Most businesses seek to maximize revenue or profits, but one of the most important key performance indicators (KPIs) is average revenue per user (ARPU), a key driver of both revenue and profits. Arguably, ARPU is even more important than total revenue because it shows that the company isn't adding revenue by simply bringing in new customers, possibly at a discounted price.
What is average revenue per user?
ARPU is a straightforward financial metric that investors and business managers use to measure how much revenue the average customer generates for the business over a given period, such as a year, a quarter, or a month.
How ARPU is used
Average revenue per user is used by a wide range of businesses. However, as the word "user" implies, it's primarily used by tech companies, which tend to refer to customers or people on their platforms as users.
The metric is helpful for a subscription-based company or a social media network in which the user is the key unit of value. ARPU is one way of measuring how efficiently a business is extracting money from those users.
For tech companies, the metric is similar to sales per square foot in the retail business or average unit volume in the restaurant industry. Both show how efficiently those businesses are using their spaces. ARPU allows a company to compare its current results to previous ones and allows investors to compare companies in the same sector based on ARPU.
ARPU fell 1% in the quarter as its subscriber mix shifted to countries with lower subscription prices. The company breaks down ARPU on a regional basis, showing that the figure rose in Latin America and Europe but fell in its two other regions.
Investors will want to see those ARPU figures increase over the coming quarters, which should help drive Netflix's stock price higher. The company has recently seen a boom in subscriber growth thanks to its crackdown on password sharing. However, subscriber growth will eventually decelerate, and the company will want to increase ARPU.
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