ARPU Meaning: How to Calculate and Track ARPU?

What is Average Revenue Per User (ARPU)? Read on to learn what exactly ARPU means, its benefits, and tips for increasing it from Polymer.

ARPU Meaning: How to Calculate and Track ARPU?

ARPU is an essential metric that every business needs in their revenue dashboards. 

But what exactly is ARPU? How is it different from other revenue-related KPIs like Customer Lifetime Value and Revenue Per Visitor? 

Read on for an ARPU definition, and learn more about its benefits, and tips for increasing it.  

ARPU Meaning in Marketing: Average Revenue Per User

ARPU — short for "Average Revenue Per User" — is a metric that tracks the average earnings you generate for each customer. This is not to be confused with "Average Revenue Per Unit" (also ARPU), which tracks revenue per unit of product sold. 

Take note that ARPU is also different from Customer Lifetime Value (CLV)

While CLV measures the potential revenue from customers throughout their lifecycle, ARPU tracks the money they can bring within a set time period. This makes ARPU more useful than CLV when evaluating or forecasting short-term business performance. 

Why Should You Track ARPU?

ARPU is a straightforward metric that can help businesses make better, data-driven decisions.

Here are some of ARPU's top use cases:

  • Enhance revenue analysis. Calculate the ARPU value for each customer segment to make the most out of your revenue analysis efforts. In turn, you can identify your most profitable customer types and adjust your strategies accordingly. 
  • Forecast future business performance. ARPU is a useful tool for predicting future revenue performance. Think about other factors like Customer Acquisition Cost (CAC) and upcoming pricing changes (i.e., sales holidays) for more accurate projections.  
  • Understand trends in customer behavior. Monitoring ARPU over time will reveal seasonal or periodic changes in your customers' purchase behavior. This lets you take advantage of spikes in customer activity to boost sales
  • Create more readable reports. ARPU is an upfront Key Performance Indicator (KPI) that will help investors and stakeholders get a handle on business performance. Use a Business Intelligence (BI) platform like Polymer to craft data-rich, visual dashboards that streamline data sharing. 
  • Fine-tune your pricing strategy and product offers. Benchmark your ARPU against competitors to make informed pricing decisions. Assess your sales data over time to see if customers are taking the bite or spending less due to your pricing adjustments. 

How is ARPU Calculated?

Ready to use ARPU to analyze your revenue performance? 

To calculate your ARPU, use this formula: 

ARPU is typically calculated on a monthly or weekly basis. You just need to add up the revenue and customers you generated throughout a specific time period. 

Suppose you run a subscription-based business with a total of 200 customers. Over the month, you generated a total of $4,000 in revenue. 

For that particular month, your ARPU is exactly $20.

If you run an online store, you can use ARPU as a KPI for ecommerce sales analysis. Just remember that it's different from Revenue Per Visitor (RPV), which also tracks non-customers who visit your store.

Tips to Increase ARPU

Let's say you've done the math and determined that your ARPU is below the industry average. Or, you're simply looking for ways to widen your margins. 

Here are five proven practices to improve your ARPU and hit your revenue goals:

1. Put More Emphasis on Upselling and Cross-Selling

Upselling and cross-selling allow you to squeeze more value out of every transaction.

For ecommerce businesses, these techniques increase your Average Order Value (AOV) and, by extension, your ARPU.

In simple terms, upselling is the practice of encouraging customers to purchase add-ons, longer-term subscription plans, or a more expensive version of the product altogether. Cross-selling, on the other hand, aims to make customers buy additional products that aren't necessarily related to their original purchase. 

2. Diminish Perceived Risk 

In terms of upselling and cross-selling, B2B customers are harder to convince. 

B2B buyers have a multi-faceted decision-making process when it comes to purchases. 

Before buying from you, a B2B buying community will evaluate the associated risks of using your product or service. This includes potential barriers to entry, known bugs or product quality issues, and steep pricing. 

Addressing perceived risk is important if you want to increase your average deal size, which directly affects your ARPU. 

Here are some ideas you can try: 

  • Offer a free, live demo of your product or service. 
  • Do a side-by-side comparison of your platform and a competitor's while focusing on pricing. 
  • Provide special pricing options tailored to each customer's needs. 
  • Share verifiable case studies and testimonials. 
  • Create a Frequently Asked Questions (FAQ) page that addresses common customer concerns.

3. Adjust Your Pricing

If your pricing model is within or below the industry average, consider rolling out a price increase. 

Just be careful — raising prices usually leads to backlash, especially from price-conscious customers who are used to your original pricing.

Mitigate this by offering "free" add-ons, perks, or new product bundles. If possible, make noticeable improvements to the core product to justify the higher costs.  

Whatever you do, be transparent and mind your timing. Announce your pricing adjustment ahead of time, state a clear reason for the increase, and reassure customers that their investment will greatly help improve the product over time.

4. Focus on Customer Retention

In business, retaining current customers is more cost-effective than acquiring new ones.

Effective customer retention boosts your ARPU by reducing your churn rate, which is the percentage of customers who stop buying from you after a certain time period. 

To improve customer retention, your top priority is to maximize both customer satisfaction and experience. You also need to step up your customer service game to build loyalty to your brand.  

Of course, none of these objectives can be accomplished overnight. But you can start today with a centralized data hub for your CRM, sales, and customer service performance. 

Polymer, for instance, is the perfect tool to streamline data collection, analysis, and reporting across multiple business aspects. Use it to create a single source of truth, revealing opportunities to improve the customer experience.  

5. Automate ARPU (and other KPI) Calculations

You can also use Polymer to create custom metrics to calculate and track your ARPU automatically. 

From your main dashboard, head to your board and click 'Data' on the left menu. 

At the bottom of your data table, click 'Create Custom Metric.' This lets you use custom formulas to perform automatic calculations using your data. 

For ARPU, remember to divide your total revenue by the number of customers. 

Aside from ARPU, create custom metrics for related KPIs, like Annual Recurring Revenue (ARR), AOV, CAC, and RPV. Just follow the instructions above and have fun creating dynamic, fully automated dashboards. 

Track Your ARPU with Ease Using Polymer

Data integrations and custom metrics are just the beginning. 

With Polymer, you also get interactive data visualizations, automated reporting, and a prompt-based AI tool for instant revenue insights.

Get started with a free trial today.

Posted on
February 23, 2024
under Blog
February 23, 2024
Written by
Rand Owens
Founding team member at Motive (Formerly KeepTruckin) and passionate about all things Marketing, RevOps, and Go-To-Market. VP of Marketing @ Polymer Search.

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