ARPU (Average Revenue Per User)
An important KPI that shows the average revenue a user generates over a given time frame
What is ARPU?
ARPU, or average revenue per user, is the average revenue generated by a user over a given time frame within, and sometimes outside of, an app. Unless marketers specify a time range for their analysis during which users may generate revenue, ARPU is calculated for the users’ lifetime. For this reason, the ARPU and LTV (lifetime value) of users are often synonymous terms.
How do you calculate ARPU?
In order to calculate your ARPU, you must first specify a cohort, or a group of users you are trying to target based on certain mutual characteristics, such as install date, campaign name, region, and others. After a cohort is defined (for example, in the chart below, our cohort is any user who has installed the app in May), the ARPU for your given cohort and time range will be calculated by dividing the total revenue generated within the time frame by the total number of users.
Again, unless a time range is specified by the marketer, the ARPU will be calculated for the lifetime of the cohort. In the example above, you can see both the lifetime revenue of the May cohort, as well as the time range for 3 months (or the 90 Day LTV, since the terms are synonymous).
Why is ARPU important?
One of the core goals of your mobile business, as any business, is to maximize revenue. ARPU is one of two critical halves for calculating your overall ROAS (return on ad spend) along with cost per install, or other outbound costs.
Knowing the ARPU of your lowest and highest value users will enable you to optimize your marketing activities accordingly to create high-performing user acquisition campaigns by allocating budget based on ARPU. Revenue-driven measurement clearly highlights which media sources are driving the highest value users and which are under-performing according to your campaign goals. Armed with this data, it is easy to re-examine the networks to keep or to remove come budget review time.
You can also learn about your high LTV users to find more like them through lookalike campaigns, in addition to running retargeting, or re-engagement campaigns for existing users, with the ultimate goal of boosting their revenue.
How do apps generate revenue?
ARPU incorporates revenue from multiple streams, with in-app purchases and in-app ads taking the largest share of the revenue pie. The five forms of revenue are:
- In-app purchases (IAP) – IAP holds the largest share of actual money spent by app users, as these tend to be the largest and most common single amounts.
- In-app ads (IAA) – Although not yet as financially dominant as IAP, IAA is the fastest growing revenue stream for apps as marketers focus on more targeted ad monetization strategies.
- Subscriptions – Subscription streaming apps, such as Spotify or Netflix, that offer unique and constantly updated content are an important, yet still small part of app revenue because they are suitable for a minority of apps.
- Paid-for – Like subscription revenue, paid-for apps must offer highly unique and engaging content to entice users to pay for and download their app.
- Out-of-app/Cross-channel – Lifetime value is not just measured from within app platforms, but also across all channels. Revenue can be generated from app users when they buy from a brand’s website or making good, old-fashioned in-store purchases.
Just as a note, ARPU is not to be confused with ARPPU, or average revenue per paying user. While ARPPU is calculated in the same way as ARPU, the cohort in question is taken from paying users only, as opposed to all total users. That means that, while the total revenue will be divided by the number of cohort users, the actual number of cohort users will be much smaller due to overall lower percentages of paying users.