Performance Indicators: ARPPU

What makes ARPPU different from ARPU and average check, why should you count and track this metric, and how to most easily increase it. Vera Karpova, devtodev analyst told in her article. Here you can read it’s translation.

This article will focus on the indicator that characterizes the reaction of paying users to the value of the project, and which at the same time is a very important and useful monetization metric.

ARPPU main

Average Revenue Per Paying User

This called ARPPU (average revenue per paying user) or the average income that the paying user (the user who made at least one payment) for a certain period of time.

To calculate ARPPU, you need to divide the income for the selected period by the number of users who made payment (Paying Users):

ARPPU = Revenue / Paying Users

Also, when calculating ARPPU, it is important to pay attention to the period under study. Users can make repeated payments within a month, but the monthly ARPPU will not be equal to the daily amount, since the divider (paying users per month) will not be the amount that paid customers by days, but the number of unique paying users per month.

Unlike ARPU, this metric does not take into account users who have not paid anything: only those who made the payment fall into the calculation. Accordingly, ARPPU will always be greater or equal to ARPU (and they will be equal only if all active users make a purchase). In practice, ARPPU usually significantly exceeds ARPU.

A small example for comparing these two metrics:

Let’s say 1000 of 5000 active users made certain purchases in the application for $ 3000. Based on this data, we calculate ARPU and ARPPU:

  • ARPU = $ 3000/5000 = $ 0.6 – such an amount is brought on average by the active user;
  • ARPPU = $ 3000/1000 = $ 3 – and so much on the average brings in the project paying.

ARPPU directly affects the income.

Revenue = ARPPU * Paying Users

By increasing ARPPU or the number of paying users, you can increase revenue.

But, when working on increasing the ARPPU, it is necessary to follow other metrics, as its increase can lead to the deterioration of other indicators.

Consider, for example, why this can happen.

Suppose that 100 out of 1000 users make purchases worth $ 2. In this case:

  • Revenue = $ 200
  • Paying users = 100
  • Paying share (percentage of paying users – percentage of users who made payment from the whole audience) = 100/1000 = 10%    
  • ARPU = $ 200/1000 = $ 0.2    
  • ARPPU = $ 200/100 = $ 2

The easiest way to increase ARPPU

The easiest way to increase ARPPU is to raise prices. Let’s see what it can turn up.

Now let the product cost $ 10 instead of $ 2, but for this price it will be bought not by 100 people, but 20. Then the metrics will look like this:    

  • Revenue = $ 200
  • Paying users = 20
  • Paying share = 20/1000 = 2%
  • ARPU = $ 200/1000 = $ 0.2
  • ARPPU = $ 200/20 = $ 10

In this example, the share of those who paid was significantly reduced from 10% to 2%. But ARPPU grew from $ 2 to $ 10, and this did not affect the income, which, like the ARPU, remained unchanged.

And if the number of paying users would be even less? For example, 10 instead of 20?

  • Revenue = $ 100
  • Paying users = 10
  • Paying share = 10/1000 = 1%
  • ARPU = $ 100/1000 = $ 0.1
  • ARPPU = $ 100/10 = $ 10

Here, all metrics have seriously deteriorated: income, the share of paying and ARPU. But ARPPU would still be $ 10, as in the previous example.

Here is a comparative table of these 3 options:

arppu table

In this regard, there are several questions: why then should we consider and control ARPPU and how this indicator can be useful?

The fact is that ARPPU very well characterizes repetitive payments, since in the case of their commission, the number of paying people does not increase, but the income grows.
Perhaps, this is the most competent way to increase the metric of ARPPU without compromising other indicators.

Consider this for an example.

10 users out of 100 made payments, each costing $ 2.

  • Revenue = $ 20
  • Paying share = 10%
  • ARPU = $ 0.2
  • ARPPU = $ 2

Then three of these 10 paying people made a second payment of $ 3. Then:

  • Revenue = $ 29
  • Paying share = 10%
  • ARPU = $ 0.3
  • ARPPU = $ 3

That is, repeated user payments lead to the growth of all basic metrics.

By the way, the research of devtodev in the part of online games showed that the more payments a user makes, the greater the amount of his subsequent payment.

There is one more metric close to ARPPU – this is an average check (“average check” or “revenue per transaction”), but nevertheless it has a slightly different meaning and differs in the calculation method, although it is also used only for paying users, or rather for paying users Estimates of their payments.

The average check

So, the average check is the average transaction value, that is, the arithmetic mean of all committed payments, excluding the number of users who made these payments.

Average Check = Revenue / Transactions

The difference with ARPPU is that if one paying user makes a repeated payment, the denominator in ARPPU (the number of paying ones) will not change, but the number of transactions will increase, and this will affect the size of the average check.

Let us compare these two metrics by an example.

For example, 10 users made payments of $ 5 each, after which two of them made another purchase worth $ 3.

In this case ARPPU will be equal to (10 * $ 5 + 2 * $ 3) / 10 = $ 5,6, and in order to calculate the average check, the total revenue should be divided not by the number of paying users, but by the number of payments made by them: ( 10 * $ 5 + 2 * $ 3) / 12 = $ 4.7

Perhaps, it is interesting to know which ARPPU have successful projects. Here is one of them – the game Game of War, the annual ARPPU which was $ 550.

ARPPU – this is another indicator of user loyalty, which at the same time allows you to assess the ratio of users to product prices. He is sensitive to their change. It also shows the satisfaction of users with your application, as the higher it is, the more they will eventually pay.

Articles in this series:

  1. Performance Indicators: ARPU
  2. Performance Indicators: ARPPU
  3. Performance Indicators: Cumulative ARPU
  4. Games performance indicators: paying users
  5. Performance indicators of games: paying conversion
  6. Performance Indicators: ROI

Even more interesting info about the gamedev industry:

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