What is ARPU?
Learn what ARPU means, how to calculate average revenue per user and ways to grow it for your business.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- ARPU (average revenue per user) is the average revenue each customer or unit brings in over a set period
- You calculate ARPU by dividing total revenue, excluding goods and services tax (GST), by the number of users or units in the same period
- The most useful benchmark is your own ARPU over time, since a good figure depends on your industry and business model
- Pairing ARPU with customer lifetime value (CLV), customer acquisition cost (CAC) and churn rate gives you a fuller picture of business health
What ARPU means
ARPU (average revenue per user) is the average revenue each customer generates over a set period, such as a month or a year. Businesses that sell physical goods sometimes call it average revenue per unit.
For a subscription service, ARPU shows what each subscriber contributes on average. For a product business, it shows the revenue each sale brings in.
A high ARPU means each customer or purchase is valuable, so your business can do well with fewer sales. A low ARPU means you need more customers to cover your costs, or it’s a prompt to revisit your pricing strategy.
How to calculate ARPU
To calculate ARPU, divide your total revenue by the number of users or units sold over the same period.
ARPU = total revenue ÷ number of users (or units)
Each part of the formula has a specific meaning. Here’s how to read them.
- Total revenue is the money your sales bring in over the period
- Number of users is the count of paying customers, either at the end of the period or averaged across it
- Number of units is the total items sold, if you sell goods rather than subscriptions
- Period is the month or year you’re measuring, applied to both revenue and users
Choose between end-of-period users and an average, then stick with it so your figures stay comparable. The same goes for timing: you can calculate ARPU monthly or annually, but compare monthly figures only with other monthly figures.
Example ARPU calculation
Say you run a subscription content platform. In March, it earned S$10,000 and averaged 500 users.
Your ARPU for March is S$10,000 ÷ 500 = S$20. Compare that with February’s ARPU to see whether revenue per user is moving up or down.
What to include and exclude when calculating ARPU
What you count as revenue and users changes the result, so set your rules before you start. These choices keep your ARPU accurate and consistent.
- Use revenue after discounts and refunds, so ARPU reflects what customers actually paid
- Leave out goods and services tax (GST), because it’s tax you collect rather than revenue you earn
- Separate one-off fees, such as set-up charges, from monthly recurring revenue (MRR) for a like-for-like view
- Decide whether free and inactive users count, and apply the same choice every period
What is a good ARPU?
A good ARPU is one that holds steady or grows over time, as the right target differs for every business. What counts as strong depends on your industry and business model.
A software-as-a-service (SaaS) business charging S$50 a month per user will have a very different ARPU from a retailer selling S$5 items. That’s why the most useful comparison is against your own past figures and similar businesses in your sector.
What a rising or declining ARPU tells you
The direction of your ARPU says more than any single number. A rising ARPU usually means customers are finding more value in what you offer, through higher-tier plans or add-ons.
A declining ARPU is a signal to dig into the cause. Common reasons include:
- attracting more lower-value customers
- heavier discounting or promotions
- customers moving to cheaper plans or packages
- a growing share of free or inactive users in your count
Why ARPU matters
ARPU matters because it shows how well your business turns customers into revenue. It’s a simple number that can guide some of your biggest decisions.
Tracking ARPU helps you in several practical ways.
- Check whether your pricing reflects the value you deliver
- Spot the segments that bring in the most revenue, so you can focus your marketing and sales efforts where they count
- Balance the effort you put into keeping existing customers against winning new ones
- Measure whether selling complementary products or upgrades is paying off
- Decide where to invest your time and money for the best return
Real-life applications of ARPU
Seeing ARPU at work in different businesses makes its value easier to picture. Here’s how it can shape decisions.
A subscription gym sees its ARPU trending up, which suggests its premium membership is gaining popularity. It decides to promote that tier more widely.
A shoe retailer keeps a steady ARPU while its customer numbers grow, a sign it’s meeting customer needs. It now has room to introduce higher-margin products and lift ARPU further.
A freelance design agency tracks ARPU per client each quarter. When it dips, the agency checks whether clients are booking fewer projects or choosing cheaper packages, then adjusts its service bundles.
How to improve your ARPU
You can improve your ARPU by getting more value from each customer through pricing, offers and targeting. The right mix depends on your business model.
These are practical ways to lift your ARPU.
