What Is Average Revenue per Customer?
Average Revenue per Customer (ARPC) is the amount of topline revenue that one customer contributes to your eCommerce brand over a time period (it is usually measured and tracked monthly, quarterly, and yearly).
Note: ARPC is sometimes also called ARPU (Average Revenue per User), particularly in the SaaS world.
Why You Should Care about ARPC
Average revenue per customer is a high-level KPI to understand general business health, and healthy brands see the metric increase over time.
If it’s decreasing, it can be a red flag there may be a disconnect between your offering (e.g., product, pricing) and what your customers want.
Tracking ARPC can also serve several additional functions:
- Quick check to know if you’re generating enough topline revenue to meet your business goals
- Competitive metric to see how your revenue stream compares to similar companies
- Way to understand if your pricing strategy is right, particularly if you offer different subscription packages
How to Calculate Average Revenue per Customer
To calculate ARPC, divide your total topline revenue (over a time period) by your number of active customers (over the same period):
Example ARPC calculation
For example, if in March 2022, your total topline revenue was $160,000, and 2,000 customers made a purchase or had a subscription during that time, your ARPC would be $80 in that month.
As most brands’ subscription offers are based on a monthly recurring subscription model, we recommend calculating ARPC each month.
ARPC/ARPU vs Customer Lifetime Value (LTV)
ARPC and LTV both give you information about the value a customer brings to your business. However, they are different metrics and should not be confused or conflated:
- LTV is gross margin per customer (over their lifetime with your brand), which is what’s left after you subtract your landed cost, or what it costs you to manufacture a product (product cost) and ship it to your warehouse (e.g., freight costs, taxes, duties, insurance). For a deep dive into LTV, check out our complete guide on customer lifetime value.
- ARPC is based on topline revenue, which doesn’t take costs into consideration.
LTV helps you understand customer profitability at a more granular level, while ARPC helps you understand how much in sales you are making per customer.
Using both ARPC and LTV together and comparing them by subscriber cohort (i.e., customers who subscribed in a particular month or quarter) can help you identify red flags related to customer profitability.
Specifically, if your usual LTV and ARPC trends look off (i.e., LTV is lower than expected compared to ARPC), it can indicate your costs are rising more than expected–and you may need to do something to mitigate them.
How to Increase ARPC
You should see your ARPC increase if you focus on optimizing LTV and average order value (AOV).
To increase LTV, review your strategies for customer retention, from loyalty programs and VIP experiences to free shipping. Also, since LTV is about profitability, analyze if your marketing channels and campaigns are bringing in the “right” (high LTV) customers that justify your acquisition costs.
To increase AOV, try experimenting with various strategies to nudge some additional spend. A word of caution: it’s critical to ensure your customers continue to perceive value – otherwise you could increase churn. Consider tried-and-true strategies including:
- Cross-sells: Complementary product(s) that a customer can add to their order
- Upsells: More of the same product or an upgraded version of a product
- Bundles: Complementary products packaged together for customer convenience/value
- Threshold for free shipping: A minimum order value to get free shipping can entice customers to spend a bit more
For more information and a big list of tactics increasing AOV, check out our post on AOV.
ARPC: Consistency Is Key
As we always recommend, the best way to get the most from your metrics is to be consistent. Once you decide how often you’ll calculate ARPC, keep it up. Only with regular tracking will you be able to see patterns that can help you optimize your business.