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Mobile Analytics 101: ARPU versus ARPPU

By John Koetsier December 23, 2015

This post is designed to help mobile marketers get more ROI from their mobile app businesses by better utilizing the data and measures in their mobile analytics platform. Here we are going to discuss how Average Revenue per User (ARPU) and Average Revenue per Paying User (ARPPU) can be used to make better investment decisions on App Install and Re-Engagement campaigns.

As always, we recommend using ROI (not ARPU or ARPPU) as the key metric for any effort to measure and optimize app marketing. ARPU and ARPPU can also be valuable mobile analytics because they provide guidance on appropriate CPIs for planning. They are critical components of ROI calculations.

Let’s start with simple definitions.

ARPU Measurement Defined

ARPU is one of the most useful measures in mobile analytics. It refers to the average revenue per user, meaning that it measures the total revenue driven by an app divided by the number of installs. You can use Singular to calculate this for all app installs, paid app installs, organic app installs or total/paid/organic installs for a particular time period. With Singular you can further parse your mobile analytics to measure ARPU data by country, vendor and campaign.

ARPPU Measurement Defined

ARPPU is a measure originally designed for subscription-based businesses, like a game that you pay a fee to use every month. The idea was to be able to examine the quality of paying game users by eliminating the free or non-revenue users from the math. This measure is particularly valuable for “freemium model” businesses where a small number of users are driving the lion’s share of app revenue. ARPPU data tends to be particularly relevant for game businesses that focus on sales of virtual in-app purchase sales (IAPs). Some chose to think of ARPPU as a measure of active users, but it’s more a measure of active payers.

ARPU Measurement and Install Campaign Vendor Allocation Decisions

ARPU is a powerful metric for both overall and comparative business analysis. Examining your ARPU data across all of your installs, or broad classes of installs like organic versus paid, helps you understand both overall business viability and the quality of your app experience. If, for example, you expected to drive a thousand dollars per user per year, and your business ARPU is running at $50 a year, you have experiential or other product problems that need to be addressed immediately.

Some apps are primarily designed not to drive revenue, but rather to improve overall user experience. These are usually non-game apps for industries like hospitality, where augmenting user experiences is seen as a way to drive loyalty and brand preference. An example would be a companion app for a hotel. Such apps often have relatively low revenue goals – perhaps to simply break even. In this case, you should compare your ARPU to your acquisition cost to see if your app is meeting this admittedly modest goal.

But ARPU data is primarily used to compare vendors and campaigns to one another to determine the quality of users that are being attracted. By examining user ARPU data from different vendors, for example, you can assess if certain partners are attracting higher or lower quality users/customers.

ARPU and ARPPU are both metrics you can calculate easily in the Singular unified analytics platform.

Real-World Example: Average Revenue Per User/Per Paying User

Now let’s look at an example of how ARPU data can help you make better media allocation decisions.

Suppose you worked with just three media vendors to drive installs for your game. All were using the same creative in the same campaign. Over the course of 90 days, you found the following ARPUs:

ARPU

VENDOR A $544.63
VENDOR B $536.51
VENDOR C $213.65

Vendor A is delivering the highest ARPU, at 1.3% above Vendor B and 155% more than Vendor C. Clearly, then, Vendor A and Vendor B are attracting a higher quality user than Vendor C.

That’s important to know because even if Vendor A offers a bit lower cost per game install (CPI) than Vendors A or B, it may not make up for the difference in revenue per game user. If your cost per install for Vendor A were $5, then the CPI for Vendor C would have to be less than $1.95 for it to be as cost effective as Vendor A.

ARPU is a valuable directional measure to consider for gaming budget allocation. If we assume, for example, that Vendor C charges $4 per install, then putting more money into Vendor C is far less profitable than putting it into Vendors A or B. That’s because the ARPU from Vendor C is far lower. But without ARPU, you might rely on CPI to make your allocation decisions. Many companies do, and end up pouring more dollars into channels and vendors that are actually LESS EFFICIENT at driving revenue.

Obviously here, we are focusing on a component of ROI as a way of comparing relative ROI figures.

In the analysis above we focused on differences between vendors’ ARPU. But the same method of analysis can also be used to compare campaigns and creative executions.

Using ARPPU to Analyze Your Game Business

Using ARPPU is most useful for app businesses with revenue coming from a small fraction of total users. For example, a freemium game. ARPPU is a useful measure with which to assess your app monetization process and buyer flow. Because only a small fraction of users are payers, it will be far easier for you to see the effects of a new monetization process on existing buyers.

Here’s what we mean. A 10% improvement in average revenue per payer driven by a better monetization process on a business with 1,000,000 installs but only 30,000 payers would be easy to spot in a test. Half your buyers go through the test process, the other half the control, and we would see a 10% difference. But if we used ARPU, we would be dividing the revenue difference across 500,000 installs, so effects would seem negligible. See below:

USERS IN TEST PAYERS IN TEST REVENUE ARPPU ARPU

TEST CELL

500,000 15,000 $137,500 $9.17 $0.275

CONTROL CELL

500,000 15,000 $125,000 $8.33 $0.250

In this example, a 2.5 cent change in ARPU doesn’t look like much. 2.5 cents. But based upon ARPPU the difference is almost a dollar!

Net, ARPPU is useful in certain circumstances on businesses with far more users than payers.

Singular enables data-oriented marketers to connect, measure, and optimize siloed marketing data, giving them the most vital insights they need to drive ROI. The unified analytics platform tracks over $7 billion in digital marketing spend to revenue and lifetime value across industries including commerce, travel, gaming, entertainment and on-demand services.For more information, click here.
If you’d like to learn more or see a demo of the Singular unified analytics platform, get in touch.

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