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.
How to calculate ARPU: Average Revenue Per User
Singular helps data-driven marketers connect, measure, and optimize siloed marketing data, providing the vital insights they need to drive ROI. For example, you could measure the average revenue per user generated within 30 days (known as Day 30 ARPU) for all users acquired in May. ARPU, as it’s generally known, is a ratio calculated by dividing the total revenue of a business for a given period by the number of users in that same period. Accurate ARPU analytics empower us with information for powerful decision-making, offering a clear view of which strategies are working and what might need retooling.
- Within that small percentage are an even smaller number of users who spend a lot, usually in a series of microtransactions.
- There are different methods and tools that can help with this task, depending on the type of business, the data available, and the desired level of accuracy and detail.
- Once the data on paying users and total revenue is collected, the next step is to divide the total revenue by the number of paying users.
- Because of this revenue structure, user segmentation is vital as marketers must be able to identify and isolate the whales.
- One of the primary benefits of analyzing ARPPU is the ability to identify segments of users who generate a higher average revenue.
ARPU helps startups to understand monthly trends, from which products are driving the most revenue to what level of subscription is the most popular or profitable. Pricing models may be up for debate, but there’s no arguing that you should measure both ARPU and ARPA to have a clear understanding of where your revenue is coming from. This allows startups to stay agile and stay on top of both product strategy and business growth. It is important to note that ARPPU and ARPU are complementary metrics and should be considered together to obtain a complete understanding of a business’s revenue performance and customer value.
Why should I care about Average Revenue Per Paying User?
Incorporate customer insights and data to tailor offers and recommendations. Focusing your use case on specific segments based on behavioral patterns, preferences, and purchase history can dramatically improve conversion metrics and average spend per user. ARPPU is particularly significant in gaming apps to measure how well games can convert players into paying customers and how much those customers are willing to pay. But unless you have an extremely high ARPPU, that usually means you have somewhere to go in terms of monetizing premium features, subscriptions, or in-game items. One of the key metrics showcasing the effectiveness of your monetization efforts is the average revenue per paying user (ARPPU). Let’s take a look at how you can use this metric to drive your monetization strategy.
They not only offer a few different subscription tiers, but you can also choose additional add-ons depending on your needs. Letting users pick their features on their own usually increases the amount of money they leave. A common example is to have one subscription tier that answers the needs of most users but leaves your most loyal and heavy users unsatisfied. ARPU is one of the most relied-upon metrics in marketing as it gives an overall picture of how well you’re doing at generating revenues. We all know retention is much cheaper than acquisition — so it makes sense to work hard on retaining your most valuable users.
- Accurate ARPU analytics empower us with information for powerful decision-making, offering a clear view of which strategies are working and what might need retooling.
- For mobile, you can also assess the value of the different advertising networks.
- We will also provide some tips and best practices for optimizing ARPU and increasing customer lifetime value.
Example Calculation
Experiment with different ways of charging your users, like usage-based, seat-based, result-based, or a flat fee, to find what resonates the most with your users and what drives the highest ARPPU. Before we jump into strategies for optimizing ARPPU, let’s first unpack when to do so. Although you might feel that a higher ARPPU is better, it’s only a part of the equation. Users who download a paid app tend to be loyal, but they’ll also have high expectations — they might not want to see ads or pay for additional content, for example. This shows you how much money the average user (or customer) is bringing in.
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.
In this article, we’ll tell you everything you need to know about ARPU and ARPPU. The more ARPU you can generate, the better your SaaS business is doing. Don’t forget that ARPU gives you the insight to catapult your business forward by increasing MRR/ARR and extending your customer LTV. It can rise – a seemingly positive indicator – even if you are losing customers and overall revenue is falling.
Verify data quality
Pair it with other key financial metrics for a well-rounded view of your business health. When done right, it can lead more users to your offerings and increase revenue. Furthermore, ARPU can be distorted due to rare instances such as one-time large purchases. ARPU measures the average revenue generated from each user over a set period, such as a month or year, providing a broad view of revenue generation.
Reacheffect® is a world-leading web and mobile advertising platform, providing a distribution channel to advertisers and a monetization solution for publishers. Discover affiliate strategies and tools that help you stay compliant while scaling profitable campaigns. Now that you know the difference, let’s find out how to calculate the measure. In this article, we’ll uncover the difference between ARPPU and ARPU and find out how to calculate and increase ARPPU.
ARPU vs LTV
ARPPU is calculated by dividing the total revenue generated from paying users or customers by the total number of paying users. This calculation provides a clear understanding of the average amount of revenue earned from each arppu formula paying customer. Entrepreneurs divide their total revenue by the number of customers to accurately estimate the necessary measure. One of the most important metrics for any business is the average revenue per user (ARPU), which measures how much money each customer brings in over a given period of time. ARPU can help you understand your customer behavior, optimize your pricing strategy, and identify new opportunities for growth.
Understanding the Benefits and Challenges of Excel Dashboard Design and Development
Alternatively, the structure of the paying audience may have changed, and only new or recent users are paying. However, with ARPPU, you can focus on smaller groups of paying customers and understand their value to your business. This metric provides condensed data on app monetization, allowing you to concentrate on revenue without the interference of the non-paying majority. ARPU stands for Average Revenue per User, and it refers to the average amount of revenue an app generates from each active user.
Deep Dive Into the Components of ARPU
Different segments of users are willing to pay different prices for different solutions. Figuring out the right offering for various tiers and bundles might be a game changer. For example, increasing the subscription price will naturally result in higher ARPPU but also in higher churn. This might level out or even reduce the user’s lifetime value, thus the long-term revenue. One obvious way to increase your ARPU is through upselling, aka encouraging existing users to upgrade. That could mean moving to a subscription plan with added benefits, or treating themselves to a more premium product.
