What Is a Revenue Generating Unit (RGU)?
Let me explain what a revenue generating unit, or RGU, really is. It's an individual service subscriber who generates recurring revenue for a company. You see this used as a performance measure by management, analysts, and investors.
Companies like telecom and cable providers track RGUs closely, along with other businesses that rely on a subscriber base for their services. Growth in RGUs can happen organically or through acquisitions, and that's something you should keep in mind when looking at these metrics.
Key Takeaways
An RGU refers to a service subscriber or user that creates ongoing sources of income for a firm. Telecom, media, and internet services companies are the ones most likely to track RGU data and work to increase those flows. The average revenue per unit, or ARPU, measures the mean revenue generated per RGU.
Understanding Revenue Generating Units (RGUs)
RGUs are subscribers—either individuals or businesses, but usually individuals—who pay for monthly services like mobile phones, internet, streaming, or cable TV. The term RGU has become interchangeable with 'customer relationships,' 'customers,' or just 'subscribers,' where the users are the units we're talking about.
Whatever name a company uses, it compiles this data, segments it, and analyzes it. RGU figures often help calculate average revenue per unit or user, known as ARPU, which is another key metric in the telecom and cable industries.
A company focuses on net additions to RGUs. It analyzes where RGUs were added geographically and in which product lines. The company attributes these subscriber gains to specific marketing campaigns or shifts in the competitive landscape. If there are RGU losses, it determines the reasons and takes steps to fix the attrition.
Finding RGU Data
Take Liberty Global Group as a solid example of a company that breaks down its RGU data. In its quarterly 10-Q and annual 10-K filings, you'll find RGU tables that segment by cable service type—like voice, video, data—mobile service type such as prepaid or postpaid, and by the countries where the company operates.
Net additions or losses of RGUs are then discussed in the company's MD&A, or management discussion and analysis section.
Average Revenue Per Unit (ARPU)
The average revenue per unit is total revenue divided by the average units or users during a period. Don't use the period-end date for the denominator because the number of units can fluctuate within the period. Instead, average the beginning and end of the period numbers.
That said, the number of units or users might not stay constant throughout the time period. It can vary day to day as new users join or old ones drop off. So, you need to estimate the number of units for the period to get the most accurate ARPU figure.
To calculate ARPU accurately, first define a standard time period. Most telephone and communications carriers calculate it monthly. Then, divide the total revenue generated during that period by the number of units or users.
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