This week we’re looking at how to calculate the ROI of our UX work. Previous parts of this series can be found under the UX Daily tab at the top of the page. Today, we’re going to examine another metric ARPU (or Average Revenue Per User):
ARPU (Average Revenue Per User)
Author/Copyright holder: JD Hancock. Copyright terms and licence: CC BY 2.0
ARPU is a critical metric in many industries. It helps you sort the peaks and troughs of individual customers and examine whether you are increasing your revenue opportunities with your existing customer base. Given that it’s cheaper to increase profitability of clients you have than win new customers to your business; it’s a vital business metric. In telecoms, for example, ARPU is the only metric mentioned in most board meetings.
ARPU is a very easy metric to calculate and that’s part of its charm in reporting within businesses – it’s easy to understand, easy to see how it impacts the bottom line and simple enough to communicate that no detail gets lost. To get the ARPU for a product or service; you simply add up all the revenue from that product and service and then divide by the total number of users.
e.g. Total Revenue/Total Users = ARPU
If Your Project is Using ARPU as a Metric
You need to know the ARPU before the project and after it. You also need to know the project cost. You can then compare the ARPU figures and work out whether they paid for the project or brought increased profitability.
For example; you ARPU is $50 for 10,000 users before the project. After the project you have an ARPU of $45 for 10,000 users. The project has cost $50,000 in revenue and it doesn’t really matter what you spent on the project because there is clearly no return on investment. Though it’s still going to matter to the Chief Financial Officer…
Cautions With ARPU for
ARPU is a useful metric assuming that the user population remains static during the period of calculations (or nearly static – it can tolerate a bit of variation but not dramatic variation). Consider the example above but let’s say that the next time you measure ARPU there are 30,000 users at an ARPU of $45.
The decrease in ARPU (as long as this number remains profitable for the company) may well be far less significant at this point. Your revenues went from $500,000 to $1,350,000! Your project may not have delivered an expected ARPU boost but it might just be responsible for that huge growth in subscribers.
This is why your project should measure multiple metrics; here the number of subscribers is as important as the ARPU. If you only calculate the latter you might report a project failure instead of a project success.
Author/Copyright holder: wonderferret. Copyright terms and licence: CC BY 2.0
There are other areas of complexity in ROI calculations which we’ll touch on later this week too. See you tomorrow when we take another common metric to pieces.
Hero Image: Author/Copyright holder: John Flannery. Copyright terms and licence: CC BY-ND 2.0