Analytics

How to Calculate & Optimize Average Revenue Per User (ARPU)

From cross-selling to offering tiered payment structures, creating new add-ons & more, there’s a lot you can do to optimize your average revenue per user.

Masooma Memon Masooma Memon on February 1, 2021 (last modified on April 22, 2021) • 12 minute read

So you’ve got a bunch of paying customers that you love, but you’ve been tinkering with the idea of increasing your average revenue per user (ARPU). After all, if the same customers can spend more on your business, you’ll be able to drive home good profit, isn’t it?

The fact is that while average revenue per user is a reliable metric to pursue, it can be challenging to get customers and subscribers to pay more. Taking the right steps at the right time can make all the difference though.

Overwhelmed? Fret not. We’ve got your back with 9 expert tips to increase your average revenue and much more.

Here’s what you’ll learn today:

Let’s dig in.

What is Average Revenue Per User (ARPU)?

ARPU of the average revenue per user, sometimes also referred to as the average revenue per unit, is the amount you make per subscriber or user.

It helps you understand how much each subscriber is shelling out on your business, which makes it an important metric to track for SaaS, eCommerce, and subscription-based businesses.

Why is Average Revenue Per User (ARPU) Important?

The ARPU metric is essential to understanding what actions on your site encourage users to dish out money on your business.

Average revenue per user is a metric that can also help understand which of your pricing tiers is most popular with your users. For the same reason, you can understand which of your add-ons and upgrades work well.

Not to forget, the average revenue per user helps you track customer engagement with your product. How? By giving you insights into which features, pricing plans, add-ons, and so on are getting them to spend more on your business.

How to Calculate Average Revenue Per User?

To calculate average revenue per user, you’ll need the average amount of the monthly revenue that you make per user. Then get to the mathematics: divide your total revenue by your number of customers.

To put it simply – divide all revenue coming in from active users by the total number of customers that revenue came from.

As in – total MRR/total customers

What to Include in Your ARPU Calculations?

Since average revenue per user is calculated by dividing your revenue coming from active users with your total active customers, you can include the following factors:

  • Monthly recurring revenue (MRR) or the average amount you expect to make on a regular basis.
  • Lost MRR from churned customers. This is the MRR that’s lost due to customers who discontinue using your software (for instance, by unsubscribing) on a monthly basis.  
  • Account upgrades and downgrades. An average of users upgrading (paying more) and downgrading (paying less) is another important value to factor in as you calculate ARPU.
  • Total paying customers or the lump sum of people paying you.

Editor’s note: If you’re HubSpot user, you’ll find this HubSpot (Marketing & Sales Waterfalls) dashboard pretty helpful for tracking your marketing and sales pipeline. You can get all essential metrics including your funnel’s conversion rate, deals closed in a month, top of funnel additions, and much more.

HubSpot (Marketing & Sales Waterfalls) dashboard

Related: 18 Tips for Increasing Your Customer Lifetime Value (CLTV)

9 Ways to Optimize Average Revenue Per User (ARPU)

Now that you have a grip on what average revenue per user is, let’s show you how can optimize it. Here are 9 tips that our contributors suggested:

1. Dig into client information
2. Create a tiered pricing model
3. Price based on value metrics
4. Create add-ons
5. Cross-sell and upsell
6. Reduce customer churn
7. Personalize customer service
8. Offer more value
9. Leverage live chat

On we go:

1. Dig into client information

Foremost of all, you need to dig deep into your client information to have a better understanding of them.

CreditDonkey’s Holly Zorbas opines, “Without comprehensive client information, models cannot be exceptionally effective exact.”

Kassandra Marsh from Lakazdi adds, “Try to find out more about the problems your customer/user/client are facing. Then determine if you are also in a position to solve these things for them.

Oftentimes, it turns out customers/users/clients come to you for one particular thing and don’t realize all the different things you can do for them.”

