ARPPU is calculated by dividing the total revenue generated in a given period by the total number of paying users during that period. This metric is particularly relevant for apps with a freemium model, where a significant portion of revenue comes from a small percentage of users. It helps in understanding the value of paying customers to the business, separate from non-paying users.
Importance of ARPPU
- Revenue Measurement: ARPPU directly measures the revenue aspect, focusing on the segment of users who contribute financially.
- User Value Insight: It helps in understanding which channels, networks, or campaigns attract the most valuable customers.
- Segmentation and Targeting: ARPPU aids in segmenting users, especially in identifying high-spending users or ‘whales’ in gaming apps.
- Pricing Strategy Validation: It can highlight reactions to pricing decisions and validate the app’s pricing model.
The formula for ARPPU is:
ARPPU = Total Revenue in Period X / Total Number of Paying Users in Period X
For example, if an app generates $10,000 in a month with 200 active paying customers, the ARPPU would be $50.
ARPPU vs. Other Metrics
- ARPPU vs. ARPU: While ARPU (Average Revenue Per User) includes all users (paying and non-paying), ARPPU focuses solely on paying users.
- ARPPU vs. ARPDAU: ARPDAU (Average Revenue Per Daily Active User) is more immediate, reflecting daily revenue changes, whereas ARPPU looks at a longer period.
- ARPPU vs. LTV: LTV (Lifetime Value) considers the total worth of a user from acquisition to churn, while ARPPU is specific to a defined period.
- Cross-Selling and Upselling: Offering additional features or services to existing users.
- Content Refreshment: Regularly updating app content to maintain user interest.
- Premium Services: Introducing exclusive services for high-paying users.
- Pricing Adjustments: Carefully increasing prices while providing added value.
- New Advertising Formats: Experimenting with different ad formats to increase engagement and conversions.