Average revenue per unit (ARPU): Definition and how to calculate

The world of SaaS metrics is complex, to say the least.

Open up the typical SaaS leader’s dashboard, and you’ll likely be overwhelmed by the sheer volume of measurements being tracked on a monthly basis.

Among the most important of these is average revenue per user, or ARPU (SaaS people love their acronyms).

ARPU is a critical metric to track to understand how effective your organization is at extracting revenue from a given customer.

This article will take you on a deep dive into the uses and drawbacks of ARPU. We’ll discuss what it is, explore why it's important, outline how to calculate it, and examine some of the core factors that inform a good ARPU.

Average revenue per user (ARPU) definition

Average Revenue Per User (ARPU) measures how much revenue a company earns, on average, from each customer within a defined period—typically monthly or annually. It’s calculated by dividing total revenue by the number of active users in that timeframe. ARPU is a key performance metric for subscription-based businesses, such as SaaS, telecom, and digital media companies, helping them evaluate revenue performance, monitor growth trends, and guide strategic decisions.

Why ARPU is important?

ARPU is more than just a financial ratio. It is a window into the overall health and direction of a business. Here’s why it's important.

ARPU’s role in financial health assessment

Tracking ARPU allows companies to assess whether their revenue per customer is growing, stable, or declining.

It can help reveal whether drivers like pricing strategies, production adoption, or customer engagement efforts are delivering measurable value. A consistently low or falling ARPU could flag deeper issues with churn, customer satisfaction, or market positioning. 

ARPU’s impact on business strategy

Business leaders use ARPU to guide decisions on how to price products, which products to develop next, and how to capitalize on upselling opportunities.

For subscription-based companies, for instance, trends in ARPU can tell leaders whether to introduce new tiers, bundle services, or focus on retaining high-value customers.

ARPU’s use in investor relations

Investors and analysts also pay close attention to ARPU.

For these stakeholders, ARPU provides a clear signal of how effectively a business is monetizing its customer base. A rising ARPU can boost investor confidence, whereas a declining ARPU might prompt concerns about revenue sustainability.

Companies often highlight ARPU in earnings reports and investor presentations as a key measure of performance.

How to calculate ARPU 

At its core, ARPU is a straightforward metric, but its insights depend on how accurately it is calculated.

The basic formula for ARPU is:

Let’s illustrate with a few common examples:

• Telecommunications: If a mobile provider earns $10 million from 500,000 subscribers in a month, its ARPU is $20.
• Streaming services: A platform with $50 million in quarterly revenue from 5 million active users has an ARPU of $10.
• SaaS companies: A B2B software vendor generating $1.2 million annually from 1,000 paying customers reports an ARPU of $1,200.

What is included in an ARPU calculation?

The revenue figure used to calculate ARPU can include:

• Subscription fees
• Usage charges
• In-app purchase
• Other revenue streams tied directly to customers

The user count is typically based on active customers in the same revenue period, though each company must define what they consider to be an “active user” to maintain consistency and comparability across periods.

Step-by-step calculation process

The process for calculating ARPU is quite straightforward:

1. Define the time period (e.g., one month, one quarter).
2. Add up all revenue generated directly from customers in that period.
3. Count the number of active users during that same timeframe.
4. Divide total revenue by the number of users to arrive at ARPU.

Who uses average revenue per unit (ARPU)? 

Any company can choose to track ARPU as a key financial metric, though it's typically more beneficial in scenarios with a recurring user base.

For that reason, ARPU is most commonly used by:

• Telecommunications and media companies to measure revenue per subscriber and assess pricing strategies
• Technology and SaaS businesses to track user value, guide product decisions, and evaluate unit economics
• Investors and analysts to gauge how effectively a company monetizes its customer base

What factors affect ARPU? 

The factors that impact ARPU are largely the same as those that impact revenue, given that revenue is one of the two major determinants in calculating the figure.

That said, four key inputs have an important and notable impact on what your company’s ARPU figure looks like.

1. Customer demographics and behavior

Since ARPU is so closely tied to who your customers are and how they engage with your product, it's only natural that demographics and behavior will impact ARPU.

For example, higher-value customer segments, like business users or premium subscribers, tend to push up ARPU.

Similarly, frequency of use and willingness to upgrade, purchase additional features, or increase utilization in usage-based scenarios directly impact revenue generation and, therefore, ARPU.

2. Pricing strategies and product offerings

The way your company prices its products or services, as well as the variety of offerings available to a given user, can greatly influence ARPU.

Introducing new pricing tiers, bundling services, or offering add-ons can help increase ARPU, especially when targeting customers who are willing to pay more for enhanced features or exclusive access.

3. Market conditions and competition

Economic conditions, industry trends, and the competitive landscape all play a role in ARPU.

If you’re in a highly saturated market, for example, price pressure is likely to occur, which can lead to a reduction in ARPU.

Seasonality or external factors such as changes in consumer spending or new regulatory policies can also impact ARPU.

