Software Growth

ARPA (Average revenue per account)

ARPA is the average recurring revenue per paying account, found by dividing MRR by the number of accounts. It differs from ARPU, which divides by individual users.

ARPA tells you what a typical paying customer is worth to you each month, where a customer is a billing account, such as a company, a team or a person with one subscription. For B2B and team products it is the number most pricing and acquisition decisions rest on.

How to calculate ARPA

A product with $20,000 of MRR and 250 paying accounts has an ARPA of 20,000 / 250 = $80 per account per month. David Skok measures ARPA monthly per account and says to look at it within customer segments, not in aggregate, because segments differ a lot in economics.

How ARPA differs from ARPU

The difference is the unit you divide by. ARPU divides MRR by users. ARPA divides MRR by accounts. If each of those 250 accounts has two users on average, there are 500 users and ARPU is $40.

  • One person per account (a solo tool, a consumer app): ARPA equals ARPU.
  • Team or company accounts with several seats: ARPA is higher, and the ratio of ARPA to ARPU is your average seats per account.
  • Free or invited users: they count in a user total but not in paying accounts, so only ARPA stays clean.

Terms are not used consistently. Some vendors use ARPA for a customer-level average and ARPU for a user-level one, which is the sense used here. Check the denominator in any tool before comparing numbers.

Why segment it

An average across a $15 plan and a $400 plan describes neither group. Compute ARPA per plan, per acquisition channel and per cohort. Then you can see that customers from one channel pay twice as much as another, and that tells you where to spend.

Using ARPA

  • Quick MRR model: accounts times ARPA gives MRR. Baremetrics uses the same relation for its basic MRR calculation.
  • Lifetime value: divide ARPA (times gross margin) by monthly churn to estimate customer lifetime value. With $80 ARPA and an 80% margin, you keep $64 a month per account. At 4% monthly churn the average lifetime is 25 months (1 / 0.04), so lifetime value is $64 x 25 = $1,600.
  • Pricing review: if ARPA is climbing because customers add seats, your tiers and value metric are tracking usage.

Small SaaS angle

With a few hundred accounts, a couple of big customers can lift ARPA without telling you anything about the typical one. Report the median alongside the mean, and keep an eye on customer concentration. Raising ARPA is also often a better route to growth than adding accounts: a price rise or a higher tier lifts every future customer for no extra acquisition cost.

Sources

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