# How Average Margin Per User Works

## What Is Average Margin Per User (AMPU)?

Average margin per user (AMPU) is a profitability metric for a subscriber-based business such as a wireless telecommunications or cable company. These companies generally do not publish AMPU in their reports, instead opting to disclose average revenue per user (ARPU), a standard measure widely used in the telecom and cable industries and other sectors that have quantifiable sets of subscribers, members or users.

AMPU is arguably a better measure of ARPU since increased revenue per user may also come at a greater cost of user acquisition.

## The Formula for AMPU Is

﻿ \begin{aligned} &\text{AMPU} = \frac{ \text{Operating Revenue} - \text{Operating Expenses} }{ \text{Average Users for Period} } \\ \end{aligned}﻿

## What Does Average Margin Per User Tell You?

ARPU is an industry-standard measure, but AMPU is arguably more useful in assessing a firm's profitability. Increases in average revenues per user are desirable by the company, but if expenses are forced higher to achieve these revenue gains, then the firm's margins, or profitability, may not rise and could even contract.

Average margin per user can be considered a better metric for management as it formulates pricing and marketing strategies and budgets cost items to maximize the bottom line. A higher AMPU number is considered to be better.

### Key Takeaways

• Average margin per user (AMPU) is a profitability metric for a subscriber-based business such as a wireless telecommunications or cable company.
• AMPU can be considered a better metric than average revenue per user (ARPU) for management as it formulates pricing and marketing strategies and budgets cost items to maximize the bottom line.
• Companies generally do not publish AMPU in their reports, but the figure can be calculated using the formula above.

## Example of How to Use AMPU

Telecom and cable companies do not provide AMPU tables, but you can find these numbers in their financial reports to calculate AMPU. One common way to arrive at AMPUR is to compute operating revenues less operating expenses, divided by average users (or subscribers) for the period.

In the following historical example, you will see that Verizon (wireless segment) had vastly superior AMPU figures in 2016 and 2017 over Sprint's AMPU figures during the same period. (AMPU, like ARPU, is typically expressed in monthly terms.)

Verizon:

• 2017: $87.5 billion in operating revenues minus$58.3 billion in operating expenses, divided by average users of 148 million = $197.30, or$16.44 in AMPU.
• 2016: $89.2 billion in operating revenues minus$59.3 billion in operating expenses, divided by average users of 143 million = $209.09, or$17.42 in AMPU.

Sprint:

• 2017: $24.3 billion in operating revenues minus$21.8 billion in operating expenses, divided by average users of 56 million = $44.64, or$3.72 in AMPU.
• 2016: $24.8 billion in operating revenues minus$23.5 billion in operating expenses, divided by average users of 58 million = $22.41, or$1.87 in AMPU.

Other than the substantial differences in AMPU between the two wireless companies, you can take note of the decline in Verizon's AMPU in 2017. The AMPU trend would be of interest to an investor and certainly should be to Verizon's management.

Article Sources
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1. Verizon. "2016 Annual Report," Pages 17, 19.

2. Verizon. "2017 Verizon Annual Report," Pages 18, 20.

3. T-Mobile. "Form 10-Q: Sprint Corporation," Page 28.