ARPU (average revenue per user)

Contents

• What is ARPU?
• Why calculate ARPU?
• How to calculate ARPU?
• What ARPU value is considered normal?
• What are the differences between ARPU, ARPPU, LTV, and AOV?
• How to improve ARPU?
• Conclusion

What is ARPU?

ARPU (Average Revenue Per User) is a key metric that shows how much revenue one user generates for a company on average over a specific period of time. This metric is most commonly used by subscription-based companies, such as mobile operators and SaaS services. However, it can also be applied by online stores to evaluate the value of their offerings.

For example, if ARPU is 1000 rubles, it may indicate that customers are willing to spend this amount on a product each month on average. An increase in ARPU suggests that a larger number of users are willing to purchase more expensive plans or products. It is important not to confuse ARPU with ARPPU (Average Revenue Per Paying User), which only accounts for users who actually make payments.

Why calculate ARPU?

ARPU is useful for various purposes, including but not limited to:

• Assessing the financial potential of a company: The higher the ARPU, the more users are willing to pay for the product, increasing the company's chances for a stable future.
• Attracting investors: This metric is often used to evaluate the investment potential of a business. A higher ARPU makes a company more attractive in the market.
• Analyzing changes in pricing models: Comparing ARPU before and after price changes helps understand the accuracy of the decision made.
• Evaluating the effectiveness of advertising campaigns: A decrease in ARPU among users from a specific channel may indicate low-quality traffic.
• Tracking revenue trends: Analyzing ARPU dynamics helps marketers better understand how various factors influence revenue.

How to calculate ARPU?

The formula for calculating ARPU is as follows:

ARPU = Total Revenue / Number of Users over a Period

Typically, the calculation period is one month, but it can be adjusted based on the specifics of the business. For example, in the gaming industry, the ARPDAU (Average Revenue Per Daily Active User) metric is often used.

What ARPU value is considered normal?

ARPU values vary depending on the industry and type of company. For instance, ARPU for a SaaS service targeting corporate clients will be higher than that of a mobile game for children. In 2022, ARPU in the digital segment of the gaming industry was $78.9, while in the physical games segment it was only $10.8.

What are the differences between ARPU, ARPPU, LTV, and AOV?

The metrics ARPU, ARPPU, LTV, and AOV are related to revenue and value but are used in different scenarios:

How to improve ARPU?

There are several effective strategies for increasing ARPU:

• Use cross-selling and upselling techniques: Encourage users to switch to more expensive plans or purchase additional services.
• Experiment with pricing plans: Expanding the range of plans according to the needs of different user segments can significantly boost ARPU.
• Study paying users: Analyze which features and products are most in demand among those who generate the most revenue for the company, and focus on attracting them.
• Enhance the effectiveness of advertising campaigns: Comparing ARPU and ROI can help evaluate advertising channels and eliminate ineffective ones.
• Improve service quality: Satisfied customers are more likely to make purchases, leading to an increase in ARPU.

Conclusion

Growth in ARPU is not always a cause for celebration. It is important to analyze the number of paid and free customers, as well as price changes. If the number of free users decreases, this can create a false sense of revenue growth. To ensure stable growth, attention must be paid to attracting new customers and retaining existing ones.