How to measure the success of your game
Devtodev analyst Vera Karpova explains how to calculate ARPU, how to use this metric, and how you can improve it for your project.
This article was originally published in Russian on app2top.ru.
HOW TO CALCULATE ARPU
ARPU is one of the most popular and most important monetization indicators. It is used to compare project performance, and this is the metric that usually interests partners and investors.
ARPU (average revenue per user) is the amount of income that, on average, is produced by one active user over a specified period of time.
To calculate the ARPU, divide the revenue for the selected time period by the active audience.
ARPU = Revenue/Active Users
For example, with an audience of 5000 users, if the app’s revenue is $3000, each user brings approximately $0.6 to the project.
ARPU = $3000/5000 = $0.6
The ARPDAU metric is also often used. This is the same as ARPU, but calculated for a single day, so the revenue for one day is divided by the number of active users on that day (DAU).
You can also calculate ARPMAU (average revenue per monthly active user), which divides the monthly revenue by the product’s MAU.
ARPU is one of the key indicators of the effectiveness of a project’s monetization that directly influences income. It is calculated using the formula:
Revenue = ARPU * Active users
So the higher the ARPU, the greater the app’s revenue. It also follows that ARPU is a very convenient metric for assessing the effect of changes made in the project and various experiments, because it takes into account both paying and non-paying users and is based on two additional parameters, which makes it much easier to analyze.
ARPU = ARPPU * Paying Share
Here, ARPPU is the average revenue per paying user, and paying share is the percentage of paying users out of the entire audience.
For example, during the selected time period, 1000 users opened the app, and 100 of them made purchases for a total of $500.
Thus, the average user produces $0.5:
ARPU = $500/1000 = $0.5
Out of the entire audience, 100 users made purchases:
Paying share = 1000/100 = 10%
And the average check for a paying user is $5:
ARPPU = $500/100 = $5
By combining paying share and ARPPU, we end up with:
ARPU = 10% * $5 = $0.5
Where you can use ARPU
To analyze pricing experiments
For example, a product was priced at $15 and had a revenue of $1500 with an audience of 1500 users. Then you raised the price to $17. As a result, there were slightly fewer users (1200), and the revenue also fell to $1400.
How do you know if the price increase was effective, and whether the decline in revenue was related to it?
To answer these questions, let’s look at the ARPU values:
ARPU before = $1,500/1500 = $1.00
ARPU after = $1,400/1200 = $1.17
So it actually wasn’t such a bad experiment after all. If the number of users can be brought back up to the previous level at the new price, the revenue will increase:
$1.17 * 1500 = $1755, compared to $1500 before the price was increased.
To analyze traffic
Let’s say you have a product that is worth $2. The monthly audience of 1000 users brings in a revenue of $400.
ARPU = $400/1000 = $0.4
Then you increase traffic and the number of users increases to 1500, while the revenue grows to $500. This seems like a good thing, but if you calculate ARPU, it turns out it has actually decreased:
ARPU = $500/1500 = $0.3
As a result, the average user now produces less revenue than before. A likely reason is that the traffic wasn’t targeted enough.
You can use this to compare different traffic channels, and it’s important to remember that the higher the ARPU, the more income can be generated.
To compare user segments
Let’s say there are several types of players in your product, they all behave differently and pay differently, and the number of users in each group varies widely. To find out which of these segments is the most loyal and profitable, you can use ARPU to compare them:
- 95 users installed the app 1 day ago and brought $1,988 to the project. Their ARPU is $20.9.
- 43 users installed the app 2–7 days ago and brought $703 to the project. Their ARPU is $16.3.
You can conclude that there is a majority of loyal users who have been using the product for quite some time and on average pay the highest amount for this app.
However, although there are far fewer new users, they also generate decent revenue compared to the rest of the segments.
By focusing on these groups of users and increasing the number of people in them (especially newbies), you can significantly increase the total product revenue.
HOW TO INCREASE ARPU
First of all, you need to pay attention to the two metrics that are part of the ARPU formula: paying share and ARPPU. The more users you can convert to making purchases, the higher ARPU and the resulting revenue will be.
In order to improve ARPPU, you can perform pricing experiments or increase the value of the product to the user. You can also focus on conversions to repeat purchases, as research has shown that the more purchases a user makes, the larger the next purchase amount will be.
It is also important to understand that simply increasing the price is likely to lead to the desired growth in ARPPU, but there is no guarantee that the overall income will grow along with it, because the percentage of paying users may fall sharply, and the profit from paying users won’t compensate for the decrease in the number of purchases.
Now you know how to measure the success of your product and the loyalty of your users, and how to compare different traffic sources and evaluate your experiments.
But there are many other interesting and useful metrics that we’ll share with you in the future that will allow you to look at different aspects of your project!
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