How to calculate ARPU for a SaaS

ARPU is average revenue per user: what a typical paying customer pays you each month. It's the starting point for LTV, payback and pricing decisions. The example company below is made up so the math is easy to follow.

The example

A small SaaS has three plans. 60 customers on Starter at $20 a month, 30 on Pro at $50, and 10 on Team at $150.

The formula

ARPU = MRR ÷ paying customers.

MRR is (60 × $20) + (30 × $50) + (10 × $150) = $1,200 + $1,500 + $1,500 = $4,200. Divide by 100 paying customers and ARPU is $42 a month.

Notice that no customer actually pays $42. ARPU is an average, so it moves when the mix of plans changes, even if you never touch your prices.

What to count

• Annual plans: divide by 12. A $480 yearly plan counts as $40 a month.
• Discounts: use what the customer actually pays, not the list price.
• Free users: leave them out and divide by paying customers only. Some companies divide by all users, which gives a much lower number, so say which one you mean.
• One-time fees like setup or onboarding: leave them out of MRR and ARPU. They don't repeat.

More on what goes into MRR: how to calculate MRR and ARR.

Why it matters

LTV is built on ARPU: LTV = ARPU × gross margin ÷ monthly churn. With an 80% margin and 4% churn, $42 ARPU gives $42 × 0.8 ÷ 0.04 = $840.

Now say 10 Starter customers upgrade to Pro. MRR goes up by 10 × $30 = $300 to $4,500, ARPU becomes $45, and LTV becomes $900. Same customers, same churn, more value per customer. See how to calculate LTV and CAC payback.

Ways to raise it

• Make the plan most people should pick the obvious choice on your pricing page.
• Tie higher plans to something that grows with the customer, like seats, projects or usage.
• Raise prices for new customers first, then decide whether to move existing ones.
• Watch discounts. A permanent 50% launch deal halves ARPU for the life of that customer.

Every formula in one place: SaaS metrics formulas. The free LTV:CAC calculator turns your ARPU into LTV and payback.

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook that starts from your plans and prices, works out ARPU and MRR, then LTV:CAC, payback, break-even and runway, with side-by-side scenarios.