Average revenue per member

Your price list tells you what you charge. It does not tell you what members actually pay. Once you have more than one level, an annual option, a few discount codes and the odd add-on, the gap between the two can be surprisingly wide. Average revenue per member, often shortened to ARPM, closes that gap. It is the amount a typical paying member brings in each month, and it sits underneath almost every other calculation you will make about your business.

It is simple to work out, but easy to work out wrongly. Here is how to calculate it cleanly, what makes it move, and the decisions it helps you make.

The basic calculation

Average revenue per member is your recurring revenue for a month divided by the number of paying members in that month.

Average revenue per member = monthly recurring revenue ÷ paying members

Three choices make the figure trustworthy:

• Convert everything to a monthly amount. An annual member paying $240 counts as $20 a month, not $240 in the month they paid and nothing for the rest of the year. A member on quarterly billing paying $75 counts as $25 a month.
• Use what members actually pay. A founding member who kept a reduced rate counts at that rate, not at the list price.
• Count paying members only. Free members, complimentary accounts for staff or partners, and people still inside a free trial belong outside the calculation. Include them and the figure sinks for reasons that have nothing to do with pricing.

Decide once whether recurring add-ons belong in the figure, then stay consistent. Most owners include them, because a monthly coaching add-on is recurring revenue like any other. Keep one-time purchases out of the main figure. If separately ticketed events or one-off courses are a big part of your income, track a second figure that includes them rather than blending the two.

A worked example

Take a hypothetical online chess coaching membership run by a coach named Tobias. The figures are invented to show the method. He has three levels: Club at $15 a month, Improver at $30 a month and Masterclass at $90 a month. Club and Improver also come as annual plans with two months free.

• Club, 260 members: 175 monthly at $15 ($2,625), 25 founding members at $10 ($250) and 60 annual members at $150 a year, or $12.50 a month ($750). Total $3,625.
• Improver, 110 members: 80 monthly at $30 ($2,400) and 30 annual members at $300 a year, or $25 a month ($750). Total $3,150.
• Masterclass, 20 members: all monthly at $90. Total $1,800.
• Add-on: 15 members pay $20 a month for a recorded game review. Total $300.

Recurring revenue is $3,625 + $3,150 + $1,800 + $300 = $8,875 from 390 paying members. Average revenue per member is $8,875 ÷ 390, about $22.76.

Tobias also has 45 free members and 12 people in a trial. Had he counted them, the figure would have been $8,875 ÷ 447, about $19.85, which would make his pricing look weaker than it is. And although his middle level costs $30, his real average sits well below it, because most members are on the cheapest level and annual members pay less per month.

What makes the average move

When the figure changes, find out why before you celebrate or worry. There are four usual causes:

• Mix. If 20 of Tobias's Club members moved up to Improver, each would add $15 a month. Recurring revenue would rise to $9,175 and the average to about $23.53, with no price change at all.
• Billing period. Moving members to annual plans lowers the monthly average slightly, because annual plans carry a discount. That is usually a good trade, since annual members renew less often and cancel less often, so do not read the dip as a problem.
• Discounts. A big promotion brings in members at a reduced rate and pulls the average down until those discounts end. Note the dates of any promotion next to your monthly figure.
• Price changes. If you raise prices for new members only, the average creeps up slowly as older members leave and newer ones replace them.

Look at the spread, not just the average

An average can hide very different groups. Tobias's $22.76 describes nobody in particular: no member pays exactly that. So alongside the overall figure, keep three simple views:

1. Average by level. Club members average about $13.94 ($3,625 ÷ 260), Improver members about $28.64 ($3,150 ÷ 110). If the Improver figure drifts toward the Club figure, discounts on the middle level are eroding it.
2. Share of revenue by level. Masterclass has only 20 members but brings in $1,800 of $8,875, roughly a fifth of recurring revenue. Losing a handful of those members matters more than the headcount suggests.
3. Members by price band. Count how many pay under $15, $15 to $30, and over $30 a month. A long tail of heavily discounted members is worth knowing about before you plan anything else.

Decisions the figure helps you make

• Turning revenue goals into member goals. If Tobias wants $12,000 a month in recurring revenue, $12,000 ÷ $22.76 means about 530 paying members, roughly 140 more than today. That is a concrete number to plan marketing around.
• Choosing between growth routes. The same goal could come from fewer members paying more. Comparing the two routes tells you whether to focus on sign-ups or on the next level up.
• Judging marketing spend. Knowing what a member pays each month is the first half of knowing what you can afford to spend attracting one.
• Understanding what existing members are worth over time. Pair this figure with revenue retention and expansion revenue to see whether the money from your current members is growing or shrinking.

Calculating yours this month

1. Export every paying member with the amount they pay and how often.
2. Convert each amount to a monthly figure and add recurring add-ons.
3. Remove free, complimentary and trial accounts from the count.
4. Divide recurring revenue by paying members and write the result down with the date.
5. Repeat the calculation for each level, and note any promotions or price changes that month.
6. Recalculate on the same day every month, so the trend means something.