ARPU is total recurring revenue divided by the total number of paying accounts for a given period. It tells you the average deal size across your customer base and is the baseline for LTV calculations.
Rising ARPU usually signals successful upsell motions or healthy expansion — but can also mask churn of small accounts. Falling ARPU is often the first signal that a product is attracting a different, lower-value customer segment than intended. ARPU segmented by cohort or plan tier is far more useful than blended ARPU for diagnosing pricing strategy.