How Do I Calculate The Average Monthly Revenue For A Startup?

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Revenue is the most fundamental metric of every business. It is the value of all sales of services recognized by a business in a certain period. In this article, we’ll be discussing the importance of revenue and how to efficiently calculate the average monthly revenue for a startup.

Why is revenue important?

Revenue is what keeps your business alive. It is what gives you key insights into your business. So if you want to increase your profits, you definitely need to increase your revenue.

Well, you might be confused about how revenue and profit differ. So here it is:

Revenue is the total amount of income from the sale of goods or services related to the company's primary operations. While profit is the income that remains after accounting for all debts, expenses, additional income streams, and operating costs.

Tracking your revenue across consistent accounting periods, you can compare it over time and change what’s needed to be changed to improve your results.

How Do We Calculate Revenue

A calculator in a yellow background
Photographer: Clayton Robbins | Source: Unsplash

The formula for calculating revenue is:

Number of units sold X average price = Revenue

For example:

You sold 50 units at a $30 price.

So 50 units multiplied by $30, you will come up with $1500 revenue.

Average Monthly Revenue

AMR on the other hand is the average monthly gross revenue of the business derived from clients.

But how do we measure it?

Well, calculating the average monthly revenue is actually easy. It’s as easy as dividing the annual revenue by 12.

Let’s say, your annual revenue is $180,000.

$180,000/12 = $15,000, it means your AMR is $15,000

But calculating it is not enough to guarantee success. Let’s now talk about the things you need to focus on to improve your monthly average revenue results.

The Average Revenue Per User (ARPU)

The average revenue per user (ARPU) is the average revenue received per user over a period of time. It is an efficient way to measure your average revenue a month because it allows you to deepen your analysis of growth potential per-customer. Moreover, this metric allows you to identify the trends and implement changes in your strategies. For a startup, doing so can shift the trajectory of your business towards that large pool of profits that you always dream of.

ARPU formula

To compute the average monthly revenue per user, you should follow this formula:

ARPU = Total Revenue / Average Subscribers

Let’s say, your average subscribers is 400 and your total revenue is $30,000.

ARPU = $30,000 / 400 = $75

This shows that your ARPU is $75.

Why You Should Care About ARPU

ARPU is the average amount of monthly revenue you receiving per user. Tracking it will help you plan for the long-term and the short-term. It is the base for accelerating your average monthly revenue.

As a startup, ARPU is important because you are also getting to know the behavior of your customer. And getting to know your customer is what will separate you from losers when it comes to business. Additionally, higher ARPU can serve as the source of fuel for your Customer Lifetime Value (LTV) goals.

It means that the higher the ARPU, the higher the chance customer will bring your brand throughout their entire time as a paying customer. Hence, an increase in your monthly revenue.

MRR (monthly recurring revenue)?

Monthly Recurring Revenue (MRR) is the amount of revenue that your company can expect to receive on a monthly basis. It is an essential metric to understand overall business profitability and cash flow.

MRR is important to focus on when you are measuring your average monthly revenue because it helps you make accurate financial projections.

A large part of MRR is relatively consistent and predictable. So it can really help you begin to model estimates of where you’ll be and then can plan your business accordingly on a monthly basis. Thus, increasing your results.

How to calculate MRR?

Doing some homework
Photographer: Joshua Hoehne | Source: Unsplash

To calculate MRR, you should follow this formula:

Average Revenue Per Account X Total Number Of Accounts = MRR

Average Revenue Per Account (ARPA) is a crucial metric when calculating MRR. You will get ARPA by taking the average of how much all of your customers are paying and dividing it by the total number of customers for that specific month.

To calculate your MRR, you multiply the ARPA figure by your total number of customers. So, if you have 200 customers paying an average of $25 per month, your MRR would be $5,000.

Why Is Average Monthly Revenue Important?

So we already talked about how to calculate average monthly revenue as well as the important metrics to focus on to improve your results. But we have not dealt with why average monthly revenue is important.

Well, it is really important for a startup to measure its average monthly revenue because it will help them know what to focus on and what to improve. Measuring your average monthly revenue is key to being able to understand the profitability of your business in monthly business.

Your average monthly revenue is the greatest factor that will determine how your business is doing in the short-term run. It clearly shows how much money you make from the sales of your product. So changes in your average monthly revenue can determine if your marketing strategies are working and if your price is affecting the demand for your product.

Average Monthly Revenue Growth

Analyzing your average monthly revenue growth doesn’t just mean thinking of new ways on how to bring money to your company monthly. It means that you have to diligently examine your processes and which aspects are increasing and decreasing your revenue.

There are actually lots of channels that can help you grow your monthly revenue.

Email marketing

Building your audience is directly linked to growth in your revenue. Email marketing is a great way to build your audience. Coming up with a perfect email marketing strategy will give you greater reach and that could mean greater revenue.

Content marketing

Content marketing is a great way to make your service out to a much bigger and committed buying audience. it’s another way to grow your email marketing too.

Giveaways

You might disagree with me but running giveaway campaigns is a great way to grow your marketing. When your marketing is at its peak, you have endless possibilities for revenue growth. It doesn’t mean that you will conduct a giveaway campaign every month. Take note that giveaways do not really end when the giveaway ended. You can use this as a perfect way to strategize your email marketing by running email drip campaigns for the giveaway participants.

Conclusion

Knowing how your business is growing on a monthly basis by knowing your average monthly revenue can give you endless possibilities for business profit growth.

As mentioned, calculating average monthly revenue is easy. But if you are a startup and you want to launch your business profit to greater heights, you should focus on the metrics we have discussed.

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Parker Casio Patty
Digital Marketer, Agency Owner, and Saas Enthusiast.
Articles: 34

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