How to Calculate Average Revenue Per Free Trial User: A Step-by-Step Guide

Are you interested in learning how to calculate the average revenue per free trial user for your business? Look no further! In this step-by-step guide, we will explain the importance of this metric, define what it is, and provide a comprehensive tutorial on how to calculate it. By the end of this article, you will have all the necessary knowledge to improve your business’s revenue. So, let’s get started.

Understanding the Importance of Average Revenue Per Free Trial User

For businesses that offer free trial periods for their products or services, calculating the average revenue per free trial user metric is crucial for measuring the success of their business. By understanding this metric, businesses can better understand how much revenue they generate per free trial user, which in turn can help them improve their marketing strategies and business operations, leading to higher revenues.

Furthermore, the average revenue per free trial user can also help businesses identify which products or services are most profitable during the free trial period. By analyzing this metric, businesses can determine which products or services to focus on during the free trial period, and which ones may need to be improved or discontinued. This information can also be used to adjust pricing strategies and optimize revenue generation during the free trial period.

What is Average Revenue Per Free Trial User?

Average Revenue Per Free Trial User, often shortened to ARPFTU, is a key metric that measures the average revenue a business earns from each free trial user. This metric is calculated by dividing the total revenue generated from free trial users by the total number of free trial users. The resulting number reveals the average revenue per free trial user.

Why Should You Calculate Average Revenue Per Free Trial User?

Calculating ARPFTU is important because it helps businesses understand how much revenue they generate from their free trial users. By understanding this metric, businesses can identify their most valuable customers and focus their marketing efforts on converting those customers into paying subscribers. Additionally, this metric can help businesses identify areas to improve their product or service to increase their revenue per user.

Furthermore, calculating ARPFTU can also help businesses determine the effectiveness of their pricing strategy. If the ARPFTU is low, it may indicate that the pricing is too high for the target audience or that the value proposition is not clear enough. On the other hand, if the ARPFTU is high, it may indicate that the pricing is too low and that the business is missing out on potential revenue. By regularly calculating ARPFTU, businesses can adjust their pricing strategy to optimize revenue and profitability.

Factors That Affect Average Revenue Per Free Trial User

Several factors contribute to the calculation of ARPFTU, including the length of the free trial period, the pricing of the product or service after the free trial period, and the conversion rate of free trial users to paying subscribers.

For example, if a business offers a free trial period of one month and charges $50 per month for their product or service, but only converts 10% of their free trial users to paying subscribers, their ARPFTU would be $5. However, if they extend their free trial period to two months, increase the conversion rate to 20%, and charge $75 per month, their ARPFTU would increase to $15. Therefore, businesses should consider these factors when making decisions about their pricing strategy and free trial offerings to optimize their ARPFTU.

Another factor that can affect ARPFTU is the quality of the product or service being offered. If the product or service is of high quality and meets the needs of the target audience, free trial users are more likely to convert to paying subscribers. On the other hand, if the product or service is of poor quality or does not meet the needs of the target audience, free trial users are less likely to convert to paying subscribers, resulting in a lower ARPFTU. Therefore, businesses should focus on providing high-quality products or services to increase their ARPFTU.

Step-by-Step Guide to Calculating Average Revenue Per Free Trial User

To calculate ARPFTU, follow these simple steps:

1. Identify the total revenue generated from free trial users during a specific period, such as a month.
2. Identify the total number of free trial users during the same period.
3. Divide the total revenue generated from free trial users by the total number of free trial users to calculate the ARPFTU.

Here is a formula for calculating ARPFTU:

ARPFTU = Total Revenue Generated from Free Trial Users / Total Number of Free Trial Users

Tips to Improve Your Average Revenue Per Free Trial User

There are several ways businesses can improve their ARPFTU, including:

• Extend free trial periods to give users more time to experience the product or service.
• Create more targeted marketing campaigns to convert free trial users into paying subscribers.
• Offer tiered pricing plans to cater to different customer needs and budgets.
• Provide exceptional customer service to retain paying customers and increase their lifetime value.

Examples of How Businesses Have Used Average Revenue Per Free Trial User Data

Many successful businesses have used ARPFTU data to optimize their marketing strategies and increase their revenue. For example, Netflix calculates their ARPFTU by dividing their total revenue generated by the number of subscribers and attributes their success to the metric. By measuring their ARPFTU, they identified the importance of keeping their current subscribers for longer periods of time, leading to the creation of original content and personalized recommendations. Similarly, Dropbox used ARPFTU data to optimize their pricing strategy, leading to a 60% increase in their ARPFTU.

Challenges and Limitations of Calculating Average Revenue Per Free Trial User

While ARPFTU is a useful metric for businesses, it does have its limitations. One significant limitation is that it does not account for the cost of acquiring free trial users, which could significantly impact the profitability of a business. Moreover, if a business experiences significant fluctuations in their free trial user volume, ARPFTU may not be a reliable metric.

Conclusion: Why Calculating Average Revenue Per Free Trial User Matters for Your Business

Calculating ARPFTU is a crucial metric for businesses that offer free trial periods. Monitoring this metric enables businesses to identify their most valuable customers, optimize their pricing strategies, and improve their marketing campaigns. By understanding how to calculate ARPFTU, businesses can better understand how to improve the revenue generated from their free trial users, ultimately leading to increased profitability and success.