The increase in average revenue per customer has a direct impact on monthly recurring revenue ( MRR ) measurements , since if customers have to pay more to receive the same products or services over a period of time, the MRR will increase proportionally.
In addition, the money that consumers contribute to the company each month is a determining variable in the Lifetime Value or LTV , so the ARPU has a long-term influence on the life cycle of users, but with differences between the concepts that we will explain later.
Demonstrate the feasibility
A business is profitable when its telegram number list revenues exceed its expenses, that is clear. And ARPU is a metric that precisely manages to demonstrate this reality.
When the values obtained are low, especially if we are talking about an SME, the projected life of the company is not encouraging , since it is evident that sustainability over time is not possible.
However, this is not the end of the road. What it tells us is that we need to increase our customer base to find an optimal point of profitability.
Understanding the price-earnings ratio
When a product provides a lot of value what is a backlink analysis to users, it is undoubtedly an item for which they would be willing to pay more. However, if the ARPU proves to be low, one of the most common causes may be a disproportionate price-benefit ratio .
This may be evidence that customers do not agree with the cost-value relationship, which allows establishing new strategies to optimize their experience and meet their expectations.
Understanding the efficiency of Ventarketing
Ventarketing, in short, is the union uae phone number between the Sales and Marketing departments through a process of aligning objectives, KPIs and processes to generate greater efficiency.
If you improve your value propositions , ARPU should rise progressively. However, for this to happen, you need to find customers who are willing to pay for your products.
In this sense, ARPU provides a clear perspective of the strategies between Sales and Marketing and whether, ultimately, the two areas are working harmoniously to achieve the same goals.
It’s time to learn how to calculate it!
How to calculate Average Revenue Per User? drive-growth-in
Calculating ARPU is very simple, the most important thing to keep in mind is that the total number of customers will have a direct and proportional influence on revenue. So getting a low ARPU does not mean that the business is a failure. Let’s go to the formula:
ARPU = revenue / number of users
To do this correctly, it is important not to consider those that are in free trial periods or with temporary promotions.
Now, do you remember that we promised to contextualize the differences between ARPU and LTV? Well, the time has come!
What is the difference between ARPU and LTV? drive-growth-in
We explained above that LTV or Lifetime Value is a metric that represents the lifetime value of the customer , or the value of the time that the company obtains from its consumers while they are within its sales cycles.
Obviously, it is a value that is reflected in the long term, that is, it is a marketing principle that takes into consideration the value of the relationship with the client as long as said relationship with the company exists.
Its most fundamental difference from ARPU is that LTV is intended to contextualize the profit that the company obtains from other transactions and interactions with a customer on average, while ARPU shows the average revenue per customer.
However, both concepts are not opposites , since many times both are used in the same equations to provide some other metrics.
For example, if we multiply the ARPU by the average lifetime of a customer (1/ Churn rate ), we can obtain the LTV .
Let’s do a practical exercise:
If we assume that the churn is 10% per year, we can say that a customer lasts on average 10 years (1/10). Therefore, if the ARPU is about $2,000 Mexican pesos per month and the average duration of a customer is 120 months, the LTV will be $2,400,000 Mexican pesos in 10 years.
Or what is the same: LTV = ARPU x (1/Churn)
Do you want to know more about ARPU and how to optimize it to levels that allow sustainability? Follow our tips!
How to improve ARPU? drive-growth-in
Below are some of the indicators you should follow to improve your ARPU:
1. Value metric
It allows you to determine the cost-benefit ratio, which allows you to see the value that is being provided and identify flaws in the price of the products in order to make adjustments.
In order not to lose money and achieve good average levels of income per client, satisfaction studies must be carried out to understand the point of view of consumers.
2. Customer retention drive-growth-in
ARPU varies according to the number of customers you have . Therefore, knowing the retention rate and, more importantly, the monthly churn rate makes it easier for decision makers to take action to reduce the number of consumers who move away from the brand .
3. Determine the Buyer Persona drive-growth-in
Segmenting means being more precise in hitting the nail on the head. By determining the Buyer Persona , you can reach potential consumers who are most willing to consume your products and, consequently, increase the average income per customer.
These are the best tips we can give you to get started!
