ARPPU stands for ‘Average Revenue per Paying User’, and it refers to the estimated revenue a single paying user generates during a specified period. Paying users are those who pay money for a service, either by subscribing, making in-app purchases, or paying for a download. This metric removes those users who don’t actively spend any money during the app cycle (for example those who drive revenue for an app developer through engaging with ads).
ARPPU is measured by dividing total revenues by the number of paying users. ARPPU is a useful measure to demonstrate how much loyal customers are willing to pay for a service, therefore validating a developer’s pricing model, and it can also highlight reactions to pricing decisions.
Increasing ARPPU is more than simply raising prices, however. You can improve ARPPU by consistently refreshing your content, removing revenue ceilings, and even by adding in-app mechanics that incentivize spending.
While ARPPU focuses on paying customers exclusively, it is not the only measure of a user’s average contribution to revenues. ARPU (average revenue per user) includes all users who have installed and used an app in the calculation of revenue, while ARPDAU (average revenue per daily active user) focuses only on those individuals who use actively engage with or use the app every day. ARPU is used to measure the overall effectiveness of a monetization strategy. ARPPU and ARPDAU, on the other hand, are more immediate and highlight specific pricing decisions and users’ reactions to them. More so, both the ARPPU formula and ARPDAU formula are similar, focusing on specific subsets of the overall user base.
While revenues from paying users can be very high, conversion for paying users is typically very low, with as little as 2% of users choosing to make IAPs. This means that ad monetization has become an increasingly important revenue stream for developers today, supplementing the revenue from paying users by monetizing non-paying users through ads. In the context of ad monetization, metrics like ARPDAU and ARPU can be helpful in that they include revenue generated from ads.