Definition

average revenue per user or average revenue per unit (ARPU)

Average revenue per user or average revenue per unit (ARPU) is an expression of the income generated by a typical subscriber or device per unit time in a telecommunications network. The ARPU provides an indication of the effectiveness with which revenue-generating potential is exploited.

To calculate the ARPU, a standard time period must be defined. Most telecommunications carriers operate by the month. The total revenue generated by all units (paying subscribers or communications devices) during that period is determined. Then that figure is divided by the number of units. Because the number of units can vary from day to day, the average number of units must be calculated or estimated for a given month to obtain the most accurate possible ARPU figure for that month.

The ARPU can be broken down according to income-producing categories. For example, monthly or annual subscriber fees generate a steady revenue stream but do not take into account short-term changes in customer usage habits. The income generated by "excess minutes," roaming services or incoming calls can be highly variable. New, novel features may temporarily generate higher ARPU figures than established, proven functions. The ARPU can be calculated for each feature to identify sources of the greatest income per unit. The ARPU can also be calculated according to diverse factors such as geographic location, user age, user occupation, user income and the total time per month each user spends on the system.

The ARPU figure should not be confused with the average margin per user (AMPU), which is calculated on the basis of net profit rather than total income. In recent years, some telecommunications carriers have increased their reliance on AMPU rather than ARPU to maximize their returns as niche markets become saturated.

This was last updated in September 2007
Posted by: Margaret Rouse

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