Average Revenue Per User (ARPU)

Also known as: ARPUAverage Revenue Per AccountARPARevenue Per UserPer-User Revenue

ARPU = Total Revenue ÷ Number of Active Users

💡The Concept

ARPU measures the average revenue generated per user or account over a specific period — typically monthly. If your SaaS earns $100K/month from 500 users, your ARPU is $200/month. ARPU is the simplest lever for growth: increasing ARPU by 20% has the same revenue impact as increasing your customer count by 20%, but without the acquisition cost. Slack's ARPU grew from $12 to $18/month per paid user by adding premium features, driving 50% revenue growth without proportional customer growth.

⚠️The Trap

The trap is treating ARPU as a single number when it's actually a blend of wildly different segments. If 80% of your users pay $10/month and 20% pay $500/month, your ARPU is $108 — a number that represents nobody. The $10 users are being over-served relative to their revenue, and the $500 users are likely under-served. Flying blind on a blended ARPU hides your real business: you're running two products at two price points.

🎯The Action

Calculate ARPU by segment, not just in aggregate. Split customers into at least 3 tiers (e.g., Starter, Pro, Enterprise) and track ARPU for each. Then identify your highest-ARPU segment and ask: 'How do I get more customers like THIS?' Track ARPU trend monthly — is it increasing (good: upsells working) or decreasing (bad: you're acquiring cheaper customers or discounting too aggressively)?

⚡Pro Tips

ARPU expansion (getting existing customers to pay more) is 3-5x cheaper than new customer acquisition. If your customer base isn't growing ARPU over time, your pricing or packaging needs work.

Track ARPU by cohort. If your January cohort's ARPU is $50 but your June cohort's ARPU is $35, you're attracting lower-value customers over time — a sign your positioning is drifting downmarket.

Compare ARPU to Customer Acquisition Cost (CAC). If ARPU × Average Customer Lifetime is less than CAC, you're paying more to acquire customers than they're worth.

🚫Common Myths

✗Myth: “Higher ARPU is always better”

✓Reality: Higher ARPU with fewer customers creates concentration risk. If your top 3 customers represent 60% of revenue at $50K ARPU, losing one customer is catastrophic. A $50 ARPU across 1,000 customers is more resilient than $5,000 ARPU across 10 customers.

✗Myth: “ARPU should stay constant over time”

✓Reality: Healthy SaaS companies see ARPU increase 10-20% annually through upsells, cross-sells, and usage-based expansion. If your ARPU is flat, you're leaving revenue on the table. If it's declining, you're in trouble.