The average revenue per user. Let’s use it in MVP

How do you calculate revenue per user, and what exactly is an ARPU formula? Join us as we continue our investigation into common startup metrics with average revenue per user.

Have you been checking out our suite of articles about metrics you can use to determine the viability of your startup and minimal viable product (MVP)?

So far, we’ve looked at customer lifetime value, churn rate, and customer acquisition costs.

The next metric we’re looking at is? The average revenue per user, also abbreviated to ARPU.

This metric is useful if you run a subscription-based (or SaaS) startup, as you can see how much money your users are bringing into your business. Social media platforms like Meta often use it as well to help with valuation purposes.

Let’s take a look at the average revenue per user in a startup, how to calculate revenue per user and what you can do to keep the revenue per user in your startup nice and high.

And remember, if you need any help monitoring and maintaining your key metrics, we’re here to support you – scroll down to the bottom of the page to find out more. 

  • What is the average revenue per user in an MVP?
  • How to calculate average revenue per user?
  • What is the ideal average revenue per user in an MVP?
  • How to boost your average revenue per user?
    • Focus on retaining the right customers;
    • Add more value to your MVP;
    • Encourage cross-selling and upselling;
    • Review your pricing model;
    • Look for the right customers.
  • Using average revenue per customer alongside other metrics.
  • In summary: ARPU is a fantastic metric for SaaS-based startups.
What is the average revenue per user in an MVP? You are launched

What is the average revenue per user in an MVP?

One of the most simple metrics to track, average revenue per user (or ARPU), is how much money each user of your product or service generates for your startup.

You can track ARPU on a monthly or annual basis, depending on your needs – some startups even calculate average revenue per user weekly or quarterly. Just make sure you track the same period of time to ensure your calculations are accurate.

This metric is sometimes referred to as average revenue per customer (ARPC). 

A high average revenue per user shows you’re targeting the right customers, your marketing is working well, and you’re in a position to scale in the future. 

How to calculate average revenue per user. urlaunched

How to calculate average revenue per user

The ARPU formula is the total revenue over a set period of time divided by the total number of users.

For example, let’s say your revenue is $15,000 over the space of a month, and you have 300 customers in that time. Your ARPU is $15,000 divided by 600 = $25. 

This means your customers are willing to pay $25 a month for your product or service. If the majority of your pricing tiers are below $25, that’s a promising sign and may mean customers are willing to pay even more. On the other hand, if they’re higher, you may need to take action to grow your ARPU.

Some SaaS businesses only factor paying customers into the equation rather than ones using the free service. You may hear this referred to as average revenue per paying user (ARPPU).

Here is a sample

Let’s take the figure from before and adjust it for non-freemium customers – say out of the 600 customers you have, 300 pay for your product or service. This increases your ARPPU to $50, which is a lot more promising!

If the difference between ARPU and ARPPU for your startup is significant, you might want to think about what you can do to turn freemium users into paying users. We’ll look at some ways you can grow your average revenue per user later on in this article.

If you offer pricing tiers, it could be insightful to calculate the average revenue per user for each one. This will let you see which tiers are bringing in the most money and what makes plans so popular with customers.

Similarly, some SaaS businesses use average revenue per account or ARPA. This is because some SaaS companies offer accounts that have multiple users or seats to take into consideration. This can provide more granular insight into your business as well as a more accurate measurement.

What is the ideal average revenue per user in an MVP? You are launched

What is the ideal average revenue per user in an MVP?

When it comes to ARPU calculation, we’re often asked if there is a ‘good’ average revenue per user to aspire to.

The average revenue per user is a hard metric to benchmark as there are a lot of different factors at play. Different businesses have different target markets and prices to take into consideration, and ARPU can also vary significantly depending on which country you’re in. 

If you do decide to benchmark against other businesses, it’s important to choose ones that are as similar in size, location, and vertical niche to you as possible.

Interestingly, you find many businesses don’t track average revenue per user as they see it as nothing more than a vanity metric, but nothing could be further from the truth!

It’s always best to benchmark against yourself when it comes to calculating average revenue per user. There are also other metrics you can use ARPU in conjunction with, which we’ll talk about in more detail later.

How to boost your average revenue per user. urlaunched

How to boost your average revenue per user

Now that you know what the average revenue per user is, you may want to know how to increase it. Here are some of our top tips for boosting your numbers.

1. Focus on retaining the right customers

As we all know, it’s easier to keep existing customers than try and find new ones. By identifying the customers that you want to stick around, you can take steps to make them stay with you.

What do we mean by ‘customers that you want to stick around? We mean people who spend a lot of money with you or have the potential to spend a lot of money with you. 

