ARPU - do you know what that is?
It stands for Average Revenue Per User. The formula is really easy:
ARPU = Total Revenue / Total Users
Why do I bring it up?
ARPU is something I track every month. I don't share it in my monthly income reports because it's not a metric that I've ever heard anyone else use - until this week.
I was talking to Adam Smith on the Niche Website Builders podcast and he brought it up. I was pleasantly surprised because he's the first person I've seen who's ever brought it up - kindred spirits!
ARPU can be paired with CPA (Cost Per Acquisition) to calculate PPU (Profit Per User):
CPA = Total Costs / Total Users
ARPU - CPA = PPU
ARPU gives me an idea of how much money I'll generate on a macro-level for each visitor that lands on your site.
So, why do I bring up all these letters and math?
I just received an email out of the blue through Site 3's contact form asking if I was open to selling it. I started thinking about it and how I would even assess its value.
I coiuld use the usual numbers. The Last 3 Months (L3M, Oct-Dec) saw an average monthly revenue of $69.95 with 439.67 visitors on average. L3M Profit is $15.95.
Traditional valuations would use a multiple of monthly revenue or profit. I'll use revenue because it's a young site and revenue is often reinvested for content and/or links.
Is 30x at $2,098.50 worth it for the 7+ months I've put into it? Not really.
40x at $2,798.00? I still don't think it's worth it.
Site 3 is growing and if I give it another couple months, the L3M Revenue could be around $100. At that point, 30x is $3,000 and 40x is $4,000. So should I use those prices based on the potential?
This is where I thought of using ARPU to calculate a valuation range based off real data.
I gave him a price range of what I see the value is based on multiples of ARPU. I expect him to be somewhat shocked, because using traditional multiples and calculations is difficult for young, growing sites.
Site 3's L3M ARPU is $0.1591
So, for each 1,000 visitors, the site should generate $159.10 if all things stay equal.
I will say that I instantly became more comfortable with the numbers and wouldn't have much issue selling if he did accept the price range for any reason.
How about you?
What's the ARPU of your sites?
Have you sold a young, growing site before? How did you calculate its value?
Knowing the numbers above and in my income reports, what price would you accept for Site 3?
Maybe you've already taken a look at ARPU and have assessed it's useless for niche sites? I want to know what you've seen!
I did some quick research of public income reports and calculated ARPU of some. I didn't find any that were close to $0.10. If you're above $0.10, let me know. I'd love to talk with you.