The secret to acquiring and retaining users is simple: understand their value.
Knowing the value of your users helps you measure marketing efforts, forecast revenue goals, and even helps you determine what monetization model is best for your app.
Average Revenue Per User (ARPU) helps you do just that.
Let’s first dive into the ARPU meaning. Average Revenue Per User is the average amount of money generated by each individual using your app.
For example, let’s say you generated $500 in revenue last month and had 1,000 active users. Your average revenue per user would be $0.05.
The time period you measure should be based on how often people use your app.
The most common time period when calculating Average Revenue Per User for a mobile app is monthly, especially with a monthly subscription app. Some examples of mobile apps that would calculate a monthly ARPU include media/streaming apps, food delivery apps, and ecommerce apps.
However, apps where user activity is more sporadic, such as travel or rideshare apps, would likely benefit from calculating a quarterly or annual ARPU.
The benchmark for an active user is around $0.04 per month.¹
Take this number with a grain of salt as the standard for ARPU fluctuates depending on location, industry, and pricing model. Like most KPIs, keep your ARPU tracking upward. Lower ARPU means you need more customers to stay afloat.
Downward trends are ok as long as your overall business revenue is increasing — like if customers are upgrading from monthly to annual subscriptions.
Calculating your ARPU helps you:
Although both Average Revenue per User and Customer Lifetime Value (LTV) help track revenue, they measure different things.
LTV is used to predict the profit margin across the entire lifecycle of a customer. Unlike ARPU, LTVs take into account all variable costs such as acquisition expenses, operating expenses, refunds, transaction fees, and customer support.
In short, LTV measures the value of each customer at an individual level, whereas ARPU measures ongoing profitability across the business as a whole.
As you grow, so will the needs of your users. Learn what functionalities add value to their user experience and offer premiums.
For example, if lots of users are willing to pay for a monthly subscription, push them toward an annual subscription for a lower monthly cost. Tiered pricing is a great way for users to choose which capabilities they’re willing to pay more for and potentially boost your ARPU.
Let’s look at Headspace. They offer three different plans with pricing based on how often someone uses the app. They even push the annual subscription by labeling it “most popular” to nudge new users to commit to a longer subscription.
Identify where your users would benefit from having additional functionalities and products. Limiting trial runs lets users experience what’s offered to them if they subscribed.
Looking at our Headspace example, once a freemium user tries out a couple of meditation sessions, the app alerts them to “unlock more sessions” by subscribing. They send an email to the user that nudges them to subscribe — listing off features that are included with a subscription.
An ecommerce app might consider product bundling, which increases both the customer’s average order value (AOV) and the perceived value of the product.
Consider Peloton: they offer several different product bundles for a price that’s perceivably lower than if you were to purchase everything separately. Customers see this as a good deal, they spend more, ARPU goes up — everyone wins!
By measuring ARPU, you’re armed with the tools to learn which users are the most valuable to your business, and which ones aren’t.
For example, say you have an ecommerce app. One user buys something every month but only spends $10. Another user only buys twice a year but spends $250 each time. The second user would have a higher ARPU and be more valuable to your business, even though they’re less likely to convert in any given month.
Over time, you’ll discover certain attributes that help you predict the profitability of your users. Use those metrics to focus your resources on the most high-growth potential customers to obtain a higher ARPU.
Metrics That Matter for Growth: A Handbook for Mobile Marketers