What it means
ARPU divides revenue by the number of users, so it answers a simple question: how much is each user worth to us in a typical month or year? A rising ARPU suggests customers are paying more, through higher prices, upgrades or extra services.
A falling ARPU can mean heavy discounting or a flood of low-paying new users. It is especially valuable for businesses where growth comes from adding users, because it shows the quality of that growth.
A company that doubles its users while its ARPU halves has not increased revenue at all. Investors compare ARPU with the cost of acquiring a user to judge whether growth is profitable.
ARPU can be measured for different periods, most often monthly or annually, and for different groups. Companies track it by plan, region, acquisition channel and cohort (a group that joined at the same time).
Splitting ARPU this way shows which customers drive the average up and which pull it down. The meaning of the word "user" matters.
Some firms count every registered account, including inactive ones, while others only count paying or active users, which gives very different ARPU figures. A company should define the term clearly and use it consistently, and readers comparing two companies should check how each defines it.
ARPU is not the same as profit per user. It ignores the cost of serving the user, so a high-ARPU customer can still be unprofitable if support and infrastructure costs are heavy.
It is often paired with churn and customer acquisition cost to build a fuller picture. ARPU is best used as part of unit economics, which compare what a customer is worth with what it costs to win and serve them.
If ARPU is $15 a month and the gross margin is 70%, each user contributes $10.50 a month before acquisition costs. Dividing the acquisition cost by that contribution gives the number of months needed to pay back the spending.
In practice
Real-world examples
Example 1
A mobile network reports monthly ARPU of $28 and wants to lift it. It launches a premium plan with more data at $40, and moves 15% of customers onto it, which raises the blended ARPU.
Example 2
A language-learning app has 200,000 monthly active users, but only 20,000 pay $10 a month. Revenue is $200,000, so ARPU on all active users is $1, while ARPU on paying users is $10.
Example 3
A software company selling to small businesses sees its ARPU fall from $60 to $52 after a promotion that attracted many customers on the cheapest plan. The finance manager checks whether the new customers upgrade over time. The finance manager also tracks how quickly those customers move to the middle plan.
Think of it
ARPU shows how much money each user brings in on average-your per-customer revenue.
Formula
Calculation
ARPU = Total revenue for the period / Average number of users in the period
Suppose a streaming service earned $900,000 in a month. It had 58,000 users at the start of the month and 62,000 at the end, so the average number of users = (58,000 + 62,000) / 2 = 60,000.
ARPU = 900,000 / 60,000 = $15 per user per month. Over a year, the annualised figure is 15 x 12 = $180 per user.Case study
Seen in the real world
Skyline Streaming is an illustrative, fictional video service with 500,000 users and a monthly ARPU of $9. The board wanted to raise revenue by 20% in a year.
One option was to add 100,000 users through advertising, which would cost $4,000,000. The other was to raise ARPU to $10.80, through a premium tier and a small price rise, which would need only product work.
The finance director calculated that adding 100,000 users at $9 would bring $900,000 a month, whereas lifting ARPU by $1.80 on 500,000 users would bring the same $900,000. The board chose the premium tier first, since the illustrative numbers showed it was far cheaper than paying for new customers. The finance director added that, at a 70% gross margin, raising ARPU also improved profit more directly than recruiting users at a high acquisition cost.
Watch out
Common mistakes
- Comparing ARPU between companies without checking how each defines a user, which can make the figures meaningless.
- Treating ARPU as profit per user, when it ignores the cost of serving each customer.
- Looking only at the blended average, when different customer groups may have very different ARPU and trends.
Questions
People also ask
How is ARPU different from ARPPU?
ARPPU is average revenue per paying user and excludes non-paying users, so it is higher whenever a free tier exists.
How can a company raise ARPU?
By raising prices, selling upgrades and add-ons, bundling services or reducing deep discounts.
Is a higher ARPU always good?
Not if it comes with higher churn, because customers who leave quickly may be worth less in total.
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