Eliminating the unknown and replacing it with data

Average Revenue per User “ARPU”

So, no, it’s not a new type of video games. ARPU, short for average Revenue Per User, is a very serious, important metric that all business owners need to be aware of. Basically, once you have calculated this, you will be able to perceive just how much you are gaining with each user. You need to be aware of this value as it comes in handy when looking to understand the overall value of your customers and, by extension, the value of your business. OK, so how exactly can you calculate ARPU? This time, it’s really not that difficult, that’s the best part. Basically, you look at your entire Monthly Recurring Revenue and divide it by the number of active customers/users. However, time to make a small mention here. You need to consider a fixed time frame. For instance, you can focus on discovering ARPU per month. Your number of active users may vary, which basically means that your ARPU changes. Correct, right? Here’s your formula for the taking.

ARPU = MRR/Number of Active users per fixed period

When discussing ARPU, you need to treat this topic seriously because it brings forward so many secrets which are definitely worth knowing. Let us elaborate on this topic a bit.

ARPU shows you how much your customers bring you, per user. If the ARPU value is low, then expanding in the way you might have hoped to do may be close to impossible. When your ARPU is low, you may not be able to continue with your growth strategies, without giving up on your profit. And let’s be honest here. Who wants to give up profit? And that’s fine, that’s really ok because you can adapt your growth strategy based on these insights. Adapt in terms of support, sale approaches and other elements you were thinking of including in your growth strategy.

The good news about a low ARPU is that you are aware of it. You know where you are situated in terms of customer value and you can create a strategy starting with this detail. You can approach the problem directly. And in the e-commerce world, this is a huge benefit and you need to embrace it with both arms.

Using ARPU for other purposes

Here is the surprise ARPU has for you. A low ARPU rate is bad news, we know. At first, your self-esteem might just be thrown out the window, while you are too busy wondering how this happened. But once the effect tones down and you start to think clearly, you realize that a low ARPU is a starting point. From now on, testing begins. You begin cross-selling, up-selling to see how customers react. Are they accepting your offers? All of them or just some? Then think behavior. How did the second product/ additional feature help your customer? What are his interests? While looking to improve your ARPU, you can discover more about your buyer persona, which can be huge. Basically, from one point on, you’ll be targeting a specific audience, significantly increasing your conversion rate.

The fact of the matter is that ARPU is meant to show, to prove, to shade light upon the aspects that matter in any growth strategy. And no matter how much we would like to hide behind the bush, there is really no forgetting about ARPU. It’s there. When it’s high, it’s good and difficult to maintain. When it’s low, it’s bad and tricky to improve. Either way, it’s a struggle, but it’s one you know of.