The average revenue per user (ARPU) is a term used to describe the average amount of money that your brand generates from a single customer in a given period. Typically, ARPU is measured in months, but it could also be in weeks or years.
The average revenue per user is also sometimes referred to as average revenue per visitor.
How It Works
ARPU is computed by dividing the brand revenue by the number of unique users (not unique visits) in a certain time frame.
More conversions do not necessarily translate to increased ARPU because not all users act the same. For example, you may have a larger pool of users but with smaller orders. The number of purchases or frequency of buying in that pool can vary. Factors that better impact ARPU are returning visitors, item cost, and average order value (AOV).
The Importance of ARPU
ARPU is an indicator of your brand’s health and the overall attainment of your eCommerce goals. Having a high ARPU is a good indication that you’re doing something right, whether it’s connecting well with your audience, surfacing accurate product search results, or finding a good balance between your product mix and pricing. It’s also likely to improve total revenue in the long run, which can help you plot future growth potential and plan strategies accordingly.
When measured relative to the company revenue, ARPU provides insight on whether your products have a good value ratio and if you’re targeting the right customers. It can also be used to identify which tactics are working to bring in more conversions, such as better pricing, better product discovery, upselling or cross-selling, among others. As such, it’s a useful metric to review when creating personalized customer journeys for individual users.
ARPU also determines customer lifetime value. Improving it can help balance out expenses or investments that you make to attract new customers, especially since acquisition costs increase over time.
How to Improve Average Revenue Per User
Here are strategies that can attract high-value shoppers and, in turn, improve your ARPU.
- Target the right personas – Low revenue customers have minimal impact on the ARPU, regardless of their total spend. What you can do is prioritize high-value shoppers who return and purchase more. In both cases, however, creating quantified buying personas will enable you to deliver personalized experiences that resonate with each customer. The more you demonstrate to shoppers that you understand their wants and needs, the more you can compel them to keep them coming back for future purchases.
- Offer free shipping and attractive promotions – Customers consider all costs, including shipping and delivery fees, when purchasing. When you offer reduced or free shipping and delivery fees, this gives customers a reason to stay on your site and potentially add more products or services to their cart.