Dictionary

Average revenue per user (ARPU)

“The average revenue a business earns from each user over a period, found by dividing revenue by the average number of users. Whether all, active or only paying users are counted changes average revenue per user (ARPU) sharply.”

Why average revenue per user (ARPU) matters to a first-time founder

ARPU shows whether your typical customer is becoming more or less valuable, which feeds pricing, lifetime value and how much you can spend to win customers. Count the wrong users and every figure built on it is diluted or inflated. A rising average can hide a shrinking customer base, and a falling one can mean a cheaper plan is working, so always read it alongside how many users sit on each plan.

Examples of average revenue per user (ARPU)

€800 in monthly subscriptions divided by an average of forty paying users is €20 of ARPU for the month. Include ten trial accounts and the result becomes €16. The price did not fall. You changed the denominator, which is why the report must say who counts as a user.

Common misunderstanding

People mix it up with lifetime value, or they let trials and dead accounts into the denominator. Lifetime value is the profit you expect across the whole relationship. This is revenue, for one period, per user you chose to include. Say which users. A falling average can mean a cheaper plan is working, which may be fine, or that you are counting people who do not pay.

When to use it

Use it to see whether the typical paying customer is worth more or less than last quarter. Split it by plan if you have more than one price. One average across a free plan and a paid plan will lie to you.