Average revenue per user or ARPU is a metric you can track for your business that can help you to calculate the amount of money that any business venture is making. This in turn then allows you to budget things such as advertising allowance far more accurately and the end result is that you will potentially be able to guarantee your profit! How does all this work? Read on.
Average revenue per user or ARPU is a metric that tells a business how much is made for each customer or user. This is also sometimes referred to as average revenue per unit. Either way, this can tell you how much money you are making from a given subscriber.
So, let’s say you have a website or a brand online that shares free content and uses content marketing and SEO to bring people to the site. From there, you then try to convince those users to sign up for your mailing list. When they do, you send them messages and occasionally try to sell something to them.
Take a look at the products you sell, how much each one sells for and what your overheads are. This can be described using another cool acronym COGS (cost of goods sold). Let’s say you have 3 products that sell for a profit $50, $20 and $100. Now weigh those products based on which ones sell most often and look at the average that you make for all products sold.
Now look at the number of subscribers you have and the amount of sales you make. You can divide this in order to work out how many people who subscribe to your site, actually end up becoming customers. Likewise, you can calculate how many times those customers will buy from you in their lifetime.
This is another metric called customer lifetime value or CLV. With all this information, you can now calculate your ARPU and that will allow you to see how valuable each visitor is to you.
One more useful metric is your conversion rate. This is important because it means you can calculate how many visitors eventually become subscribers. So if you have a squeeze page that is designed to encourage people to sign up for your mailing list, your conversion rate will be the percentage of those visitors that eventually do so.
What to do With All This Information
So why is this all so useful?
Simple: because it tells you how much you can spend on acquiring those visitors and those subscribers. If you know your ARPU and you know your conversion rates, then that means that you know how much each visitor is worth to you on average. That means that you can work out your maximum bid for a PPC marketing campaign. In other words; how much are you willing to pay ‘per click’ for your adverts?
Because each click means a visit. And each visit might mean a customer. As long as you get more for each visitor than you spend, you will guarantee profit.
