When working in mobile app development, there’s a whole world of acronyms to memorize in order to understand evolving sales processes and whether your monetization efforts are effective. One such acronym is ARPPU, and it’s especially vital for increasing revenue. Not sure what all of those letters mean? Not to worry, we’re here to help.
What does ARPPU stand for?
ARPPU is short for Average Revenue Per Paying User. For free-to-play games and apps, or those that depend heavily on in-app purchase revenue, only a fraction of a users will spend money on a regular basis. While there are other important metrics used to measure overall consumption and activity, ARPPU is specifically for tracking the percentage responsible for the most revenue.
How is ARPPU calculated?
To find your ARPPU, you must first isolate the number of paying customers, and then divide your total revenue by that number. It will likely be higher than overall revenue per customer. So, for example, if your revenue over a given period of time is $5,000 and you have 100 paying users in that time period, your ARPPU will be $50.
$5,000 / 100 Paying Users = $50 ARPPU
Be sure to note the period of time you’re analyzing, as ARPPU can vary wildly in daily and monthly calculations. That’s not necessarily cause for alarm -- even your biggest whales probably won’t make purchases every single day.
Why is ARPPU important?
According to an article by Vasiliy Sabirov on Gamasutra, “ARPPU is a reaction of precisely paying users to the value that brings your project. This metric shows how much a loyal paying user is willing to pay.” In other words, ARPPU shows you if your efforts to land the whales are working and whether you’re garnering enough revenue from your most loyal customers.
On top of that, ARPPU can help determine whether your pricing structure is effective. It’s easier to make decisions about revenue by isolating the customers spending the most money, rather than appeasing the ones who will likely utilize your app for free no matter how you adjust and advertise.
How can I improve my ARPPU?
If your ARPPU is underperforming, your first instinct may be to raise prices. And while this could boost your average revenue from paying users, it might also reduce the number of paying users your app has, also known as your conversion rate. As with every metric, a balanced approach is needed.
There are other methods that successful app developers use to improve ARPPU as well. Celebrating your biggest paying users is a great way to get them to keep spending--if they’re regularly rewarded, they’ll feel appreciated and stay engaged. Make an effort to provide perks to your biggest spenders, such as early access or playtesting privileges, shoutouts in company communications or the app itself, and special items or actions customized for them.
Of course, even with a loyal paying user base, you’ll still want to nudge non-paying users into higher spending territory. Adding more social or personal options can encourage users to take the plunge, or offer special deals to first-time paying customers to make their decision easier. Once they’ve made their first payment, even if it’s less than a dollar, it becomes easier to make future payments; you just need to motivate them past this initial barrier.
CIO’s article ”Why some people are willing to pay for a mobile app” states the types of people most likely to pay for apps are impulse buyers, extroverts, and--surprisingly--bargain hunters. While that last stat seems contradictory, it’s useful to know that showing the haggle-prone users a good deal makes them more likely to pay for a premium version of the app outright. Use this information to target your strategy and watch your ARPPU rise!
While there are many ways to measure success in an app, developers should prioritize ARPPU early and check it often. With the information outlined here, you’re well on your way to understanding how your regularly paying users generate revenue and how to keep that metric healthy.
To find out more about ARPPU and other proven in-app monetization strategies, get in touch with Tapjoy’s talented team of experts.
Interested in learning more from the alphabet of mobile marketing acronyms? Be sure to also check out: What is ARPDAU?