ARPU, or average revenue per user, is a metric that measures the average amount of revenue generated by a single user of a product or service over a given period of time. In the context of an OTT (over-the-top) business, ARPU might be used to measure the average revenue generated by a single customer of the OTT service over a month, a quarter, or a year.
ARPU = Total Revenue Generated During Period / Number of Users During Same Period
Suppose you have a subscription streaming service company with the following customer data points in the fiscal year ending 2023.
- Average Monthly Subscription Price = $15
- Total Number of Paying Customers = 700k
- Total Number of Non-Paying Customers = 300k
From the assumptions listed above, we can see that of the total customer base, 70% are on paid subscription plans whereas 30% are on the trial plans (or are inactive accounts – i.e. a customer created an account but is not actively using it).
If we multiply the average monthly subscription price by the number of users on the paid subscription tier, we arrive at $126 million for our company’s annual revenue.
- Total Annual Revenue = $15 × 700k × 12 = $126mm
Since we have the company’s annual revenue, we can compute the average revenue per user (ARPU) by dividing the annual revenue by the total number of users, inclusive of both paying and non-paying users.
- Average Revenue Per User (ARPU) = $126mm ÷ 1mm = $126.00
In the subsequent step, we’ll calculate the average revenue per paying user (ARPPU), which only includes customers that are on paid monthly subscription plans.
The ARPPU formula consists of dividing the total annual revenue by the total number of paying users, as shown below.
- Average Revenue Per Paying Customer (ARPPU) = $126mm ÷ 700k = $180.00
We can now compare the two values:
- ARPU = $126.00
- ARPPU = $180.00