What is ARPU and how to use it in your business | Ep. 74 | Business Podcast
Average revenue per user or average revenue per unit (ARPU) is the average amount of monthly revenue that you receive per user or per product.
In this episode I explain all about this key performance indicator (KPI). Specifically I go over:
- what ARPU is
- how to calculate ARPU quickly
- the limitations of ARPU
- how you can use ARPU to predict your sales growth and set sales goals
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Hello, friends. Welcome to another episode of Build a Business success Secrets. I am your host, Brandon. See White. And today we are talking about a marketing sales metric called our Poo. Average revenue per user or, if you’re a product company, average revenue per unit. Let’s not waste any time and let’s get to it. Welcome to straight talk for entrepreneurs.
Whether you’re starting with an idea of growing your business, this show is for you. Learn how to build a strong mindset, a powerful body and a profitable business. Hi, I’m Brandon. See? Right, And this is build a business success Secrets to start out our poo. Average revenue per user or average revenue per unit if you’re a product company is not a accounting term.
This is a kpi key performance indicator or a metric that you can use that you can predict how much revenue you will make. And this is something that once you start getting customers or subscribers you can use to make predictions going forward and to set goals the way that this is calculated is really simple. You take your total revenue for a month and you divide it by the number of users. If you’re a subscription type business or a software business, if you are a product business, then you would divide it by the number of units.
And what this gives us is a great metrics to understand how much money we can make in the coming month or the coming year. It also gives us some idea and feel for the price that we’re charging. This is a great metric to use for that, but it is a macro metric, meaning it’s high level and a criticism of our poo and using it as the de facto metric is that you will want to look at your users or your product units in depth at some point. And the reason is, for instance, if you have a customer base of 10 and they give you $100 revenue, then our poo appears to be $10 per customer, when in fact it could be skewed and five of those customers could be giving you 90% of your revenue.
So you do want to look at this the same thing. If you sell a product or a service for that matter, you could have a product and one of your product is really high price and low price, and another is low priced and you’re actually making it on volume of the low price. So you’re going to want to look into it. But it’s a great metric that you can monitor and understand on a monthly basis and then set your goals.
You know that in general, if you have an e commerce business and you know that the average revenue per user is $89 and you know that your margins are 50% then you can start to predict in your financial model how much you’ll make. And I usually have my our poo calculations in a separate tab on My Excel spreadsheet and then I use that are pu to feed my cash flow statement, which then gives me my actual cash flow against budgeted and then my predictions moving forward, which then feeds another tab, which which is my profit and loss statement.
So again, our poo is average revenue per user or average revenue per unit, and you take your total revenue for the month or the quarter or the year and then you divide it by the number of units or the number of subscriptions that you have. If you’re not measuring this, start measuring it and start to compare month to month, quarter to quarter two year year and see how you’re growing your business.
Thanks for being generous with your time and joining us for this episode of Build a Business Success Secrets. If you enjoyed this episode, you’ll love our print newsletter. It’s designed for entrepreneurs like you who want to get 100% out of your time, your talent and ideas. Check it out at B Success secrets dot com That’s B as in business success secrets dot com until the next episode.
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