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Sunday, July 22, 2012

Metric Discussion: Revenue Per User

I believe that every marketer should know how to extract, compute and analyze their company's Revenue per User data. While it is true that most companies rely on their business analyst to compile and analyze data, I would like to emphasize that all marketers should also know how to do it.

While most of you will tell me that this is a waste of time, since the BA (Business Analyst) already did this for you, what I'm trying to advocate is that every marketer should be involved in the process of extracting data. The reason is that although BAs know how to get it, they need guidelines as what to look for. As marketers, that's where we come in.

For this post, I'll be shortly discussing the relevance of Revenue per User (RPU) to each company. RPU is a factor of two things:

  1. Revenue (Gross or Net)
  2. Spenders (some companies call it purchasers or buyers or customers)
The basic formula is just divide your total revenue over the total number of spenders. That being said, you'll get RPU. 

The relevance of getting this is that it shows you how much (on the average) your total customers are willing to pay for your product. This will come in handy if your products are categorize according to several SKUs. Breaking it down to that level will show you how people react to your product on a price level. 

RPU can either be in gross of net depending on what you need to analyze. 
  • Gross RPU (GRPU) - allows you to see on the average the total purchasing power your customers have on your products. This can help you determine an optimized price point to further increase your sales. This metric will help you determine what price points are appealing to your customers. 
  • Net RPU (NRPU) - allows you to see how much you are earning per user. This metric will help you optimize your operations by knowing which areas you can improve in order to raise your revenues per product. This will come in handy when you want to raise the revenue of a certain SKU or product line without affecting so much the SRP (Suggested Retail Price). This will show you how much you are earning on a per person level. 
In my line of profession, I use GRPU to determine how much should be the price point of my products as well as determine how much should I be allocating for an activation program that can stimulate sales that can eventually lead to product movement. 

If you have any questions, feel free to contact me by clicking the Contact Me button above.