Average revenue per account

What is average revenue per account

Monthly recurring revenue (MRR) is the average revenue per account (ARPA). A metric called ARPA is commonly measured in SaaS and subscription-based startups. Despite its lack of GAAP recognition, ARPA is often tracked and measured on financial statements because it provides a better understanding of profitability. A company’s average revenue per account calculates its revenue per customer account.

Measuring average revenue per account

Average Revenue Per Account (ARPA) = ($) Total Monthly Recurring Revenue / (#) Total Accounts Using the total monthly recurring revenue (MRR) divided by the number of accounts, you can calculate ARPA. Annual recurring revenue (ARR) can be easily converted to MRR as a yearly metric.

A new ARPA and an existing ARPA are both types of ARPA. Particularly relevant if you want to get a more accurate estimate of average revenue per new account if you significantly change your pricing to understand how your ARPA is evolving based on the behavior of existing accounts compared to new accounts.

Using the same formula, average revenue per existing account is calculated by segmenting both MRR and number of accounts to the desired time period (for instance, last year).

In addition to calculating the average revenue per new account, you can limit the number of new accounts and the MRR to whatever period you specify (perhaps this year).

Formula for calculating average revenue per account

In order to calculate average revenue per account, follow the formula below.

Example of calculating SaaS average revenue per account

The following product and customer data points are needed to calculate the ARPU for a subscription streaming service company in the fiscal year 2022.

• Subscription prices average $13.50 per month
• There are 500k paying customers in total
• 700k non-paying customers

Of the total customers, 40% have paid subscriptions, while 60% have freemium plans (or are inactive accounts – i.e. they created an account but aren’t using it).

Your company’s monthly revenue is $6mm when you multiply the average monthly subscription price by the number of paying subscribers.

By multiplying the monthly revenue by 12 months, you can calculate ARPU (and ARPPU) on an annual basis.

• Total Annual Revenue = $13.50 × 500k × 12 = $81mm

By dividing the company’s annual revenue by the total number of users, both paying and non-paying, you can calculate average revenue per user (ARPU).

• Average Revenue Per User (ARPU) = $81mm ÷ 1mm = $81.00
• Average Revenue Per Paying Customer (ARPPU) = $81mm ÷ 500k = $162.00

There is a $81.00 difference between the two metrics, which indicates the company should consider how to convert more non-paying users into paying ones. Furthermore, the company should consider how it can generate even more revenue from its existing paying customers.