4. User engagement and retention

Companies that have higher rates of customer engagement and longer customer lifecycles tend to have higher ARPU figures.

If customers regularly use your product or service and remain loyal over time, they’re likely to spend more on upgrades or additional features, pushing up ARPU.

What’s a good ARPU? 

There really is no one-size-fits-all measurement for ARPU. It varies widely across industries, business models, and markets.

One company might have a low ARPU but millions of users and be highly profitable, while another might have a higher ARPU with fewer users and be just as financially viable.

A “good” ARPU ultimately depends on how it compares to peers, aligns with company goals, and supports long-term profitability.

Here are a few common industry benchmarks to give you an idea of what ARPU might look like in your context:

• Telecom companies may report ARPU in the $20-$50 range
• SaaS businesses can range from under $100 to several thousand dollars per customer annually.
• Streaming platforms often sit at the lower end, with single-digit monthly ARPU

Business model plays a huge role here. Freemium or ad-supported models generally have lower ARPU than subscription or enterprise-focused offerings. 

So does the brand’s growth stage. Startups are more likely ot accept lower ARPU figures in early stages to prioritize market traction and user growth, while more mature companies are more likely to focus on increasing ARPU through upsells, premium features, and targeting enterprise companies.

Ultimately, a good ARPU is one that shows consistent growth, aligns with customer acquisition costs, and reflects strong unit economics relative to competitors.

How to improve ARPU 

There are many strategies businesses can employ to lift ARPU. Ultimately, any strategy that increases revenue beyond simply adding more users is going to increase ARPU.

Some tactics to consider include:

• Increasing customer engagement through personalized recommendations and targeted communications (like restock reminder emails)
• Using loyalty programs to enhance usage or drive referrals
• Invest in upselling and cross-selling techniques like add-ons, bundle discounts, and complementary products
• Experimenting with different pricing strategies like usage-based pricing, premium tiers, and bundles, or simply testing price increases on the market
• Enhancing product value through performance improvements, new and exclusive content, or introducing innovative features that increase perceived value and allow you to push pricing up
• Focusing on retention and loyalty by investing in customer success teams, proactive support methodologies, and churn identification strategies 
• Leveraging data analytics to improve your understanding of customer behavior and to identify usage patterns to refine pricing strategies or design tailored offers

Advantages and disadvantages of ARPU 

There are few perfect financial metrics, and while ARPU has many advantages, it also has a few drawbacks.

Advantages of ARPU

The advantages of ARPU as a financial metric include:

• ARPU is easy to calculate and provides a clear way to compare performance over time or against competitors.
• It helps businesses identify whether pricing, product strategy, or engagement efforts are driving growth.
• Because it reflects how well a company monetizes its user base, ARPU is often used in earnings reports and by analysts to assess financial health.
• Tracking ARPU alongside user growth shows whether the business model can scale profitably.

Disadvantages of ARPU

Like all financial measurements, ARPU has some disadvantages as well:

• ARPU is an average, which means it can hide differences between high-value and low-value customer segments.
• It does not consider customer acquisition cost (CAC) or customer lifetime value (CLV), which are essential for a full view of profitability.
• Benchmarks for what counts as “good” ARPU vary widely between industries, making cross-sector comparisons less meaningful.
• A company may raise ARPU by increasing prices, but this can hurt retention and long-term revenue if customers leave.

ARPU vs. other key metrics 

ARPU, like most measurements, works best when examined in the context of overall performance.

Here are two common metrics to consider tracking alongside average revenue per user.

1. Customer lifetime value (CLV): CLV looks at the total revenue expected from a customer over their entire relationship with the company, whereas ARPU puts a time limit on the measurement, typically standardizing to an annual value.
2. Average revenue per account (ARPA): ARPA is similar, but it looks at the revenue generated per account, which may include multiple users. For instance, a single B2B account might have 50 users within it. ARPU takes that into account, zeroing in on the revenue tied to each individual user.

When to use ARPU vs. other metrics

ARPU is most useful for:

• Monitoring recurring revenue
• Benchmarking against competitors
• Assessing the impact of pricing strategies or product changes

CLV is better suited for strategic planning and investment decisions, especially when evaluating the return on customer acquisition costs, while ARPA is valuable in account-based business models where the number of users per account varies widely.

That said, it’s rarely a case of choosing one metric over another. Instead, you should track all three together to gain a fuller picture of customer value and business performance.

Using automation to inform accurate ARPU calculation 

Average revenue per user (ARPU) is one of many critical metrics that SaaS and subscription-based businesses should be monitoring regularly.

Of course, its use relies heavily on the accuracy of your revenue figure, which makes effective, real-time revenue tracking critical.

BILL’s financial operations platform supports accurate ARPU calculation by:

• Centralizing invoicing and payments so revenue data is captured at the source and updated in real time
• Providing clear accounts receivable reporting that makes it easy to see total invoiced amounts, payments collected, and outstanding balances
• Integrating with CRMs and subscription systems to connect customer counts with revenue figures, enabling accurate ARPU calculation

Get started with BILL today.