Knowing the value of each user is crucial for technology companies that rely on users, such as those with mobile apps. This number can help businesses evaluate how much to spend on advertising, the value of client loyalty, and other key factors. However, uncovering this information may not be as simple. A user’s value can be calculated using various methods.
White label digital marketing agencies can assist in this process by providing advanced analytics and insights, helping you accurately calculate user value and optimize your advertising spend. They offer expertise in tracking metrics and refining strategies, ensuring you make informed decisions based on comprehensive data.
Let’s look at ARPU and ARPPU to understand the differences.
What Is ARPU (Average Revenue Per User)?
ARPU is the total income made by all users over a specified time period, typically a month or a year. ARPU is commonly used in the analysis of subscription-based products and SaaS enterprises.
With ARPU, you are “flattening” subscribers into a single statistic that represents all subscription tiers, service levels, and other factors. This includes anyone using a free model, which will lower the ARPU (with the potential for upselling and in-app microtransactions). The statistic can be used to calculate the value of your company’s different monthly subscription levels.
ARPU is a non-GAAP statistic, which means it is not standardized. Therefore, different businesses may calculate it differently. Some calculate based on total installations.
How to Calculate ARPU?
To calculate ARPU, use this formula:
- Monthly Recurring Revenue (MRR)/Total Active Users
How to Grow Your ARPU?
You can achieve this by:
Cross Selling
Encouraging paying customers to buy related products (cross-selling) or higher-end products (upselling) can significantly improve your revenue without the need to expand your customer base.
Using data analytics, you may provide unique recommendations for each audience segment. If you own a digital marketing agency, you can suggest similar services to your clients. For example, if they go for SEO, you can suggest PPC and other related services. Don’t be worried if your agency does not offer a comprehensive suite of services; you can easily become a one-stop shop for your clients by partnering with a white label digital marketing agency.
Customer Segmentation and Targeting
Customer segmentation and targeting can also affect ARPU. The more focused your content is, the more it will appeal to your customers, resulting in a better ARPU. Consider segmenting your active users based on demographics, such as location, age, gender, and purchasing habits, to adapt marketing messages and product recommendations accordingly.
Segmentation may be useful in product creation. Understanding which segments provide the highest ARPU allows businesses to prioritize creating features, products, or services tailored to them. This method ensures that development costs are directed toward offerings with higher returns.
Pricing
Average Revenue Per User (ARPU) is used by SaaS companies to measure the effectiveness with which they monetize their active user base. ARPU is only an average, so firms should consider other indicators, such as revenue growth rate and customer lifetime value, to gain a more comprehensive picture of their success.
However, the way you arrange your pricing might affect ARPU. Tiered pricing allows companies to appeal to a wide range of clients while encouraging upgrades, resulting in higher ARPU.
What is ARPPU (Average Revenue Per Paying User)?
ARPPU measures the actual revenue. With ARPPU, you may separate smaller groups of paying consumers and determine their value to your firm. It is easier to concentrate on revenue without the distraction of the non-paying majority.
It is especially essential in industries like gaming, where paying consumers make up a small percentage of the total user base.
ARPPU can help you make better decisions by identifying which channels, networks, campaigns, and even creatives attract the most valued customers. It even helps you to discover the features of a paying user to attract like ones via lookalike retargeting.
How to Calculate ARPPU
Follow this formula to calculate ARPPU:
- Total revenue generated in a specific time period/Total number of paying users in that time period
Be mindful of the time frame you choose, as a monthly ARPPU and a daily ARPPU will produce different outcomes.
For example, in a monthly ARPPU, a single user may make multiple payments throughout the month. However, if you simply look at the ARPPU for a given day and the same user did not make a purchase that day, they will be excluded from the calculations.
For subscription-based enterprises, first determine your monthly recurring revenue (MRR), which will serve as your numerator.
How to Grow Your ARPPU
You can do this by:
Turning Non-Payers into Paying Customers
You can achieve this by offering incentives, such as special discounts to first-time buyers.
You can also motivate occasional paying users and try to convert them into whales by encouraging them to become brand ambassadors/influencers, or by simply providing benefits and discounts. For a gaming application, you could incentivize these players by inviting them to a tournament.
Celebrating Loyal Customers
Celebrating your whales makes them feel special and loved, encouraging them to continue being whales. Recognize their efforts by assigning them rating statuses or providing them with incentives to continue buying.
You can also seek input from your whales on ways to improve your app or website. Including them in the product conversation will make them feel valued while also providing you with input from your most essential users.
Adjusting Pricing
Increasing your rates is a simple approach to boost your ARPPU, but do it gradually and be mindful that you may have some churn as a result. Your ARPPU may remain the same while revenue is distributed across fewer consumers.
If you decide to increase your prices, do so honestly and clearly explain the additional services you are providing to justify the price increase. This is a fantastic technique to see whether there are premium features that people are willing to pay for.
When to Use ARPU and ARPPU?
ARPPU is a more effective technique for businesses using a freemium model to communicate average revenue per paying user. The extra “P” denotes “paying users” rather than “all users,” which is a significant difference. ARPPU should be employed where free users constitute the majority of the user base, such as in free-to-play gaming apps. This statistic can also be used to help a firm determine its ideal cost.
For example, raising prices may momentarily increase ARPPU, but if paying users begin to delete the app, a firm will see ARPPU drop and realize that they have raised prices too high.
In SaaS companies, it is more frequent that all users pay in some way, and it is more accurate to account for all of them using ARPU. However, this does not imply that firms with free customers should avoid using ARPU. ARPU remains a valuable tool for analyzing the overall monetization strategy and its effectiveness.
ARPU can be used as a major measure to assess new project changes (especially monetization). If the metric increases, you have done well. ARPU is useful for evaluating the effectiveness of various initiatives, as it provides an apples-to-apples comparison of profitability. Assuming nothing changes.
Let HexaClicks Help Boost ARPU and ARPPU
At HexaClicks, a leading white label digital marketing agency, we specialize in providing the advanced analytics and strategic insights you need to measure and enhance both ARPU and ARPPU. Our white label digital marketing services can help you optimize your user value calculations, refine your pricing strategies, and implement targeted marketing tactics to maximize revenue.
Partner with us to leverage our expertise and elevate your business performance. Contact us today to get started!
Frequently Asked Questions
What is the primary difference between ARPU and ARPPU?
ARPU measures average revenue per user, including all users, while ARPPU measures revenue per paying user only, focusing on a subset of users who contribute revenue.
How can ARPU and ARPPU impact my business decisions?
ARPU helps in understanding overall user monetization, while ARPPU provides insights into revenue from paying users, helping tailor strategies for pricing and customer retention.
Can a white label agency help with tracking ARPU and ARPPU?
Yes, a white label digital marketing agency like HexaClicks can provide advanced analytics and strategies to accurately track and optimize both ARPU and ARPPU.
