What is average revenue per user (ARPU)?
The definition of ARPU
ARPU is a metric that stands for average revenue per user. In short, it’s the average amount of revenue generated by each active user of your app over a given period of time.
While average revenue per user was originally primarily used in the telecom industry, it has become useful for all types of digital businesses, from SaaS providers to social media networks to mobile apps.
In a mobile marketing context, ARPU is similar to lifetime value (LTV). It’s a way to calculate or determine the value of your users, or of groups of users you’ve organised into segments. Whereas LTV measures the value of a user over their entire lifecycle, average revenue per user measures it over a set period of time.
How to calculate ARPU
ARPU is calculated by dividing your revenue by your number of users over the time period you want to measure, such as a week, month, or year. Average revenue per user is most commonly measured on a monthly level, using monthly recurring revenue (MRR) as an input.
average revenue per user (ARPU) = MRR / number of active users
Another metric closely related to ARPU is average revenue per paying user (ARPPU). This is calculated the same way as average revenue per user, but only includes paying users. For apps using a freemium monetization model, distinguishing between and comparing these two metrics is important, as in this case, an app’s ARPPU should be significantly higher than its ARPU.
App marketers can also utilize other variations of the average revenue per user (ARPU) formula to gain particular insights, such as ARPDAU (average revenue per daily active user).
Why is ARPU important?
Average revenue per user is an important user acquisition metric for mobile marketers, as well as an important business metric for product managers and executives. For marketers, comparing the average revenue per user of different campaigns and ad networks can provide insight into the quality of users from those sources, and help determine return on ad spend. ARPU, in conjunction with LTV, is also important for calculating the limit on user acquisition costs needed to maintain a positive return on ad spend. Marketers can also use ARPU to calculate how many new users need to be acquired in order to hit specific revenue targets.
Average revenue per user can also app developers understand their customer base and pricing strategy. If an app’s ARPU is too low, they may be focusing too much on low-revenue customers or underpricing their products and services. Running pricing experiments and focusing marketing efforts on high-revenue users can help raise ARPU.