- Review your pricing if your costs have risen or you’ve added features
- Offer existing customers upgrades, add-ons or extra products that solve a real problem for them
- Find out which customer groups generate the most revenue and tailor your marketing to attract more like them
- Invest in keeping your highest-value customers, since keeping a profitable customer usually costs less than replacing them
- Introduce tiered pricing or bundles that give customers a clear path to spend more
- Encourage annual billing with a modest incentive, pricing the discount so your monthly-equivalent ARPU holds up
- Convert free users to paid plans, which lifts ARPU when free users are part of your count
Start with one or two changes where the biggest opportunity sits. Increasing your revenue often begins with knowing which lever matters most for your business.
ARPU and other business metrics
ARPU works best alongside other metrics. On its own it shows revenue per user, while related measures reveal how healthy and sustainable that revenue is.
ARPU and customer lifetime value (CLV)
Customer lifetime value (CLV), also called lifetime value (LTV), estimates the total revenue a customer generates over their whole relationship with you. ARPU is the snapshot for one period, and CLV stretches that view across the full relationship.
If your ARPU is S$20 a month and the average customer stays for 24 months, your CLV is roughly S$480. Knowing both helps you set how much to spend on winning and retaining customers.
ARPU and customer acquisition cost (CAC)
Customer acquisition cost (CAC) is what you spend to win a new customer. Comparing it with ARPU shows your CAC payback period, or how quickly each new customer covers the cost of winning them.
With a monthly ARPU of S$20 and a CAC of S$60, you recoup the cost in about three months. If ARPU drops while CAC stays the same, payback takes longer and puts pressure on your cash flow.
ARPU and churn rate
Churn rate is the percentage of customers who leave during a given period. A rising ARPU can mask churn, because you might earn more from each remaining customer while losing customers overall.
Tracking ARPU and churn together shows whether your revenue growth will last. For a wider view of performance, explore other ecommerce metrics.
ARPU vs ARPA and ARPPU
ARPA (average revenue per account) divides revenue by the number of accounts, which suits businesses where one account has several users. ARPPU (average revenue per paying user) counts only customers who pay, which suits freemium models.
Say you earn S$10,000 from 100 accounts with 500 users, and 400 of those users pay. Your ARPU is S$20, your ARPA is S$100 and your ARPPU is S$25.
What ARPU doesn’t tell you
ARPU shows average revenue per user, so it leaves gaps you’ll want to fill with other data. These are the areas it won’t cover.
- Whether your customer base is growing, since ARPU can hold steady or rise as customers leave
- Profit per user, because ARPU measures revenue, not profit, and ignores the cost of serving each customer
- How much each new customer cost to win
- The long-term value of a customer, as ARPU covers a single period
- How quickly customers are leaving, so a healthy ARPU can hide a retention problem
- Whether customers are happy, as pushing prices too hard can lead to churn
Use ARPU as one part of a wider set of measures. Combining it with CLV, CAC, churn rate and a view of profitability gives you a complete picture of your financial and customer health.
Track your revenue with Xero
Tracking ARPU starts with clear, up-to-date revenue figures. Xero’s reporting and analytics tools let you monitor revenue in near real time, so you can spot trends and set prices with confidence.
Automated bank feeds and customisable reports keep your numbers current with less manual admin. Start tracking the revenue behind your ARPU in Xero when you get one month free.
FAQs on ARPU
Here are answers to common questions about ARPU.
What is a good ARPU for a small business?
It depends on your industry and business model, so track your own ARPU over time. Compare each month with the same month last year to account for seasonal peaks, such as the year-end festive season.
Should a freemium business track ARPU or ARPPU?
Track both. The gap between them shows how much free users dilute your average, and it narrows as more free users convert to paid plans.
Is ARPU monthly or annual?
It can be either, and monthly ARPU suits businesses that bill monthly while annual ARPU suits yearly contracts. If a customer prepays for a year, spread that payment across 12 months so one large month doesn’t inflate your ARPU.
Does ARPU include GST?
Calculate ARPU on revenue before GST, or GST will inflate the figure for every customer you charge it. The Inland Revenue Authority of Singapore (IRAS) lists the current GST rate as 9%, so that overstatement is 9%.
What is the difference between ARPU and LTV?
ARPU is what a customer is worth in one period, while LTV is what they’re worth across the whole relationship. LTV is the figure to weigh against CAC when you decide how much to spend winning customers.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.