Average Revenue per Customer

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Just as the name suggests, ARPC is the average revenue generated from each customer per month. A company may also choose to calculate per quarter or year.

ARPC is a standard metric that’s useful for many types of businesses. Often ARPC and customer lifetime value (link to LTV post) get confused with each other. While they are similar, they are different metrics.

average revenue

Lifetime value is a measure of the total revenue a business can expect from a single customer account over the company’s lifetime. Additionally, lifetime value accounts for variable costs such as support, transaction fees, and refunds. Lifetime value is a measure of how profitable each customer is on a unit/user basis. In contrast, ARPC is a way to measure the business’s overall health on an ongoing basis.

How to Calculate Average Revenue per Customer

ARPC = Total Revenue/Customer Count

Knowing the ARPC for different products your company offers helps SaaS businesses to identify their most valuable products. For example, assume your company provides a mix of products and services with the following ARPCs:

average revenue

Assuming costs are the same or similar, we learn from the ARPC; product 3 is your company’s moneymaker. Therefore, you can now focus on selling product 3 OR concentrate on making products 1 & 2 more profitable. 

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Average Revenue Per User vs. Average Revenue Per Unit

While very similar, different types of companies need to calculate a different number. If a company sells a subscription or use the software, it will need to figure per user instead of a company that sells an actual product. 

The average revenue per user measures the amount of money that a company can expect to generate from an individual user. We calculated it by dividing the total revenue of the company by its total number of users.

ARPU = Total Revenue / # of Users

The average revenue per unit is the amount of money a company can expect to receive from selling one product unit. Similarly, it’s calculated the same as ARP User. Start by dividing the company’s total revenue by its number of units sold. Companies that sell physical products instead of providing a service or software use ARP units.

ARPU = total revenue / # of units sold

Calculating and understanding ARPC is essential to running a healthy and long-lasting business. Knowing precisely which product or users are the most profitable is critical. It points your company in the direction it needs to head for success.

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