What is ARPA?
ARPA, or Average Revenue Per Account, is a key metric businesses use, especially subscription-based models, to measure the average revenue generated per account over a specific period. It’s crucial for evaluating business performance, guiding pricing strategies, and understanding customer value, ultimately aiding financial forecasting and strategic decision-making.
Key Takeaways
- Business Performance Indicator: ARPA measures the average revenue generated per customer account, serving as a good indicator of overall business performance.
- Calculation Method: The basic formula for ARPA is monthly recurring revenue divided by the total number of accounts, which can be adjusted for different time frames.
- Revenue Management Tool: ARPA is mainly used for revenue management purposes, helping businesses track growth and identify when pricing adjustments or customer attraction strategies may be needed.
- Reflects Business Growth: ARPA is a vital metric for demonstrating business growth at a per-unit level in the hotel industry.
- Calculation Flexibility: ARPA can be calculated on a monthly or yearly basis, offering flexibility in assessing revenue trends over different periods.
Introduction
The average revenue per account, or ARPA, is a KPI used in the hotel industry for revenue management. The metric tells hotel owners the amount of revenue generated, on average, per customer account. As a result, it is a good indicator of business performance. The metric is sometimes known as average revenue per user.
What does ARPA stand for?
ARPA, or annual revenue per account, details the average revenue a hotel generates from each of its customers’ accounts over a specified period. It is, therefore, extremely valuable for those in the hotel industry, because it can demonstrate business growth at a per-unit level.
How Do You Calculate ARPA?
In order to calculate ARPA, a time period must be decided. It is usually done on a monthly or yearly basis. Looking back at recent past months can help to establish the average revenue per existing account, while measuring upcoming months and comparing it to past performance can help to show average revenue per new account.
The basic formula for calculating average revenue per account is as follows:
ARPA = (Monthly) Recurring Revenue / Total Number of Accounts
Uses and Limitations
The main use of ARPA is for revenue management purposes, because it shows how much revenue a hotel takes from each account on average. This can help show business growth, or when performance declines, which may indicate that prices need to be adjusted or that more customers need to be attracted.
One potential limitation of the KPI is that it measures revenue on a per-account basis, rather than per-user. Although the metric is sometimes referred to as average revenue per user, this is not an accurate description of what the metric shows, because some users may have more than one account.
More Revenue Management KPIs
KPI stands for Key Performance Indicator. With KPI, you can measure and identify areas of success and failure, as well as trends related to demand and customer behavior. Besides ARPA, other important Revenue Management KPIs are Occupancy rate, RevPAR, RevPOR, ADR, TRevPAR, NRevPAR, EBITDA, and GOPPAR.
More Tips to Grow Your Business
Revfine.com is a knowledge platform for the hospitality & travel industry. Professionals use our insights, strategies and actionable tips to get inspired, optimise revenue, innovate processes and improve customer experience. You can find all hotel & hospitality tips in the categories Revenue Management, Marketing & Distribution, Hotel Operations, Staffing & Career, Technology and Software.This article is written by:
Leave A Comment