7 Reasons why you should choose ARPU Analysis.
Written by Vanshitha M
Published on Sep 05, 2024
Introduction
D2C or Direct-to-customer. The sales from D2C in the United States of America reached $175 million in the year 2023. This growth is really exponential and is expected to reach more. For better growth in your D2C brand, Follow the metric ARPU (Average Revenue Per User).
Source: appsflyer
What is ARPU
ARPU is a threshold or a KPI (Key Performance Indicator) referring to Average Revenue Per User or Average Revenue Per Unit. For a SaaS industry, it would be termed as ‘user’, and for any product business, it would be termed as ‘unit’.
This is important to understand the LifeTime Value or LTV of a user to ensure the retention of your brand’s product or service.
It is important to note that ARPU is rather average so it gives us a vague idea of revenue for a period rather than which user is a high spender and a low spender.
Calculating ARPU:
Source: LinkedIn
Example:
Source: appsflyer
ARPU depends on these factors:
1) Pricing: With higher costs, ARPU will be higher.
2) User engagement: With higher user engagement, ARPU will be higher.
3) Accounts: Moren than one user can use one account.
4) Churn rate
5) User base
Why ARPU?
- Segmentation: To understand who the highest spenders are and customize marketing efforts accordingly. For example, if the ARPU is more for a user; the marketing of your brand should focus on more products and offers based on loyalty. If ARPU is less, marketing of your brand should focus on activating them and building retention.
- Know how to deal with your audience: If your ARPU is low, you can focus on retargeting the right target group or increasing the value of your product or service. It will help track the effectiveness of your marketing and help you identify growth and revenue opportunities.
- Optimize your marketing plan: ARPU provides data and insights on short-term metrics on your brand helping you understand what failed and succeeded giving you a gameplan. Come up with networks from where you reach
- Reduce CAC (Customer Acquisition Cost): CAC is referred to as the cost to acquire a user. For an e-commerce brand, it takes 5x to acquire a customer.
- Increase Retention: Lowered Customer Acquisition cost obviously drives retention. Our blog has already highlighted why retention is way better than acquisition. Read our blog here.
- Strategize: If your ARPU is low even with more users, fix your pricing range to stay competitive and fix your pricing accordingly.
- Measure your performance: ARPU is an excellent metric to measure the performance of your brand.
Difference between LifeTime Value (LTV) and ARPU (Average Revenue Per User)
LTV focuses on the entirety of the business aka the revenue of a customer in the entire time they spend with your brand and ARPU focuses on a certain period.
LTV gives us the threshold for revenue and creates a step-by-step marketing plan.
In hindsight, ARPU boosts LTV.
Strategies for better ARPU (Average Revenue Per User):
- ARPU provides insights into the likes and dislikes of your audience, so create a personalized plan that focuses on users and curates products accordingly.
- ARPU helps us identify which marketing is better. So, promotions, and offers can be defined through this metric.
- Apart from ARPU, you can focus on other metrics like churn rate, subscriber growth rate.
- Focus on preparing pricing plan, optimizing your target group.
- Personalization and understand your audience
- Boost user engagement through push notifications, proper email marketing.
ARPU for every domain:
Every sector has its own ARPU and threshold but mostly its ARPU will be compared to the competition to understand where a brand stands.
For a social media sites or OTT platforms like Facebook, Instagram, Netflix ARPU is based on DAU (Daily Active Users).
Turns out according to statistics, The highest ARPU for social media sites are for TikTok, Facebook, LinkedIn.
Mobile phone servicers base their ARPU on the revenue produced by each sim card.
Instead of ARPU,
Churn rate: The arte at which customers shift to the competitor or stop using your brand.
Subscriber growth: The new additions to your brand.
These metrics can be used to understand the performance of your brand.
Pros of ARPU:
- It is easier to compare with the competition and is often used by investors, management to see the growth trajectory of the brand.
- It gives a point to understand their relative measure and a metric to start understanding more about their brand.
Cons of ARPU:
- ARPU’s values can be distorted and these distortion can be huge.
- Other metrics can provide better value than ARPU.
- It shows only a timeframe rather than complete revenue.
Conclusion:
Source: Investopedia
ARPU Analysis can help fix a threshold on the revenue and help your brand improve the performance depending on the stand it is in. To get every update on digital marketing and more solutions for your brand’s growth, stay tuned with our blog here.
Why Retention10:
Retention10 is the best Customer Retention Management focusing on an all-round performance on your brand to excel at retention. Retention10 can help you excel at the retention game.
Book a call with us rightaway for customised retention solutions!
Thanks for reading.
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Vanshitha Munipally
( Research & Content Marketer )
To get your customized Customer Retention Solutions , Do write to us :
Source: appsflyer
