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ARPU growth decomposition: what drove revenue (ARPU vs users)

A practical guide to decomposing revenue growth into ARPU change vs user growth (and interaction), with a worked example.

Updated 2026-01-24

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ARPU Growth Decomposition Calculator
Example (start $50k / 2,000 users -> end $65k / 2,300 users)

What this decomposition answers

Revenue can grow because you have more active users, because you earn more per user (ARPU), or both. Decomposition is a quick way to explain growth without guessing: it splits the change into a user effect, an ARPU effect, and an interaction term.

Core identity

Revenue = users * ARPU.

Decomposition formula

Delta Revenue = Delta Users*ARPU_start + Delta ARPU*Users_start + Delta Users*Delta ARPU.

How to use it in practice

  • User-driven growth often points to acquisition, distribution, or activation improvements.
  • ARPU-driven growth often points to pricing/packaging, upsell, or mix shifts toward higher-value segments.
  • If ARPU rises but user growth slows, segment conversion and retention (pricing can change who you attract).

Common mistakes

  • Changing the definition of 'active user' between periods.
  • Mixing net revenue (after refunds/credits) with gross revenue across periods.
  • Treating the decomposition as proof of causality; it's an explanation tool, not an experiment.

FAQ

Why is there an interaction term-
Because users and ARPU can change simultaneously. The interaction term captures the portion of growth created by both changing at the same time.
Should I use ARPU or ARPA-
Use ARPU when your denominator is users/seats. Use ARPA when you bill per company account/customer. Pick the metric that matches how you price and report.

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How to calculate ARPU (Average Revenue Per User) →