DEFINITION of Revenue Per User (RPU)
Revenue per user (RPU) is a ratio used to express revenue generated by a company on a per-user basis. It is most often used by companies that generate revenue by selling subscription services and measures how robust the product usage is across the customer base. Social media sites that allow free access also use the revenue per user ratio. Since free social media sites generate revenue through ad sales, more users equal more foot traffic to their sites which equates to higher revenues from ad space. Monitoring customer usage and revenue per user is a quick litmus test for these companies to keep in touch with their financial health.
The revenue per user ratio is calculated by taking overall revenue and dividing it by the total number of users:
RPU=Total CustomersTotal Revenue
Revenue per user (RPU) is mainly used by service providers, such as telephone providers, cable companies, and internet providers. This measure helps companies uncover deficiencies and plan strategies for growth. Examining and monitoring changes to the revenue per user ratio also helps the company determine which products or services produce the most revenue per customer and, therefore, which customer relationships are the most important.
Example of RPU Formula
For example, XYZ Global sells internet service. It has several price points based upon the speed of service and also sells wireless routers for a one-time fee, or a small monthly rental fee. It uses the revenue per user ratio to track its most profitable areas and to offer enhanced service to its most valuable customers, increasing client retention and improving year-over-year revenue growth.