Arena ranking is based on several things:
1: The level of your team (and consequently the level of the enemy team, since it matches you by level). Higher level is more points. So for optimal arena ranking you'll need to be 40. It looks like merge bonuses (+1, +2, etc.) count as levels as well for the purposes of matchups, although that doesn't come up much right now.
2: How many of your units survive at the end. When I was running Advanced, I got around 640 points if everyone lived. In a fight where I lost 3 units at the end I only got around 420 points. The point range that you see previewed when you pick your difficulty appears to be the range from 1 unit surviving to all 4 units surviving. So you need to preserve your units ideally, which can be difficult in the arena meta.
3: The number of bonus units you use. 1 is a 2x mult, 2 is a 2.3x mult, 3 is a 2.6x mult and 4 is a 2.9x mult. You do want to have at least one. The bonus units are all of the current banner focus heroes, Alfonse, and Sharena. If you didn't pull any of the focus heroes I recommend leveling Sharena as she is a legit story unit (also a lack of blues in the current pool as well, so she can fill that role).
Finally, your Defense rank does contribute to your overall ranking. I don't know if the numerical value of your Defense rank is just added on top of your Offense rank or if it scales differently. Of course that's mildly out of your control; you just have to hope someone fights your team and loses.
Your Defense team is your default (leftmost) team. It is suggested you dedicate this team slot solely for arena Defense and use other team slots to play the game with your desired pve composition/arena offense. Some notes:
1. Design your team in mind with how the AI is going to play with it, i.e. hyper-aggressive and prone to being baited. This generally favors high offense heroes and of course bullshit that can counter at any range like Takumi.
2. Support units or anything that requires player intelligence to be used well (e.g. most assist actions) don't tend to do as well. If you use a healer (like me) and don't have another offensive hero leveled up to replace that slot on Defense, be sure to unequip their weapon (at least right now while the stamina cost is free to do so). This will prevent your healer from running off and tinking enemy players when they fight your team and becoming free kills, and force them to prioritize using their heals under the AI. Especially important with healers like Serra where it's much more advantageous to use her attack aura and +4 Spd to party special than the actual healing itself.
3. Defense just takes your highest score from the best defense you got. I believe the score is determined by how many of YOUR units survived during the defense, i.e. total blowout. This season I got 254, and the highest feather reward rank is 251+.
