Average Revenue Per Account (ARPA)

ARPA stands for Average Revenue Per Account, “average revenue per account,” or “average revenue per customer.” It is a financial indicator that measures how much revenue a company generates on average per customer account over a specific period of time (typically per month or per year).

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1. What is ARPA (Average Revenue Per Account)?

This metric is particularly relevant for companies with recurring revenue, such as SaaS providers, telecommunications companies, streaming services, or publishers with subscription models. It helps to understand how effectively a company monetizes its customer base.

The term “account” can vary depending on the business model: It can be an individual user, a household, a team or an entire company. It is important to keep the definition of “account” consistent for the calculation.

2. Differentiation from other metrics (ARPU, ACV, CLV)

ARPA is often mentioned in connection with similar indicators, but differs in important aspects:

ARPU (Average Revenue Per User): Measures average revenue per single user. If an “account” can include multiple users (e.g. a corporate plan with 10 users), ARPA will be different from ARPU. ARPU is often more granular, while ARPA looks at the value of the entire customer account.
ACV (Annual Contract Value): Measures the normalized annual value of an individual contract. While ARPA is the average actual turnover measures per account in a period of time (e.g. month, year), ACV focuses on contractually agreed annual value, often normalized over multi-year contracts.
CLV/LTV (Customer Lifetime Value): Predicts the Total revenue or profitthat a company has from a customer account via the entire duration of the customer relationship expected. ARPA is a snapshot for a specific period of time, while CLV takes a long-term perspective.

3. How is ARPA calculated? (formula and example)

Calculating ARPA is straightforward:

Formula:

ARPA = total turnover in a period/number of accounts in this period

Key points for calculating ARPA:

Total turnover: The revenue generated in the period under review (e.g. month, quarter, year). Recurring revenue (MRR/ARR) is often used here, but depending on the definition, variable or one-off sales can also be included.
Number of accounts: The average number of active customer accounts over the period considered.
Time period: Must be clearly defined (e.g. monthly ARPA, annual ARPA)

Example (monthly ARPA):

A SaaS company generated a monthly recurring revenue (MRR) of €50,000 in the last month.
It had an average of 250 active customer accounts that month.
Calculation: ARPA = 50,000€/250 accounts = 200€
Interpretation: The company achieved an average of 200€ recurring revenue per customer account in the last month.

4. Why is ARPA important?

ARPA is a valuable indicator of corporate health and strategy:

Performance indicator: Shows how well a company maximizes the value of its customer accounts. Increasing ARPA is often a positive sign.
Profitability signal: Although ARPA is not a direct profitability measure (as costs are not taken into account), higher ARPA often correlates with higher profitability as more revenue is generated per customer.
Pricing Strategy Assessment: Helps assess whether pricing and product bundles reflect the value customers receive.
Segmentation base: Enables you to analyze which customer segments (e.g. by industry, company size) generate the highest average turnover.
Benchmarking: Allows you to compare with competitors or industry averages (if data is available).
Investor communication: An important part of reporting for investors to show monetization capacity and growth potential.

5. How can ARPA be increased?

Companies can pursue various strategies to increase their ARPA:

Upselling: Encourage existing customers to switch to higher-value plans or packages with more features or a higher volume of use.
Cross-selling: Selling additional, complementary products or services to existing customers.
Price optimization: Adjusting prices to better reflect perceived value (may include price increases or value-based pricing)
Focus on higher-value segments: Targeted customer segments that are known to be willing to spend more (e.g. enterprise customers).
Introduction of add-ons: Offering optional additional features or services at an additional cost.
Improving product value: Continuous development of the product to increase value for customers and justify higher prices.

6. Limitations and pitfalls

Despite its usefulness, ARPA also has limitations:

Average value: ARPA is an average value and can be distorted by a few very large or very small accounts. It doesn't say anything about the distribution of sales (e.g. whether 80% of sales come from 20% of customers). Looking at the median or distribution can be helpful.
No cost consideration: ARPA only measures sales, not profit. A high ARPA is useless if the costs of servicing these accounts (e.g., CAC acquisition costs, support costs) are also very high.
Requires context: ARPA should never be considered in isolation. Metrics such as customer growth, churn rate, CAC, and CLV are necessary to get the full picture. An increasing ARPA combined with a high churn rate is not a good sign.
Definition of “account”: Different definitions of “account” can make comparability between companies difficult.

7. Conclusion

The Average Revenue Per Account (ARPA) is a key figure for companies, particularly those with subscription models, to measure the effectiveness of monetizing their customer base. It provides valuable insights for strategic planning, performance tracking, and customer analysis. Increasing ARPA is often a positive sign of growth and an increase in value. However, due to its nature as an average and the lack of cost consideration, it is essential to analyze ARPA in the context of other relevant metrics such as churn, CAC, and CLV in order to be able to make well-founded business decisions.

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