AMPU or ARPU?
AMPU (Average Margin Per User) is a fairly new term used in mobile telephony. It supporters claim it is a better indicator than the widely used ARPU (Average Revenue Per User). Its calculation is rather easy as it consists of subtracting the ACPU (Average Cost Per User) from the ARPU: AMPU=ARPU-ACPU.
I discussed the various revenues of the ARPU and the costs of the ACPU in previous articles that you can refer to. AMPU is indeed an interesting indicator to me although not adapted in any company I worked for, yet. The tendency to change is not something I witnessed a lot when it comes to companies. Usually the higher management is content with the process and only a drastic situation would lead to a different approach. For example, EBITDA (Earnings before interest, taxes, depreciation and amortization) was not even raised as an indicator unless the company was looking for an investor.
By looking at the ARPU we were actually looking at the revenue without taking into full consideration the per customer cost. The main reason was that the cost was already calculated when we prepared our business plan! If we had done our homework right, our business plan would have showed the expenses whether they were Capex or Opex related. ARPU being the indicator of choice, we could easily set a target ARPU. Reaching that ARPU or getting beyond it, was enough indicator that our financial status is good. Even with minor errors in market forecasting on the business plan we could have corrected the estimated target ARPU accordingly. This understanding still applies for many markets and many companies.
Market trends can add serious restraints on the business; with excessive competition and technology advances, a modest marketing team cannot handle the big tasks anymore. Although we were looking at revenues indicators before to determine the profitability of the company, the market changes, made the choice of reducing costs as profitable to us as raising revenues is, and at times even easier.
By classifying the costs and allocating them to different types of services and products we can target the areas of interest where we can reduce the costs either by changing the process, switching the provider or just simply cancelling the service. For example, in one of my operations, the cost of acquisition for an SMS based service was much higher than its revenues. Although the service may have sounded interesting as an addition to the company’s services portfolio I did not see a reason to continue with my colleague’s policy of heavily advertising the service. My decision was to stop any type of advertising other than bulk SMS. The service did not have to be cancelled, and it did not have to cost us dearly anymore. This could not have been done without being able to analyze the revenues and the costs.
The major challenge that the AMPU will face is the ability to define clearly the cost allocation methodology. A vague cost allocation in the case of ARPU is not as dangerous because ARPU depends on revenues while the ACPU is the responsible indicator of costs. However, if the cost allocation process is well defined and the ACPU is detailed (shows multiple levels of costs based on products and services) and reliable, the AMPU will not only help in determining how to raise revenues but also help in reducing costs, a necessity in this commercial era.
Although AMPU, ARPU, and ACPU are financial indicators the role of marketing is obvious in all of them. Beginning with product research and the choice of product provider the market leads the cost trend. Through pricing and promotion, marketing leads the revenue process. By setting the product cycle, the marketing is making the choice to keep a service or just drop it. Understanding and using financial indicators is one of the tasks that guarantees your success as a marketer.
