ARPU ( Average Revenue Per Use ) is an acronym in English that means “Average Revenue Per User” and this metric can help you analyze growth patterns and compare your success with that of your competitors. Below we will teach you how to calculate your company’s ARPU.
What is it and how to do the calculation
ARPU measures the spending of each customer of a company during a given period, so this index works as a metric of a company’s revenue .
This metric can also be applied to measure the sales performance of products or services for each customer , compare sales volume between periods, set prices, show the average spending per customer and control the internal performance of a company.
To obtain the ARPU, you need to do the following calculation:
ARPU = Average ticket X Average buy bulk sms service transactions per period per customer X Average active periods
How to Use ARPU to Calculate LTV
ARPU and LTV ( Lifetime Value ) are very similar metrics and are sometimes used interchangeably . You can use ARPU to calculate LTV, for example. See below how to do this calculation:
LTV = ARPU X % Contribution Margin
Here at Gestão em Dados we calculate data security across different applications the LTV considering the contribution margin. This way it is possible to understand the profitability of each unit economics , and the economic viability of the business.
Learn how to calculate your contribution margin in this post we recently made. (link to the Contribution Margin post)
What is the relationship between ARPU, LTV and CAC?
The relationship between these three indicators is important to understand the company’s financial health to support new growth.
To arrive at the indicator that identifies this “health”, we must find all these indicators.
To find out the LTV, you need to know email list what the ARPU is, which you learned here in this post, and to obtain metrics that allow you to evaluate how much each acquisition is costing, you need to know the CAC. Check out the formula used to obtain the CAC below and then use this indicator.
This way, you can analyze the unit economics and conclude whether or not each sale is profitable given the cost structure and revenue generated. The closer the ratio is to 1, the more the cost structure, pricing strategy, sales channels, and product quality need to be analyzed, as if it were a warning sign. It is common for some companies and startups to make losses early on, but it is essential to monitor these indicators over time to keep these numbers healthy.
Relationships with higher values, such as 12 or 15, are a warning sign for the company, as it is not investing as much as it needs to grow, that is, it is failing to leverage as much as it could.
Each market has an ideal value and you need to benchmark with companies in the sector to understand what value would be considered ideal.