How would you guys go about calculating revenue per user for a recurring web service (they are billed each month)?
Typically, you would just take the total revenue and divide it by the total number of customers. With a recurring service, however, you have to take into consideration the people that have yet to cancel their account (we don't know the value of that customer).
Why not get a log of the unique users who have used the web service per month and divide monthly income by that amount?
Then total that over the periods you need to report on.
To get revenue per user, I would see this as SUM(AllMoneyPaid)/TotalPayingUsers
Regardless of their status, if they paid, they contributed to the overall payment for that period.
Most web services have logins that are tracked/logged. It would seem that you could divide the MoneyPaid by the UniqueLogins for the month.
The trick here is that you want to ignore the users that have recently joined (this month) and have not canceled. These members will skew the value down. Here is one solution but it is NOT perfect:
o Calculate total revenue based on canceled members
o Get a count of canceled members
o Calculate the average length of time for canceled members
o Any active member that is still active longer than the average canceled member:
o Add their revenue to the total
o Add their count to the total
o Divide the two numbers to get the average value per customer.
The problem with this is that you are eliminating the people that are below the average of the canceled members and it skews a little higher. I welcome better implementations.
I'm going to post a second option, given the additional clarification listed by the poster.
Personally I believe that the requirements listed are going to result in skewed informaiton, but this really depends on the type of service rendered.
Per your statement you want to know the "average revenue per customer, for the life of their term of service". You note that you ONLY want this for people that have signed up and cancelled, therefore, new signups, and currently subscribing customers are not going to count, and this can REALLY skew the numbers. But regardless this is what you asked for.
Therefore, you simply for each CANCELLED user, calculate their sum of payments. Then sum up those payments and divide that by the total number of cancelled users. Thus getting an average revenue for cancelled customers.
However that time period and the actual validity of the information is a bit questionable.