Are you trying to grow your mobile app? Then it's time to learn more about Average Revenue per User (ARPU) and Average Revenue per Paying User (ARPPU). These key metrics are essential if you want to track your annual growth, understand your target audience, and, most importantly, increase the revenue. In this article, we'll tell you everything you need to know about ARPU and ARPPU.
Knowing your customer opens endless opportunities for your business. And if you want to acquire and retain users, you should understand their value first. In our previous post, we have already talked about subscription app metrics and KPIs that could help you grow fast in 2022. But in this article, we'll talk about ARPU and ARPPU and explain in detail how to calculate, interpret, and optimize them.
So, if you want to find out what value your customers are generating for your app and how to maximize your business, keep reading!
ARPU is one of the basic metrics that originally was used in the telecom industry, but quickly gained popularity among digital businesses. It shows how much money on average an active user brings to your company in a given timeframe. This metric has crucial importance because it reveals whether your marketing campaigns are efficient and if not, it provides the data that enable you to improve their performance.
ARPU-driven measurement helps to determine which media sources could bring the top-paying users and which are underperforming and should be stopped. It also allows you to keep track of your annual growth progress and determine which premium offers stimulate revenue the most.
More high-value customers you have, the better for your ARPU indicator. Eventually, you just need to understand why people like your product and how you can improve it from a long-term perspective. Enhancing your customer service and launching personalized advertising campaigns could be an option.
The calculation is simple. All you have to do is just follow this formula:
ARPU = (Total Revenue generated by users in period) / # number of users
We calculate this metric for the users’ lifetime. It means that ARPU for the given cohort will be calculated by dividing the summarized users' revenue by the total number of users who have installed the app within the selected time frame.
In Apphud, you can decide whether to calculate ARPU using Sales or Proceeds. And you can also choose to calculate ARPU using installs (User Created) or events (like Trial Started).
Calculate ARPU by installs (User Created)
This feature counts all new users in the selected cohort for ARPU calculation. Practically, it will look like that. We have 100 new users created within the selected period. These users have paid $10 by now. ARPU is equal to $10 / 100 = $0.1 (per user).
Calculate ARPU by events (Trial Started)
In this case, you'll calculate an average revenue only among new users who have started a trial. For example, we have 100 new users created within the selected period. And 50 of them have started a trial. These users have paid $10 by now. ARPU is equal to $10 / 50 = $0.2 (per trial user).
In Apphud, you can also specify the Cohort Period. Its default value is: Max Number of the days (0-365) or Max (no limitation). Day 0 is 24 hours from the moment when the user is created. Day 1 counts from the next 24 hours and so on.
This setting might be used to understand the average revenue to the Nth day of user life. So you can estimate the moment when the paid installs are actually paying off.
For example, if ARPU for new users by Day 3 is $0.1, this means that an average user brings $0.1 to the 4th day of their lifetime.
Even though some businesses mistakenly assume that ARPU and ARPPU are the same terms, there is a considerable difference between the two metrics. ARPPU calculates a monthly recurring revenue but takes into account only paying users. It means that you can evaluate your app's monetization and buyer's flow.
ARPPU indicates the number of loyal customers you have and allows you to decide whether it's rational to increase prices for your service. If you want your customers to spend more, constantly improve your content to encourage spending.
For calculating ARPPU, you should follow this formula:
ARPPU = (Total Revenue generated by users in period) / # number of paying users
But keep in mind that when calculating ARPPU, you need to specify the timeline because subscribed users may have different subscriptions.
In Apphud, you can choose whether to calculate ARPPU using Sales or Proceeds. You can also decide whether to calculate ARPPU using Any Purchase or Trial Converted event.
It counts all new paying users in the selected cohort for ARPPU calculation. For example, we have 100 new paying users created within the selected period. These users have paid $200 by now. ARPU is equal to $200 / 100 = $2 (per user).
In this case, you calculate an average revenue only among those new paying users who have converted from a trial. For instance, we have 100 new paying users created within some selected period. And 50 of them have converted from a trial. These users have paid $200 by now. ARPPU is equal to $200 / 50 = $4 (per free trial user converted into customer).
As with the previous metric, you can also specify the cohort period. Its default value is: Max. Count of the days (0-365) or Max (no limitation). Day 0 is 24 hours from the user’s creation. Day 1 is the next 24 hours, and so on.
This setting might be used to understand the average revenue to the Nth day of the paying user's life. So you can estimate the moment when the paid installs are paying off.
For example, if ARPPU for new paying users by Day 3 is $1, this means that an average paying user brings $1 to the 4th day of his/her lifetime.
In Apphud, we calculate ARPU/ARPPU without refunds. Only downgrades (partial refunds) difference is counted.
Understanding your customer is the key to your app’s success where ARPU and ARPPU play an essential role. As you can see from this article, calculating these metrics is quite easy, but if you need further assistance, Apphud is here to help you!
With our service, you can track five key metrics, including ARPU and ARPPU for FREE! We’ll inform you about all the important updates and will always be available if you need immediate support. So, what are you waiting for? Sign up and try it out!