ARPU is a term bandied about quite a bit in these days of the telecommunications boom. ARPU stands for Average Revenue Per User. It is a powerful and extremely useful indicator of just how well a telecom company is accessing its customers’ revenue potential.

ARPU is commonly calculated in standard mathematical fashion, by dividing the aggregate amount of revenue by the total number of users who provide that revenue. Such numbers are static, but are usually taken as gospel in accounting departments around the world. Other measurements are tracked as well, including revenue generated by new customers as compared to existing customers and revenue generated by new services as compared to existing services.

The company that tracks ARPU will most likely want to know its profit potential in broad terms. However, mobile phone companies also track ARPU by examining revenues brought in by customers’ incoming calls as compared to revenues generated by monthly or annual fees. In this way, ARPU can be both general and specific.

It’s not just telecom companies that use ARPU, however. Internet companies track ARPU as well. So do other electronic service providers.

Many companies, telecom companies especially, find ARPU to be a prime indicator of profit potential. ARPU, however, has dangers as well. For instance, with the prevalence of telecom users these days and the overwhelming variety of services available, the “average” user is thought by many analysts to be a myth. The total number of people who use basic services might not at all equate to the total number of people who use a whole host of services. However, using ARPU, many of the users in both categories are considered to be in the same avenue of revenue potential.

Another related danger of using ARPU exclusively is that it tends to skew toward users of more services. For example, Customer A might pay $80 a month for her services and Customer B might pay $120 a month for his services. Taken together, the ARPU of each of these customers is $100 a month. Evaluating solely by ARPU, a company might think that both of these customers are subscribing to the same amount of services. Decisions made on this incorrect reasoning might have serious consequences when company executives are deciding which services to maintain or discontinue.

Overall, though, ARPU continues to be the industry standard for telecom, Internet, and other kinds of companies. Much more often than not, it is an accurate method of tracking data, service use, and revenue potential.