Arrgghhh - why do service providers cling to ARPU as a meaningful measure?

If there is one metric that the mobile industry reveres it is Average Revenue Per User (ARPU). It’s always foxed me why this should be a meaningful measure. After all, mobile markets started with relatively few international business customers at exorbitant tariffs, so as the market moved to more and more of the general population using mobile, ARPU was bound to fall as people paying with their own hard earned cash are likely to be more price conscious. So ARPU is bound to fall where the uptake moves into very price sensitive sectors like children.

Many markets are now at saturation point with little new growth and the name of the game is taking market share from the other guy. It seems to me that managing your business using ARPU as a key guide is even more pointless. The reason is that the only thing that really matters (and it’s a pity that the banks didn’t learn this!) is profitability, not revenue. So as market saturation slows growth, new customers have to be lured away from competitors incurring high customer acquisition costs i.e.  - factors such as the cost are handset subsidies, marketing, advertising and promotions.

So keeping as many of your existing customers as possible by ensuring they are satisfied with your service is very important to help drive overall profitability. Concentrating on ARPU alone tends to mask the issue that some customers have a much higher impact on the bottom line.

I’ve been a loyal customer of my mobile provider for over 20 years. Starting with a Motorola DynaTAC 8000X 'brick phone’ and working my way through just about every Nokia, Sony Ericsson, Motorola, HTC and now Apple phone. You would have thought that someone like me who travels the world making loads of calls and downloading lots of data would have been one of those ideal customers for my service provider to hang on to.

But not so. They don’t know I exist.  I’ve been having a multi-month long, multi “all our agents are busy” saga with this provider in trying to take advantage of an offer they have to have a second iPhone for your partner on a shared tariff. “But you’re on the wrong billing system sir!” “What – is it my fault which (expletive deleted) billing system I’m on”. “And you say you’ve been with us for over 20 years and are appalled at how awful the service has become – my, my  I wasn’t even born then, what was life like in the 80’s anyway?”

You see, they are just concentrating on ARPU – what revenue to I generate, not the profit I generate for them. In a new report that the Forum is writing on Customer Experience Management we stress that concentrating on ARPU alone tends to mask the issue that some customers have a much higher impact on the bottom line. It is widely recognised in many industries that keeping existing customers is less expensive than acquiring new ones and estimates have been made that a 5% improvement in customer retention can cause an increase in profitability between 25% and 85%.

I wouldn’t be so unkind to name the service provider but I live in the UK and they have an exclusive deal to distribute iPhones!

Arrgghhh!