Using essential metrics and tools in your marketing strategy is a must to fully understand and analyze your customers. In this article, you will get introduced to one of the most important metrics for your e-commerce business.
Average Revenue Per User (ARPC) is a formula that will help you know the trends during different time periods and choose the right segments of customers.
Know everything you need about ARPU, what it is, why it is important for your business, how to calculate it, and more in the following article.
Table of content:
- What is the Average Revenue Per User?
- How to Calculate Average Revenue Per User?
- Why is ARPU Important?
- What is The Difference Between ARPC, ARPU & LTV?
- What is a good average ARPU?
- ARPU Helps You Set Benchmarks
What is the Average Revenue Per User?
Average revenue per user (ARPU) indicates the average amount of revenue generated from each customer or subscriber. ARPU equals the total revenue divided by the number of users or subscribers. More importantly, ARPU is one of the most efficient and important eCommerce metrics.
During analysis, it is useful to compare the ARPU numbers of your brand to your competitors in the same industry.
ARPU can be reviewed as the customers' responses to your company's various pricings and offerings.
How to Calculate Average Revenue Per User?
First things first, in order to calculate ARPU accurately, you have to define a specific time period. Most eCommerce business companies calculate their ARPU on a monthly basis. Then the total revenue generated during the previously specified time is then divided by the total number of users. Of course, the number of users fluctuates, especially in industries such as media and telecommunications. Hence, the number of users is usually estimated during the specified time in order to reach the most accurate ARPU.
ARPU Formula = The revenue generated in a specific time period / the number of users in that same time period.
Here is the number you have to include in the total revenue:
- First-time buyers or subscribers who pay upfront
- Recurring revenue, i.e. monthly payments
- Upsells, through purchasing premium products
- Cross-sells, or purchases of products from others in revenue-sharing deals
An example of the ARPU Formula:
Total revenue $500,000 per month
Total Users/Buyers: 500
ARPU = 500,000/500 = 1,000$ per month
Why is ARPU Important?
ARPU is super useful for:
- Companies as the beginning for analysis of the company’s strengths and weaknesses.
- Executives and investors who want to fathom and track a company’s ability to generate profit and maintain growth at the per-unit level.
- Marketers! Knowing the ARPU of the lowest and highest value users allows you to know the marketing activities and campaigns that are performing well and those that should be changed or stopped. Also, it is perfect to know which channels and social media networks to consider in the future and which to be removed.
ARPU is pretty important in complementing the cost of media metrics such as cost per install (CPI), or cost per action (CPA). Comparing them helps you know if you are spending your budget wisely.
What is The Difference Between ARPC, ARPU & LTV?
- The Average Revenue Per Customer (ARPC) is the ratio of the revenue that one customer generates to your eCommerce brand over a time period (monthly, quarterly, and yearly).
ARPC is sometimes referred to as ARPU (Average Revenue per User), particularly in the SaaS world.
- On the other hand, as we said before, the Average Revenue Per User is the ratio of the revenue generated by each user over a given period of time, taken as an average. This can be used by any business, especially those with a recurring revenue model, such as subscription companies, telecommunication, and media companies. It is relevant for companies that are selling services.
- Most people can confuse the above definitions with LTV (Customer Lifetime Value). Simply, they are not the same thing. LTV is the amount of revenue you expect to make from a customer as long as they remain an active customer. So, it is considered the gross margin per customer (during the customer’s lifetime with your brand).
- LTV informs you about customer profitability on a deeper level, while ARPC/ARPU helps you understand how much revenue you are making per customer.
What is a good average ARPU In Ecommerce?
The standard for average ARPU varies according to location, industry, and pricing model. ARPU can widely differ from one industry to another.
Hence, identifying a “good” average ARPU for your business needs good research and competitors’ analysis. Moreover, you need to fully understand the industry you are working in to calculate the benchmark ARPU for your industry and aim toward that.
For Example:
- The average e-commerce revenue per user in Brazil in 2021 is 240$
- The average e-commerce revenue per user (ARPU) in Africa is 93.82 euros in 2022
- The Average retail e-commerce revenue per user in India is 147.35 USD in 2021
- The average retail e-commerce ARPU in China is 1,015 USD in 2021
- The ARPU of the e-commerce furniture industry in the United States is 1,870$ in 2021 and is expected to continuously increase by $220 (+11.06%) from 2021 to 2025. Therefore, the average revenue per user is estimated to amount to nearly 2,000 U.S. dollars by 2025
To have a ‘good’ ARPU you need to consider the number of returning visitors to your eCommerce website, the average cost of an item, conversion rates, and Average Order Value (AOV). Returning visitors spend 67% more than new ones on your products according to CMO by Adobe.
How To Increase The ARPU For Your eCommerce Business?
Maximize your eCommerce earnings by pushing your ARPU higher. Increasing ARPU means that you are getting more of the right target audience and offering them the exact products or services they're interested in. Follow the upcoming tips and tricks to double your ROI:
- Optimize your products or services pricing accordingly to attract higher-paying, long-term clients, and offer them a variety of payment plans that can serve them right.
- Give your customers some free features along with paid ones on your eCommerce website, don’t go free all the way.
- Give your customers upselling and cross-selling options while purchasing or on their check-out, and offer add-ons.
- Pay attention to all your clients; however, pay extra attention to your loyal ones. Make them feel special with extra offers and special loyalty programs.
- Start looking for higher-paying clients and active customers with larger budgets in your eCommerce industry.
- Always track and analyze your ARPU to know the new trends and make use of the existing opportunities.
- Use customer retention strategies, such as email marketing campaigns, retargeting ads, remarketing strategies, and more methods to retain and remind your existing customers of your products.
- Maximize your eCommerce social media marketing strategies.
- Plan a long-term product strategy, and always consider adding new features, creative services or free products. Update what you offer continuously.
- Create the right customer persona for your eCommerce business. 99.9% of successful businesses have a strong hold on who their customers are and a better grasp on what that customer values in their products. Understanding your target audience perfectly is understanding your ARPU.
Read more about 12 Ways to Increase and Optimize Average Revenue Per User
ARPU Helps You Set Benchmarks
Considering your Average Revenue Per User is considered the beginning in setting benchmarks and KPIs for your business on a monthly basis. This can help you explore new ways to get the most out of your customers.
You can do this by focusing on a combination of metrics like LTV and ARPU for your customer cohorts. You can also test new pricing for bundles or special offers for a period of time.
Studying your customers’ data and their behaviors can help you create the right promotions for them. For example: if you own a chocolate brand, knowing what your loyal customers always purchase will help you create a holiday bundle with their special flavors at a special price.
Then, it's all about letting your campaign boom on your social media, email, and whatever engagement methods work for you.
Testing out new promotions and pricing strategies for your strongest products and most loyal customers, will help you have strong ARPU data to assist you in setting benchmarks for any given period of time - monthly, quarterly, or yearly.
Fact: Did you know that The world's top three social media sites in terms of ARPU are, in order, TikTok, Facebook, and LinkedIn?
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