By calculating and analyzing ARPU, businesses can gain valuable insights into their customer behavior, retention, loyalty, and profitability. ARPPU is calculated by dividing the total revenue generated in a given period by the total number of paying users during that period. This metric is particularly relevant for apps with a freemium model, where a significant portion of revenue comes from a small percentage of users.
Keep Your Customers Around Longer
ARPPU gained prominence with the rise of digital services and subscription models. It became essential for companies like online gaming, streaming services, and software-as-a-service (SaaS) providers to understand their revenue patterns and customer value. For new users, offer bundled products or services that have discounted or added value. By grouping popular or complementary products, bundles can encourage consumers to spend more per transaction. A 10% improvement in average revenue per payer driven by a better monetization process for an app with 1,000,000 installs but only 30,000 payers would be easy to spot in a test. Half your buyers go through the test process, the other half the control, and the outcome reveals a 10% difference.
Every game is different
For example, a gaming app may rely on small, regular, in-app purchases — whereas an eCommerce app may bring in high-value orders, less frequently. A streaming or wellbeing app with a monthly subscription fee will be different again. If you do raise your prices it’s important to do it transparently and explain what extra services you are offering to justify the price change.
Try it today and see how it can help you optimize your ARPU and achieve your goals. Now that you are acquainted with the estimations you need, it’s time to move to the next section to explore the ways to improve this metric. In this case, the ARPPU is $50, implying that each paid user contributed an average of $50 during that month. It indicates monetization efficiency, sustainable growth, and the business model’s revenue-generating potential. If we assume, for example, that Network C charges $4 per install, then putting more money into Network C is far less profitable than putting it into Networks A or B.
Analyzing ARPPU by Cohort
- This means that each user generated $8.33 of revenue for your business in January, on average.
- Incorporate customer insights and data to tailor offers and recommendations.
- For instance, reducing the price of in-app purchases or subscriptions may lead to a decrease in ARPPU instead of the expected revenue growth and an increase in paying share.
- The ARPPU metric helps businesses understand the revenue generated by each paying customer, allowing them to optimize their pricing strategies and improve their overall financial health.
- While ARPU focuses on a set time period with a clear start and finish, LTV looks at the entire time a user spends with you, from initial interaction with your brand right up until they churn.
ARPU calculation and optimization are essential for any business that wants to grow its revenue and profitability. However, there are some common pitfalls and challenges that can affect the accuracy and usefulness of ARPU metrics. In this section, we will discuss some of these issues and how to avoid them.
Reevaluating pricing strategy and product pricing is crucial to execute over a consistent time period, whether that is on a monthly basis, quarterly, or annually. As brands grow, they will need to be reevaluated consistently to ensure the most optimal structure. Tracking and analyzing average revenue per unit over time can inform those reevaluation efforts.
Click Through Rate Benchmarks by Industry: Your Complete Guide to Performance Standards
This is a good way to see if there are premium features that users would be willing to pay for. For online businesses there are a number of revenue streams which include subscriptions, purchases (including paying for an app), or advertising revenue. Monthly ARPU helps monitor short-term changes in pricing, churn, or promotions. Annual ARPU smooths out volatility and is useful for strategic planning.
ARPPU can inform decision-making by helping you understand which channels, networks, campaigns, and even creatives attract the most valuable customers. It even allows you to understand the characteristics of a paying arppu formula user so that you can get similar ones through lookalike remarketing. With ARPPU you are able to isolate smaller groups of paying customers and understand their value to your business.
Deep Dive Into the Components of ARPU
Unlike ARPU (Average Revenue Per User), ARPPU only considers users who actually pay, giving a clearer picture of customer value. For example, let’s say you generated $500 in revenue last month and had 1,000 active users. The time period you measure should be based on how often people use your app. The most common time period when calculating Average Revenue Per User for a mobile app is monthly, especially with a monthly subscription app. Some examples of mobile apps that would calculate a monthly ARPU include media/streaming apps, food delivery apps, and ecommerce apps. However, apps where user activity is more sporadic, such as travel or rideshare apps, would likely benefit from calculating a quarterly or annual ARPU.
- But ARPU data is primarily used to compare vendors and campaigns to each other and determine the quality of users that you’re getting.
- By avoiding these pitfalls, your ARPU calculations will be more reliable, providing a truer representation of your business performance.
- It’s a gaming company Machine Zone, that had achieved this milestone with their game “Game of War” in 2015.
- For example, increasing the subscription price will naturally result in higher ARPPU but also in higher churn.
- Advanta Interactive provides comprehensive creative solutions to help birth, reposition and support companies and brands.
- However, if you are using MRR, then it makes sense to measure ARPU monthly.
What is ARPU?
You can test different designs, such as dark vs. light versions, or combinations of products, such as 3 months and 1-year subscriptions or 1-, 3-, and 6-month subscription options. Another option is to test your pricing by making slight differences between monthly and weekly subscriptions, for instance. By checking ARPPU after the test, you can understand the number of loyal users who bring stable revenue every month and how much users are willing to pay for subscribing to your mobile app.
Average Revenue Per User (ARPU)
A granular understanding of ARPU not only underpins strategic financial planning but also signals when to pivot or double down on customer acquisition or retention tactics. ARPU typically includes all active users, whether they’re paying or not. This provides a more realistic view of the overall revenue the business generates per user. However, businesses sometimes calculate a separate ARPPU (Average Revenue Per Paying User) for deeper insights into monetization efficiency.