SaaS metrics are important for a company with clear goals and strategic growth objectives for its evaluation periods. SaaS ARPU is one of the metrics that function as key players in this dynamic to know the status of the company, its financial health and profitability on a per-customer basis.
In this article we will go over what ARPU and ARPA are, the ways to calculate them and their importance in achieving efficiency in a SaaS company. If you want more information on such an important metric, stick around and learn more about it.
What is SaaS ARPU?
The ARPU metric stands for Average Revenue Per User, as the name suggests, is an indicator that is responsible for quantifying the average revenue generated by users of your products or services over a period.
This calculation can be on a monthly, quarterly, four-monthly, six-monthly or annual basis. It will all depend on the nature of your business and what is most convenient to analyze in terms of periods. Businesses that have a subscription-based model place particular importance on this metric.
At the same time, it is common to come across a metric called ARPA. This stands for Average Revenue Per Account and has certain differences with SaaS ARPU, although they essentially handle a similar concept, it is important to establish their differences to understand which one best fits your needs.
What’s the difference between ARPA and ARPU?
As we described above, they are metrics that have essentially the same concept: calculating average revenue for the number of enterprise customers. However, ARPU and ARPA have small but important differences for the calculation.
ARPU refers to the revenue generated by each user. Also, you have the option to combine all the accounts of each user to calculate the ARPU without any problem.
On the other hand, ARPA is useful for calculating the revenue of each paying customer. But you should be aware of how you are doing the calculations so as not to confuse the concepts and end up getting results that are far from reality.
How to calculate ARPA and SaaS ARPU?
Both indicators can be calculated on a quarterly, quarterly, monthly, semi-annual or annual basis. However, it is best to do the calculation for monthly or annual periods to get an accurate perspective on your business or company.
Well then, regardless of the period chosen for the calculation, it is important to choose the revenues corresponding to the period analyzed. That is, if you make the calculation for an annual cycle, you must consider the revenue generated during the entire year and the same goes for a monthly cycle.
Overall, it is an easy calculation, requiring only one operation to complete. However, its usefulness is quite powerful and its correct interpretation gives powerful indications of the health of the business.
To obtain the ARPU it is sufficient to divide the total revenue for the corresponding period by the total number of users. On the other hand, to calculate the ARPA it is necessary to divide the total revenue for the specified period by the total number of paying accounts to obtain the result.
The impact of ARPA on other indicators
Average Revenue Per Account is an extremely important indicator for SaaS companies because of the powerful indications that can be obtained through it. In addition, it is involved in other SaaS metrics that are also essential, including Lifetime Value and Customer Acquisition Cost.
Thus, it is convenient to be clear about the concept of ARPA and what it can offer for your business analysis. It must be calculated rigorously as it is part of the calculations of other indicators, an error in the ARPA would be to spread errors in the other indicators that are also essential.
In that sense, you must take into account which is the indicator to calculate, establish the differences between ARPA and ARPU to get consistent results, both for that indicator and for those that depend on it as an input data.
Why SaaS ARPU is so important in a saas
ARPU is essential in the process of collecting data and looking closely at the performance of your SaaS business, all of which translates into money and health for your business. Without a doubt, it is one of the most important metrics for any SaaS company and below we will go over the reasons why.
It makes it easier to identify the best sources of customers
The ARPA can be calculated by taking the way they came to the company as a filter. Thanks to this, it is possible to determine which is the most profitable source of customers among all the ones you are using. In this way, you will know which ones to grow and which ones reached a good level of profitability.
Arpu Saas Enables the calculation of other important metrics
As mentioned above, ARPA is key to the calculation of other important metrics. Thanks to this indicator, the input data for the calculation of Lifetime Value and Customer Acquisition Cost can be obtained.
Provides access to revenue variance monitoring
ARPA is responsible for providing information on revenue. Through this indicator it is possible to measure and monitor the current revenue compared to previous cycles, this is particularly important when changes in the business structure are applied and an evaluation of its efficiency is required.
Generate information regarding the most profitable types of customers
It is common to categorize customers or accounts to get more detailed information after the ARPA calculation. In particular, this is useful for establishing the differences in profitability between new and existing customers, with the intent of determining where the company should invest its efforts.
In conclusion, Saas ARPU is a very useful metric for companies that need to know in detail if their consumers are paying an adequate price to stay with them for a long time, and at the same time they can determine if the cost-benefit offered by their products and services is the ideal one to generate profitability in the medium and long term.
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