Marsh continues, “So, don’t forget to have this conversation so you can talk to them about all your offerings just in case they didn’t realize and want to accept one (or more) of them.”

So here’s a solid action plan for you that Zorbas outlines: “Firstly, pick up an all-encompassing see of the client over trade units and benefit lines and integrate third-party information for more compelling focusing on, utilizing information administration capabilities that moreover let you recognize and expel copy client records.

Make more focused on and granular client models for cross-selling and up-sell based on anticipated behavior and esteem utilizing information mining, a communications-specific customer demonstrate, social impact examination, and fetched and profitability analysis.

Also, Interface the correct offers to the proper client portions through the correct channel with campaign robotization and optimization capabilities that let you maximize ARPUand calculate limitations, such as contact approaches, channel, and budget.”

2. Create a tiered pricing model

“One effective way to improve your average revenue per user (ARPU) is through a pricing model that allows your customers to scale or grow through,” comments Kristin Uptain of Redde Payments.

“For instance, client relationship managers (CRMs) are a prime example. They generally price based on a tiered system. The first pricing structure is for a small team that has limited features. The features in this structure are limited, but still enough to get the job done.

Then as you move up from this first pricing tier the features get better and allow more users. The more users you add, the higher the tier your business will need.

The benefit of this is the CRM will gain more revenue per user than before. The cost will consider the newly added features that the lower plan didn’t have and it accounts for the larger quantity of users.”

3. Price based on value metrics

“In SaaS, the best way to improve ARPU is getting a pricing strategy in place that works with value metrics,” recommends Apicbase’s Joris Brabants.

“A value metric is not how much you charge to get access to certain features, it represents what you charge for and is in a lot of cases tied to usage.”

For instance, “The pricing of a SaaS CRM company could be based on the number of contacts in the CRM instead of just the features you get access to. Or an e-mail marketing SaaS could charge based on the number of e-mails sent per month, or even a combination of the number of e-mails and amount of contacts in the database.

Customers of the above examples get their value based on the usage of the product.

If they would only charge based on features, they would miss out on a lot of revenue, because big companies can stay within the lowest pricing tier if they don’t need certain features, even though they are using the product every single day.

Besides growing your ARPU, value metrics are a great way to simplify your pricing and make sure your visitors understand what they will be paying for and how much the investment will be over time.”

4. Create add-ons

Kinsta’s Tom Zsomborgi shares another useful tip to increase your average revenue per user: “In SaaS, not every customer needs the full potential of your service and they are good with the standard or basic offerings. But for clients with higher needs like enterprises creating so-called add-ons is a great way of increasing your revenue.

These are extensions and extra services at the top of your standard offerings. They provide value for these specific customers by making saving them time or money and as a result, they are happy to pay for them.”

5. Cross-sell and upsell

This one’s a popular suggestion to up your average revenue per user among our expert contributors.

First off, Rameez G from Profit Guru says, “Create quick division techniques that drive more effective cross-sell and up-sell campaigns More than ever sometime recently, communications benefit suppliers (CSPs) must enhance by separating and advancing offers that clients will pay for – whereas controlling costs and expanding benefits.

They are recognizing that the implies to developing client income can be found inside their customer information. In truth, numerous accept that client information has outperformed the network as a CSP’s most important resource.

Shockingly, existing client models are now not adequate. CSPs require a comprehensive understanding of customers’ portfolios, more understanding of their behavior and benefit, and a more focused on and closed-loop approach to modeling and promoting campaigns.”

Decisive Action Workshops’s Yoram Baltinester talks about their experience too: “Here is a trick that I used with my clients. It’s very tactical but it can show immediate, and sometimes dramatic improvement in the ARPC (average per CLIENT):

Create a matrix of all your services against all your clients, identify services that clients don’t use, and upsell them.

If you are looking at ‘per USER’ (as in software sales), add the ‘save by paying for a full year’ (e.g. software cost is $15/month or $12/month but billed annually).

