Average Revenue per Account (ARPA)
Average Revenue per Account is also called Average Revenue per User or per Unit sometimes. However, it is more commonly abbreviated as ARPA. This is a term used for measuring revenue as generated per account on monthly or annual basis. In some cases, it is also referred to as Average revenue per customer but this is not exact since depending on the characteristics of the products and services, a single customer is entitled to have more than one account.
Measuring the Average revenue per account (ARPA) aids in analyzing the growth of a company at per unit level. It helps in estimating how much revenue is being generated by the business. It allows the investors identify the products that are better performers among the customers in terms of revenue generation.
How is ARPA of A Company Calculated?
Calculating ARPA is of vital importance for any company. In order to do so, a time period has to be defined first. Although most of the subscription businesses operate on monthly basis, it is possible to do the calculations on annual or quarterly basis as well. It basically depends on what billing options are followed and what are the owners’ plans for the business.
To calculate the ARPA, divide the total amount of revenue generated by all the customers during a specified time period by the number of customers. The customers are paying subscribers. This standard formula for calculating the Average revenue per account is as follows:
ARPA = MRR / Total # of Customers
MRR in this formula stands for monthly recurring revenue, although in this case it is not restricted for monthly calculations only.
ARPA is rather valuable when it comes to comparing groups of account to check the activity for a specific time period. This allows the users to expose contraction and expansion trends of accounts. Moreover, calculating ARPA informs about pricing plans and helps the users in understanding how the trends are evolving for their business. However, ARPA varies according to the product and pricing. Therefore, the best strategy is to focus on internal benchmarks.