While it’s nice to have freemium and low-paying customers on board, they’re ultimately not profitable to your startup. Instead, you want to focus on the users that are most willing to pay.

Some of the ways you can boost customer retention include:

  • Responding quickly to customer queries;
  • Starting a rewards or loyalty program;
  • Providing exclusive gifts and discounts;
  • Using personalization to give customers the content they want to see;
  • Creating an effective onboarding program.

2. Add more value to your MVP

If you’ve found that your average revenue per user has taken a dip, it could be worth reviewing your product or service to see how you can provide additional value. For example, can you add a new feature or integrate it with existing technology? Bonus points if you can offer something that your competitors can’t!

The best way to see where and how you can add value to your product or service is by speaking to your existing customers. You can create a survey, asking them what they like and dislike about your MVP, and what you can do to make it better.

3. Encourage cross-selling and upselling

Many telecommunications companies and internet providers use ARPU as a metric and take the opportunity to sell additional services to customers. This can increase the total revenue that comes in. boosting average revenue per user. Have you ever rang up to cancel your broadband and come out of it with a better deal?

As a result, cross-selling (selling additional products and services) and upselling (encouraging customers to buy a more expensive version of the product or service) can be good options for your startup.

For example, let’s say you offer pricing tiers as part of your SaaS software. Is there anything you can do to encourage freemium customers to move to a paid tier, or paid customers to move to a higher tier? Alternatively, some SaaS companies offer ‘add-ons’ that customers can utilize for additional functionality.

4. Review your pricing model

If your ARPU is low, reassessing your subscription fees may mean more revenue and a boosted average revenue per user.

However, this isn’t a decision to take lightly and can lead to increased customer churn. You may even find that your competitors jump in with an alternative solution, taking your frustrated customers with them.

When SaaS companies need to boost their average revenue per customer, it’s usually the freemium tiers that take the hit first. For example, Hootsuite came under fire in 2021 for slashing the functionality of its free tier from 30 social media messages to 10. Many users complained that the change came in at too short notice, not giving them a chance to review their options.

Communication is key when it comes to making changes. If you need to increase prices or amend a pricing tier, explain why this is the case and how it will benefit the customer in the long term. A good marketer can help word an impactful message to your customers.

Ultimately you need to make your pricing appeal to longer-term customers that are willing to pay more. It’s a tough balancing act, we know!

5. Look for the right customers

If your ARPU isn’t where you’d like it to be, it might signal that you’re going after the wrong customers. If this is the case, reassessing your target audience may help.

Revisit your business model or lean canvas and see what has changed. Is there an audience willing to pay more for your product or service? Once you’ve identified them, update your canvas, create a new persona template, and look at how you can advertise your business to them. 

Need a little help? Here are some of the best digital marketing strategies you can use to promote your startup.

Remember, it’s okay to pivot towards a new audience if it helps your business succeed. For example, car manufacturer Ford originally targeted working men but has now moved towards targeting millennials instead!

Using average revenue per customer alongside other metrics. https://www.urlaunched.com/

Using average revenue per customer alongside other metrics

It’s important to use ARPU alongside other metrics for the best results. For example, customer lifetime value can give you valuable insight into how much customers are worth in the long term, as well as the short term. 

Similarly, ARPU can be used alongside the churn rate. If your churn rate is increasing and the average revenue per user is decreasing, it may mean your startup has to take immediate action to keep customers on board.

According to Profitwell, SaaS companies with a four-digit average revenue per user are 50% less likely to churn than ones with a one or two-digit average revenue per user.

Don’t forget to monitor your ARPU on a regular basis. That way, if there are any drops, you can take immediate action to put things right.

ARPU is a fantastic metric for SaaS-based startups. https://www.urlaunched.com/

In summary: ARPU is a fantastic metric for SaaS-based startups

Knowledge is power when it comes to your startup, and metrics like average revenue per user can tell you a lot about the state of your business and MVP.

If you run a SaaS-based startup, give ARPU a try – you’ll be surprised at what you discover!

We hope this article has given you an insight into the average revenue per user in an MVP and how to use it to track the success of your startup.

Keep reading our blog to catch the rest of the articles about startup metrics, or alternatively, follow us on TwitterFacebook, or LinkedIn to find out when they’re live on the site!


You are launched: Your startup partner

Got an idea for a startup? Our specialists can help develop, design, launch, and promote your startup across the world.

We’ve helped over thirty startups launch over the past four years, everything from finance to fitness. Will your startup be next?

Contact us today and see how we can get those metrics on the right track for you.

Scroll to Top