How to Calculate Average Revenue Per Subscription: A Step-by-Step Guide

If you’re running a subscription-based business, understanding and tracking your average revenue per subscription (ARPS) is crucial for making informed business decisions. ARPS is the average amount of revenue earned per subscription, and calculating it is a straightforward process that involves a few simple steps. In this article, we’ll guide you through how to calculate your ARPS using real-world examples, explain why ARPS is important, and provide best practices for tracking it over time.

Why Average Revenue Per Subscription Matters

ARPS is a key metric that can provide insights into the health of your subscription-based business. This metric can help you understand the value of each subscription and whether your pricing strategy is working. Tracking ARPS can also help you evaluate your revenue performance over time and identify opportunities for growth.

Furthermore, ARPS can also help you identify which subscription plans are most popular among your customers. By analyzing the ARPS for each plan, you can determine which plans are generating the most revenue and adjust your offerings accordingly. Additionally, tracking ARPS can help you identify any changes in customer behavior or preferences, allowing you to adapt your business strategy to meet their needs.

Understanding the Components of Average Revenue Per Subscription

ARPS is calculated using two components: total revenue from subscriptions and the number of subscriptions sold. By dividing the total revenue by the number of subscriptions, you can determine the average revenue per subscription.

It is important to note that ARPS can be influenced by various factors such as pricing strategies, promotional offers, and changes in subscription plans. For instance, if a company offers a discount on a subscription plan, the ARPS may decrease as the total revenue from subscriptions decreases while the number of subscriptions sold increases. On the other hand, if a company introduces a premium subscription plan, the ARPS may increase as the total revenue from subscriptions increases while the number of subscriptions sold remains the same.

Step 1: Gather Your Data on Subscriptions and Revenue

To calculate your ARPS, you’ll need to gather data on the total revenue from subscriptions and the number of subscriptions sold. This data can be found in your financial statements or subscription management system. Make sure you gather data for the desired time period, such as a month or quarter.

It’s important to ensure that the data you gather is accurate and complete. Double-check that all revenue and subscription numbers are accounted for and that there are no discrepancies. Additionally, if you offer different subscription tiers or pricing plans, make sure to separate the data accordingly to calculate the ARPS for each plan.

Step 2: Calculate Total Revenue from Subscriptions

Next, add up all the revenue earned from subscriptions during the time period. This includes all revenue generated from subscription fees, add-ons, upgrades, and renewals.

It is important to note that any refunds or cancellations during the time period should be subtracted from the total revenue earned. Additionally, if there were any promotional discounts or free trials offered during the time period, the revenue earned from those subscriptions should be adjusted accordingly.

Step 3: Determine the Number of Subscriptions Sold

Now, you need to determine how many subscriptions were sold during the time period. This includes new subscriptions, renewals, and upgrades. You can find this information in your subscription management system or sales report.

It’s important to note that when calculating the number of subscriptions sold, you should exclude any cancellations or refunds that occurred during the same time period. This will give you a more accurate representation of your subscription revenue and growth.

Step 4: Calculate the Average Revenue Per Subscription

Divide the total revenue from subscriptions by the number of subscriptions sold to determine the ARPS. For example, if your total revenue from subscriptions is $10,000 and you sold 100 subscriptions, your ARPS would be $100.

It is important to regularly monitor your ARPS to ensure that it remains stable or increases over time. A decrease in ARPS could indicate a decrease in the value of your subscription offering or a decrease in customer satisfaction. To improve your ARPS, consider offering additional subscription tiers with added value or improving the overall customer experience.

Real-World Examples of Calculating Average Revenue Per Subscription

To better understand how to calculate ARPS, let’s look at a couple of examples:

Example 1: If a company had $50,000 in revenue from subscriptions and sold 500 subscriptions during the month, their ARPS would be $100 ($50,000 ÷ 500).

Example 2: If a company had $25,000 in revenue from subscriptions and sold 100 subscriptions during the month, their ARPS would be $250 ($25,000 ÷ 100).

It’s important to note that ARPS can vary greatly depending on the industry and type of subscription being offered. For example, a software company offering a monthly subscription for a specialized tool may have a higher ARPS than a magazine company offering a yearly subscription. Additionally, changes in pricing or subscription plans can also impact ARPS over time.

Best Practices for Tracking Average Revenue Per Subscription Over Time

To get the most out of your ARPS metric, it’s important to track it over time. This can help you identify trends and changes that may affect your business. Here are some best practices for tracking ARPS:

• Track ARPS monthly or quarterly to evaluate performance.
• Compare ARPS to previous time periods to identify trends.
• Segment ARPS by customer cohorts to evaluate the performance of different segments.
• Use ARPS to inform pricing and subscription strategy decisions.

It’s also important to consider external factors that may impact your ARPS metric. For example, changes in the economy or industry trends may affect customer behavior and ultimately impact your revenue. Keeping an eye on these external factors and adjusting your strategy accordingly can help you maintain a healthy ARPS over time.

Using Average Revenue Per Subscription to Inform Business Strategy and Decision-Making

ARPS is a valuable metric that can help you make informed decisions about your subscription-based business. By tracking ARPS over time, you can identify trends, evaluate pricing and subscription strategy, and identify opportunities for growth. Use ARPS as a tool to inform your business strategy and drive success.