The metric ARPU, short for Average Revenue Per User, is a ratio calculated by dividing a business’s total revenue for a specific time frame by the average number of users during that same period.
ARPU (Average Revenue Per User) is calculated by dividing the aggregate earnings produced by a company for a certain interval by the mean figure of users for that same duration. The equation for ARPU is:
ARPU = Total Revenue ÷ Average Number of Users
For example, if a subscription-based business made $100,000 from customers in January, their ARPU for that month would be determined by dividing the total revenue by the average number of users:
ARPU = $100,000 ÷ 1000 = $100
Therefore, the ARPU in this example is $100. Monitoring ARPU over a time period can help companies in gauging the financial potential of their product or service and take steps to increase revenue.
ARPU is a vital statistic for businesses as it supplies an understanding of the average income earned from each user within a certain period of time. This knowledge is invaluable to marketers, product supervisors, and executives.
For marketers, ARPU can guide their decision-making by displaying the revenue garnered from both their highest and lowest value customers. With this information, they can optimize their marketing tactics according to which campaigns are performing well and which are not succeeding. By using ARPU as a measurement, marketers can evaluate their marketing channels and campaigns and make decisions to augment their return on investment (ROI).
In relation to mobile user acquisition, ARPU is a complementary metric to cost of media metrics such as cost per install (CPI) or cost per action (CPA). Comparing ARPU with these metrics can help identify a marketing budget’s return on ad spend (ROAS) and ascertain if the marketing dollars are being spent judiciously.
There are several approaches to improving ARPU. Among the most effective are:
Modifying Pricing Plans
Businesses offering subscription-based services can improve ARPU by revising price plans. This could involve introducing superior features to incentivize users to purchase higher-priced plans, or offering a reduced rate for annual payments.
Emphasizing Retention
Focusing on retaining valuable users can significantly raise ARPU. Retention is typically less expensive than acquiring new customers. Analyze user behavior to find trends in churn and launch targeted campaigns to re-engage them. One effective way to retain users is by offering loyalty plans, such as discounted rates for an e-commerce business or complimentary in-game bonuses for a gaming app.
Optimizing User Acquisition Campaigns
Measuring ARPU related to user acquisition strategies can highlight which channels, creatives, or campaigns are yielding the most valuable users. In the mobile space, you can also compare the value of different advertising networks. By focusing on strategies that bring in the highest ARPU, you can increase investment and gain a greater return for your business. Conversely, if a campaign is delivering a low ARPU, you can reallocate your resources to other areas.
