Average Revenue Per User (ARPU) is a key metric that measures the average revenue generated per user over a specific period. It's calculated by dividing total revenue by the total number of users or customers: ARPU = Total Revenue / Total Number of Users.
Why ARPU matters for your business
ARPU is a critical indicator of business health and growth potential:
Monetization Efficiency: ARPU shows how effectively your business extracts value from each user.
Growth Forecasting: Understanding ARPU helps project future revenue as user base expands.
Pricing Strategy: ARPU trends can inform pricing decisions and packaging of features.
Investor Relations: ARPU is frequently scrutinized by investors as a sign of business model strength.
While related, ARPU and Customer Lifetime Value (LTV) measure different aspects of customer value:
ARPU: Measures average revenue per user over a specific timeframe (e.g., month, quarter)
LTV: Measures the total expected revenue from a customer across their entire relationship with your business
In simple terms: ARPU is a snapshot metric, while LTV is a forward-looking projection. Both are essential for a complete understanding of your business economics.
How to increase your ARPU
There are several proven strategies to increase ARPU:
Implement Tiered Pricing:
Create premium tiers with higher value features to encourage upgrades
Design a smooth upgrade path that aligns with user value realization
Include usage-based pricing components to capture value from power users
Add-ons and Expansions:
Develop complementary features or products that create additional value
Offer optional add-ons that address specific use cases or segments
Create opportunities for usage expansion (more seats, storage, capacity)
Cross-Selling Opportunities:
Bundle complementary products or services for greater value
Identify natural upsell points in the customer journey
Leverage customer data to recommend relevant additional offerings
Optimize Pricing Strategy:
Regularly review and adjust pricing based on delivered value
Consider value-based pricing over cost-plus pricing
Test price elasticity through structured experiments
Implement strategic price increases for existing customers
ARPU benchmarks across industries
ARPU varies significantly across industries and business models:
SaaS: B2B SaaS typically ranges from $100-$1000+ monthly ARPU, while B2C SaaS is often $5-$50
Subscription Services: Content subscriptions average $10-$30 monthly
Telecommunications: Mobile carriers average $30-$60 monthly ARPU
Gaming: Free-to-play mobile games typically see $1-$5 monthly ARPU for monetized users
E-commerce: Often measured as average order value rather than ARPU
These benchmarks can vary by geography, customer segment, and specific market conditions. The most valuable comparison is often your own ARPU trends over time.
Using ARPU to guide business decisions
Beyond basic calculation, leverage ARPU to drive strategic decisions:
Segment ARPU by customer cohorts to identify your most valuable user types
Track ARPU trends over time to measure the impact of pricing and feature changes
Compare ARPU to customer acquisition costs to ensure sustainable growth
Analyze ARPU by acquisition channel to prioritize marketing investments
Set ARPU growth targets as part of your business KPIs
Consistently monitoring and working to improve your ARPU, alongside other key metrics like retention and LTV, creates a powerful framework for sustainable business growth and increasing shareholder value.
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