Meaning of ARPA

 

The Average Revenue per Account is the average income per account , calculated on a recurring monthly or annual basis. This is a profitability measure that tells the company how much revenue it has earned on average for each customer account .    

ARPA is often equated with average revenue per user or ARPU, but they are not exactly the same. Average revenue per account and average revenue per customer are not always equivalent data, because there may be a customer who has more than one account.

This metric that we are examining is used in companies that operate with a business model that is based on subscription and also in companies specialized in the provision of services , such as telecommunications.   

Although it measures profitability, ARPA is not recognized by accounting standards such as IFRS or GAAP. However, companies spend a lot of time calculating and analyzing Average Revenue per Account results . 

Basically, because the data obtained after applying the Average Revenue per Customer formula allows us to have a general view of the profitability on behalf of a company . Allowing you to clearly detect which products or services are more and less profitable.   

What is it for?

• Comparison:  to compare a company’s performance with its competitors or its own performance over time.

• Customer segmentation:  to know which customers are the most profitable.

• Product/service segmentation:  to know which products or services generate the most income.

• Make a revenue forecast:  Used to calculate a company’s recurring revenue.

Average Revenue per Account  and its calculation formula

 

ARPA Revenue is calculated by dividing the total monthly (or annual) recurring revenue by the total number of active accounts during that period.

ARPA = Total income / Total accounts

The formula is the same whether you want to measure income from existing accounts or obtain data from new ones . You only have to make a few small adjustments for new accounts, because you have to segment the income and the number of accounts to the period specified as new.   

Comparing revenue from new accounts with revenue from existing accounts allows the company to analyze the behavior of its customers and even detect changes in trends.

ARPA Accounting  is one more example of how important  KPIs  are for companies, since they derive information that is especially useful for making strategic decisions.

ARPA Revenue can be easily calculated, and in just a few minutes the company has data at its disposal that helps it know what its best products or services are and also who its most valuable customers are .