Definition of Revenue Generating Unit (RGU)
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A revenue generating unit (RGU) is an individual service subscriber who generates recurring revenue for a company. This is used as a performance measure for management, analysts, and investors. RGUs are tracked by telecom companies, cable companies and other businesses that have a base of subscribers for a service. RGU growth can occur organically or through acquisitions.
Understanding Revenue Generating Unit (RGU)
Revenue generating units (RGUs) are subscribers — either individuals or businesses, but most commonly applied to individuals — who pay for monthly services such as mobile phone or cable. RGUs as a term is interchangeable with 'customer relationships,' 'customers' or simply 'subscribers.' Whatever a company decides to name them, it compiles this data, segments, and analyzes. RGU figures are often used to calculate average revenue per user (ARPU), another key metric for the telecom and cable industries.
Example of RGU Data
Liberty Global Group is a good example of a company that breaks down RGU data. Its quarterly (10-Q) and annual (10-K) filings contain RGU tables that segment cable service type (voice, video, data), mobile service type (prepaid, postpaid), and by countries where the company operates. Net additions or losses of RGUs are then discussed in the company's MD&A, or management discussion and analysis.
Analyzing RGUs
A company is interested in net additions to RGUs. It will analyze where RGUs were added geographically and in which product lines. The company will attempt to attribute these gains in subscribers to a particular marketing campaign or change in the competitive landscape. Similarly, if there were RGU losses, it would try to determine the reasons and take steps to address the attrition.
Operating activities are the daily activities of a company involved in producing and selling its product, generating revenues, as well as general administrative and maintenance activities. Key operating activities for a company include manufacturing, sales, advertising and marketing activities.
Key Activities Business Model
The operating income shown on a company's financial statements is the operating profit remaining after deducting operating expenses from operating revenues. There is typically an operating activities section of a company's statement of cash flows that shows inflows and outflows of cash resulting from a company's key operating activities.
Key Operating Revenues
The key operating activities that produce revenues for a company are manufacturing and selling its products or services. Sales activities can include selling the company's own in-house manufactured products or products supplied by other companies, as in the case of retailers. Companies that primarily sell services may or may not also sell products.
For example, a spa business, in addition to providing services such as massages, may also seek additional revenue income from the sale of health and beauty products.
Interest and dividend income, while part of overall operational cash flow, are not considered to be key operating activities since they are not part of a company's core business activities.
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Key Operating Expenses
Expenses generated from key operating activities include manufacturing costs, as well as the expenses of advertising and marketing the company's products or services. Manufacturing costs include all the direct production costs included in cost of goods sold (COGS).
Operating costs related to advertising and marketing include the expenses of advertising the company and its products or services using various media outlets, whether through traditional or online platforms. In addition, marketing costs include such things as appearing at trade shows and participating in public events such as charity fundraisers.