What Is Average Revenue Per Unit (ARPU)?

What Is Average Revenue Per Unit (ARPU)?

Let me explain what Average Revenue Per Unit (ARPU) is—it's an indicator of how profitable a product is, based on the money generated from each user or subscriber. You'll find this measurement especially useful in telecommunications and media industries that depend on subscribers or users.

ARPU is typically calculated by taking total revenue and dividing it by the number of units, users, or subscribers. People often call it average revenue per user, and mobile phone providers might refer to it as average revenue per SIM card.

Key Takeaways

ARPU directly measures the earnings from each user or unit. This figure gets reported most often by telecom and media companies. As an analyst or investor, you can use it to compare ARPU numbers with those of rivals in the same industry—it shows who's maximizing revenue from subscribers or users the best.

Management looks closely at ARPU to identify which products or business segments are performing well or poorly. Keep in mind that churn rate and subscriber growth rate are other key metrics tracked in telecom and media sectors.

Understanding Average Revenue Per Unit (ARPU)

ARPU isn't a GAAP measure, so companies aren't required to produce or track it to comply with generally accepted accounting principles. However, it's valuable information for executives and investors who want to understand a company's revenue generation and growth at the per-unit level.

Many companies publish this number because it's particularly relevant to telecom and media businesses, which rely on subscribers or active users rather than buyers of physical products.

How to Calculate ARPU

To calculate ARPU accurately, you need to define a standard period first—most telephone and communications carriers do this on a monthly basis. Then, divide the total revenue generated during that period by the number of units or users.

Don't use just the end date for the denominator, as it might miss fluctuations throughout the period. Instead, average the start and end dates. The number of users fluctuates, especially in media and telecom, so estimate the number of units for the period to get the most accurate ARPU figure.

Fast Fact

In 2023, the world's top social media sites in terms of ARPU were Facebook and Instagram.

Who Uses Average Revenue Per Unit (ARPU)?

In the telecommunications sector, companies like Verizon and AT&T use ARPU to track the average revenue per mobile phone subscriber. The revenue in ARPU for mobile phones includes monthly billings plus income from incoming calls under the regulatory interconnection system.

ARPU in Subscription Services

Cable companies like Comcast Corp. also disclose ARPU figures. You can use these measures internally or externally to compare subscriber-based companies and forecast future service revenues from a customer base.

ARPU in Social Media

Social media companies such as Meta Platforms Inc. (formerly Facebook) and Snap report ARPU to investors, but each defines it differently, which explains valuation gaps. For example, Snap's ARPU for Q2 2024 was $2.86, up from $2.69 in Q2 2023, with a market cap of $15.49 billion in September 2024. Meta's was $11.89 in Q2 2024, up from $10.93, with a market cap of $1.32 trillion.

Advantages and Disadvantages of ARPU

A high ARPU is something companies brag about, but it's sometimes seen as a vanity metric. If you analyze it properly, though, it provides insights into customer responses to price points and premium offerings. It can also show a company's growth trajectory.

For analysts and investors outside the company, it might not be as useful without details—it's a macro-level measure. In Meta's case, millions of signed-up users might not interact, distorting the true ARPU substantially.

Even as a macro measure, ARPU helps compare companies in a sector, forecast growth, and reveal market segment success.

Special Considerations

ARPU is one of several metrics for evaluating telecom financials. Others include churn rate, which shows subscribers dropping the service— a high rate means dissatisfied customers and potential shrinkage. Subscriber growth, or net additions, indicates ongoing success.

These metrics apply to media companies too, but the media landscape is complex with segments like social media, news, entertainment, and business, each with its own success metrics.

What Is Included in an ARPU Calculation?

ARPU is total revenue divided by total users, typically including first-time buyers or subscribers with upfront fees, recurring revenue like monthly payments, upsells via premium products, and cross-sells from revenue-sharing deals.

This fits companies like Comcast with subscriptions and streaming, but many media firms rely on advertising, premium services, or revenue-sharing, all included in ARPU.

How Can a Company Increase ARPU?

Companies, especially telecoms, increase ARPU by selling higher tiers or bundles to existing customers. Media firms focus on boosting advertising revenue. They analyze internal numbers to target valuable demographics, like Gen X consumers if they contribute most to ARPU.

What Is Prepaid and Postpaid ARPU?

Prepaid and postpaid ARPUs are specific to telecoms, offering pay-as-you-go prepaid options with flat monthly fees or postpaid billed monthly, often with contracts and discounted phones. Trends show prepaid ARPU rising at T-Mobile from 28.25% in 2013 to 37.18% in early 2024, while postpaid declined from 54.5% to 48.79%.

The Bottom Line

If you're considering investing in a telecom or media company, watch ARPU over time—it's a good comparison point among competitors. The company with the highest ARPU is likely doing the best at monetizing its customer base.