What is ARPA?
Average Revenue per Account (sometimes known as Average Revenue per User or per Unit), usually abbreviated to ARPA, is a measure of the revenue generated per account, typically per year or month. You could also say that it represents the Average Revenue per Customer, but remeber that a customer may have more than one account depending on your product/services characteristics.
Average revenue per account allows for the analysis of a company’s revenue generation and growth at the per-unit level, which can help investors to identify which products are high or low revenue-generators.
How to calculate ARPA?
To calculate the ARPA, a standard time period must be defined. Most subscription business operate monthly but you can always calculate it yearly or quarterly according to your plans and billing options. The total revenue generated by all customers (paying subscribers) during that period should be divided by the number total number of customers.
ARPA = MRR / Total # of Customers
New Accounts vs. Existing Accounts
There is a good practice of measuring the Average Revenue per Account separately for new customers. So instead of having an ARPA metric for all your customers, you’d have two different metrics: Average Revenue per Existing Account and Average Revenue per New Account.
In that way you can have a sense of how your ARPA is evolving and how your new customer behave if compared to existing ones. Are they more willing to accept cross-selling and/or up-selling? Measure it separately and you’ll know.
The way of calculating it remains the same, the only different is that you’re doing it with two different clusters, instead of doing it all at once.