You will make more money because:

  • People who would unsubscribe after less than a year-end up paying more on average (in the example, anyone who would have left after less than 9 months ends up paying more on average)
  • You save on the CC costs, which some consider a hit to the per-user revenue, depends on your CPA.”

However, Kaleb Ufton from EKOH Marketing points out, “It’s important that your approach to cross-selling and upselling is timely. “Timely, relevant upsells through email or thankyou pages is a great way to increase ARPU,” Ufton explains.

“When done right, this is seamless and can be built into user retention campaigns as well. When users are nearing end of life they receive an offer that is relevant to them based on previous purchases to bring them back into the buyers’ mindset.”

Related: 26 Effective Ways for Improving Your Customer Retention Rate

“When people have purchased a product from you, do not hesitate to suggest them a complementary product or a similar product they may like,” Growth Hackers Company’s Jonathan Aufray suggests.  

“You can suggest those upsells and cross-sells just after the 1st purchase or a few days/weeks after if they enjoyed the first products they got from you. Always finding new clients can be hard but making the most of your existing happy customers is a win-win strategy. Your customers will be pleased by your new products and you will be able to increase your ARPU.”

6. Reduce customer churn

“Typically, people lean towards direct growth strategies, pumping out cash in the marketing department, but I try to take a deeper approach to this,” observes Amit Gami of cardpaymentguru.co.uk.

“Acquisition isn’t everything. In fact, retaining users and decreasing your churn rate by looking at ways to improve consumer loyalty is a great way to boost your ARPU, as well as your growth.

As you ensure consumers stick around longer, you create more opportunities to cross-sell, upsell. Not to mention, organic growth through reliable word-of-mouth marketing.

As you build your brand, we try to speed up by looking at aggressive marketing strategies. I’m here to tell you to work on existing customers and create a solid image, since that in itself will result in positive reputational capital, and ultimately, increased revenue.”

Editor’s note: Need a way to track how well you’re retaining customers as you’re acquiring new ones? This Stripe MRR + Churn dashboard template can help you do just that – monitor your churn rate and track the growth of MRR at the same time.

stripe-mrr-churn-dashboard

7. Personalize customer service

“There is one simple method that most businesses miss out on using to improve ARPU,” notes Project PQAI’s Nitesh Gupta. “It is personalizing customer service.

Nowadays, customers want to be treated specially. Now, offering personalized customer service is not a difficult task. All you need is a management system that allows gathering and storing customer information. Based on the information you can plan a customized approach to increase the retention rate of your customers for your business.”

8. Offer more value

Hyre’s Eropa Stein insists, “This isn’t about taking shortcuts but understanding your customers. Adding value to your product and addressing the needs that customers have is vital for increasing their spending. This is why you need your customer support and value proposition to be on point.

Account management needs to be taken care of in great detail so that new offers are meaningful to customers. Touch base with customers frequently so you can keep up to date with their needs during changing times.”

“Understand customers’ pain points so that they will happily pay you more to solve more of their problems,” Eropa concludes.

Also, here’s an “Insider tip: Invest in honest feedback sessions and user testing with existing clients to get up to date feedback.”

9. Leverage live chat

“One way that websites can improve ARPU is to use live chat to increase conversion rates, up-sell, and cross-sell,” recommends SoftwarePundit’s Bruce Hogan.

“There are several free live chat options that can easily be installed. These tools allow your team to engage website visitors in real-time. This can significantly lift conversion rates, and be used to ensure that customers find the right product(s) to suit their needs.”

Related: How to Increase Your Live Chat Response Rate, According to 46 Marketers


From cross-selling to upselling, offering more value with add-ons, creating a tiered pricing structure, and so on, you now have a good idea of how to improve your average revenue per user (ARPU). But, first, be sure to dig around what your customers want and aim to get their feedback regularly.

About the author
Masooma Memon
Masooma Memon Masooma is a freelance writer for SaaS and a lover to-do lists. When she's not writing, she usually has her head buried in a business book or fantasy novel.

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