasing your product every month. Many people consider this metric to be insignificant, but this is not the case. In fact, by calculating this parameter, you can identify the preferences of individual customer segments. Displaying data in a graphical format helps identify the most popular price categories and upsell trends.
The concept of ARPU
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Tracking ARPU is important when planning the organization’s activities both for the short and long term. This indicator helps to increase MRR (monthly recurring revenue) by identifying the most solvent customers. In addition, ARPU contributes to LTV (customer lifetime value), determining the most effective strategies for development.
The abbreviation ARPU stands for Average Revenue Per User. In English, this means “average revenue per user”.
Average revenue per customer per month is the sum of revenues received from all customers divided by the number of customers who spent money on your product or service. Let's look at a few factors to consider when determining ARPU:
Monthly Recurring Revenue (MRR) is the total amount of income from a company's operations for a month.
Upgrade – reflects the profit from customers who have switched to premium tariff plans.
Downgrade – lowering tariff plans. This metric shows the profit from customers switching to lower tariff plans. It allows you to determine how much money was lost even in the absence of churn.
MRR Churn Loss – shows how much money you lost due to certain customers leaving.
Total number of solvent customers – all users who have paid for your service during the month and have active accounts. Do not include free users in the ARPU calculation, as they do not generate profit.
Taking into account inactive users who do not generate revenue for the business is a common mistake that many companies make. If consumers do not spend their money on your products, then they should not be included in determining ARPU.