Performance Indicators: ARPU

How to correctly calculate ARPU, where knowledge of this metric can be useful, and also how it is possible to increase it. Vera Karpova, devtodev analyst told in her article. Here you can read it’s translation.

ARPU

How to calculate ARPU

One of the most popular and most important monetization indicators is ARPU. It is used to compare the effectiveness of projects and it is this metric that partners and investors are usually interested in.

ARPU (Average Revenue Per User) – the income, which on average brings one active user for a certain period of time.

To calculate ARPU, you need to divide the income for the selected period into an active audience.

ARPU = Revenue / Active users

For example, with an audience of 5000 users, the income of the application is $ 3000, which means that on average one user brings $ 0.6 to the project.

ARPU = $ 3000/5000 = $ 0.6

Also often you can find such a metric as ARPDAU. This is the same ARPU, only calculated for one day, i.e. The income of one day is divided by the number of active users on that day (DAU).

Similarly, you can calculate ARPMAU (Average revenue per monthly active user) – dividing the monthly income by the MAU of the product.

ARPU is one of the key indicators of the project’s monetization efficiency and directly affects the income, as the formula for calculating it can be presented as follows:

Revenue = ARPU * Active users

Accordingly, the higher the ARPU, the greater the income of the application. It also follows that ARPU is a very convenient metric for evaluating the changes made in the project and various experiments, as it takes into account both paying and non-paying users and contains at once 2 additional parameters, which greatly simplifies the analysis.

ARPU = ARPPU * Paying Share

Here ARPPU – Average revenue per paying user – the average income from one paying, and Paying Share – the share of those paying from the whole audience.

Let’s say that for the selected period, 1000 users came to the application, 100 of them made a payment for a total of $ 500.

It turns out that the average user brings $ 0.5.
ARPU = $ 500/1000 = $ 0.5

From the entire audience, 100 users bought something
Paying share = 1000/100 = 10%

And the average paycheck is $ 5
ARPPU = $ 500/100 = $ 5

By combining Paying share and ARPPU, we get:
ARPU = 10% * $ 5 = $ 0.5

Where can ARPU come in handy?

For the analysis of price experiments

Let’s say the product cost $ 15 and brought in revenue of $ 1500 with an audience of 1500 users. And then we raised the price to $ 17. As a result, not only users began to come a little less – 1200, but the revenue fell to $ 1,400. How to find out whether it was an effective price increase? Has it caused a drop in income? To answer these questions, consider ARPU:

ARPU to = $ 1500/1500 = $ 1.00

ARPU after = $ 1400/1200 = $ 1.17

Not such an unsuccessful experiment as it seemed. Because If at a new price to increase the number of users to the previous level, then the income will grow:

$ 1.17 * 1500 = $ 1755, against $ 1500, which were before the price increase.

To analyze traffic

Suppose that our product costs $ 2. A monthly audience of 1,000 users earns $ 400.

ARPU = $ 400/1000 = $ 0.4

Then we added traffic, people became more – 1500, and the income grew to $ 500. It seems to be good, but if you count the ARPU, it turns out that it has decreased

ARPU = $ 500/1500 = $ 0.3

It turns out that on average the user now brings a smaller income than before. Probably, the traffic was not entirely targeted.

This way you can compare different traffic channels, and it is important to remember that the more ARPU, the more revenue.

To compare user segments

Suppose your product has several types of players, all behave differently, pay too, well, the number of users in each group is very different. To understand which of these segments is the most loyal and profitable, you can compare them using ARPU:

ARPU table

It can be concluded that the product has a large number of loyal users who have been using it for quite some time. On average they have paid the largest amount for this application.

At the same time, new users, which are much smaller, also bring a good income compared to other segments.

By concentrating on these user groups, increasing the number of people in them (especially beginners), you can significantly increase the total income of the product.

How to increase it

First of all, it is worth paying attention to the two metrics that are part of the ARPU formula – Paying share and ARPPU.

The more users you can convert into a payment, the more ARPU and accordingly the income.

As for the ARPPU, in order to increase it, it is possible to conduct price experiments, or to increase the value of the product for the user, and also to pay attention to the conversion to repeated payments, as the results of studies show that the more payments the user makes, the higher his subsequent payment.

It is also important to understand that a simple increase in the price is likely to lead to the desired growth of ARPPU, but it is by no means a fact that together with it the total revenue will grow, because the share of paying people can fall significantly and the profit from paying does not compensate for the decrease in their number.

Now you know how you can evaluate the success of your product and the loyalty of users, as well as compare various sources of traffic and evaluate experiments. But there are many other interesting and useful metrics that will allow you to look at the project from different angles.

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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