Average Revenue Per Account (abbreviated as ARPA) is the average revenue earned by a company per account per year/month. SaaS companies with a subscription-based business model often use this revenue metric. It demonstrates the capability to meet sales targets and the revenue generation capacity.
ARPA is a measure of profitability that helps a SaaS business to evaluate its revenue per subscriber. Please note that ARPA differs from Average Revenue Per User (ARPU). These terms cannot be used interchangeably because a single user can have more than one account with a SaaS company which might result in different values of ARPA and ARPU.
ARPA is a vital profitability metric for SaaS businesses due to the following reasons:
SaaS-based companies generally use ARPA to compare their performance against their competitors. They can also use this metric to track their performance over some time.
ARPA can also be used to understand the various elements that make up the company's revenue. In other words, it can help you identify which product generates the highest/lowest revenue or which clients bring in the most revenue.
ARPA is also used to calculate the SaaS company's recurring revenue (ARR or MRR). These recurring revenue metrics are further used as a benchmark for revenue forecasting.
It is fairly simple to calculate the ARPA. Here is the general formula to calculate the Average Revenue Per Account:
Average Revenue Per Account (ARPA) = Total Revenue / Number of accounts
It is important to understand that the number of accounts can change considerably during a particular period. Hence, it is recommended to calculate the ARPA using an average number of accounts for a specific period. Also, if you are looking to calculate the monthly average revenue per account, you can use the following formula:
Average Revenue Per Account (ARPA) = Monthly Recurring Revenue (MRR) / Number of accounts
Here, it is important to note that if you offer a trial or freemium product version, you shouldn't consider these unpaid accounts when calculating ARPA.
Some of the advantages of ARPA are as follows:
Some of the disadvantages of ARPA are as follows: