ARPU Model or Average Revenue per User is one of the most holistic metrics which is embraced by a lot of businesses that offer subscription based products /services.
In mathematical term ARPU may be found out by dividing the total revenue by no. of subscribers for that time period i.e. ARPU=Total Revenue in a period/No. of subscribers in the period.
Generally, the time frame for the revenue is taken to be monthly but, if your business is based on annual subscription, you may want to want to look at the revenue for an annual time period.
What is a good ARPU?
The higher the revenue generated from the subscribers for a given period of time, the better is the ARPU metric. In short, there is no absolute benchmark to show if the ARPU is good or not. It is also business relative, for instance, if a business is generating 1000$ per 300 subscribers for a period as against its competitor which generates 2000$, it is very obvious that the second company which generates more revenue for the same no. of subscribers is more profitable and has better ARPU.
Difference between ARPU and Customer Life Time Value(LTV)
A lot of people get confused in the concepts of Customer LTV and ARPU. While LTV focuses on the value(profit) that a customer brings to the business in his/her life-time, the ARPU model focuses more on the revenue collected from the customers within a time-frame generally, on a monthly basis.
How to increase ARPU
Value Addition: Add value to the existing product/service that you are offering. When customers see more value in your product, you will find more takers for your offerings, and more taker for your product would most certainly result in the increased ARPU.
Optimize your pricing strategy: As you add complexities in your offerings to meet market demands, it is imperative that you also revisit your pricing strategies so that your offering gets the respect that it should , thereby increasing ARPU.
Upsell and cross-sell: As an entrepreneur, if you have the luxury of selling higher priced item, with the market offering in contention, you may want to go ahead with the seamless integration of the same. You may also want to integrate your offering with another offering which is complimentary in nature thereby, making it more lucrative in nature.
A very robust paradigm is essential for making high profits in a business. Employing a highly effective metric such as ARPU is very important in optimizing the profits and gains for a business. ARPU, when applied along with the concept of Customer Lifetime Value, ensures high profit margins along with low customer churn rate.