The average revenue per unit (ARPU) is often determined by dividing total revenue by the number of units, users, or subscriptions. The term "average revenue per user" is often used to describe this figure. Mobile phone service providers may refer to it as "average income per SIM card" or "average revenue per SIM card."
Recognizing the Average Revenue
ARPU is not a standardized metric under GAAP. On the other hand, ARPU is helpful information for corporate leaders and investors who want to understand revenue per unit and follow a firm's revenue-generating capabilities and development at the per-unit level, such as retail stores. Many businesses make this number available to the public for this purpose.
How to Calculate ARPU?
To correctly compute ARPU, one must first specify a standard period to do the calculations. For example, a month-to-month calculation of ARPU is standard practice for most telephone and communications companies. It is then calculated by dividing the income earned within a specified period by the number of units or users.
The end date for the period is not utilized for the denominator because it may fail to capture variations that occur during the period due to the end date. An average is normally calculated by taking the period's start date and end date and averaging them together. Unlike other industries, the mobile phone industry's ARPU includes the money earned by monthly billings to customers and the revenue generated by incoming calls charged under the regulation interconnection system.
Subscription Services
ARPU data are also provided by cable providers such as Comcast Corporation. A company's internal and external customers may utilize the values of the measurements acquired to compare other subscriber-based organizations and aid in forecasting future service revenues generated from a customer base. On the other hand, ARPU is helpful information for corporate leaders and investors.
ARPU in Social Media
The average revenue per user (ARPU) is reported to investors by social media firms such as Meta Platforms Inc. (previously Facebook) and Snap. The disparity between these measurements between the two firms contributes to the wide disparity between the two companies' values by providing some context. As an illustration:
Snap's average revenue per user (ARPU) for the fourth quarter of 2021 was $4.06, up from $3.44 in 2020. A total of $57.5 billion is now held by the company's market capitalization. For the year 2021, the average revenue per user on Meta was $40.96. It has a market value of $603.78 billion at the time of writing.
Advantages and Disadvantages
According to an article on Profitwell, a newsletter for software-as-a-service enterprises, people who believe this aren't using the technology appropriately. Customers' reactions to the company's different pricing points and premium offers may be gleaned through the analysis of ARPU. Analysts and investors who are not affiliated with the firm, on the other hand, may find it less beneficial. They may have the ARPU figure, but they do not know the specifics. In such instances, it is considered a macro-level metric.
For example, in the Meta example above, there may be tens or hundreds of millions of individuals who have registered as users but seldom or never engage with the Facebook platform or see the advertising targeted to them on the site. As a result, the genuine ARPU value may be skewed, and that distortion may be significant. Even as a macroeconomic metric, ARPU may be valuable to analysts and investors in various situations. This is something that the Corporate Finance Institute points out. It may be used to compare firms in a certain industry or area for average per unit. It may anticipate a company's future growth potential and profitability. It may also provide insight into the relative performance of the company's various market segments and product lines.
Special Considerations
ARPU is one of the various financial indicators that may be used to analyze the performance of a telecoms company's operations. Unlike other industries, the mobile phone industry's ARPU includes the money earned by monthly billings to customers and the revenue generated by incoming calls charged under the regulation interconnection system. Other important figures are as follows:
The Churn Rate
This statistic represents the number of subscribers discontinuing their subscription with the firm and probably migrating to a rival. A high churn rate suggests that the firm is serving many disgruntled consumers.
Subscriber Growth
Additionally, known as "net additions," incorporate financial records. This is a significant measure of the extent of continued success experienced by the organization over time.
