How does ARPU relate to value?

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sakibkhan22197
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How does ARPU relate to value?

Post by sakibkhan22197 »

At the very beginning, we said that ARPU connects revenue and value. This may seem strange: after all, it’s only about money, right?

In fact, ARPU shows how much a user is willing to pay for your product. Let's say you offer 3 tariff plans and a free trial period. A monthly subscription to each of the paid tariffs costs $15, $20, and $30, respectively. You calculated ARPU and it was $23. Considering that we also take into account trial users who don't pay anything, it turns out that most of your paying users prefer expensive tariffs.

And if most users choose the most expensive plan, there's a good chance they're willing to pay more. If you don't offer them that option, you're losing money.

High ARPU shows that everything is not in vain, and users value your product. Therefore, when the indicator reaches the cost of your average (by price) tariff, you can safely raise prices.

If ARPU approaches the cost of the cheapest tariff, it is time to work on marketing. You attract people who pay little, it makes sense to change the strategy a little and attract users' attention to more expensive tariffs.

How ARPU and LTV are related
These metrics are sometimes confused, or ARPU is ignored and only LTV is considered (because they are thought to be almost the same thing). They are indeed related, but each is important separately.

LTV is the profit a client brings you over the entire period of your work with them. ARPU shows the profit from your work with the user over a certain period. The difference between these metrics is Lifetime — the duration of a client's life within your company.

LVT = Lifetime * ARPU
LTV shows the overall value of a customer to your company, while ARPU shows the current state of play.

What is the difference between ARPU and ARPPU
One letter here really matters because the extra P in ARPPU is Paying. ARPU shows the average revenue for all users, even those who haven't paid anything this month. ARPPU is revenue per paying user. There are always fewer paying users, so this number is always higher.

ARPPU will show you the reaction of paying users to the uae email list value of the product. However, if you raise prices, your ARPPU will also increase, but this is not a reason to pop the champagne. Perhaps the share of paying customers has fallen, but prices have just become higher, so the indicator has increased.

It is the share of paying customers (Paying Share) that links ARPU and ARPPU.

Paying Share = ARPU / ARPPU
For example, this month you had 1200 users, 40 of them paid for premium access. The income was $1000.

ARPU = 1000/1200 = $0.8

ARPPU = 1000/40 = $25

Share of paying users = 0.8 / 25 = 0.032 or 3.2%.

The optimal Paying Share value depends on the type of business. For example, for mobile apps, 1-2% is a good result (most people use the free version, not many people make in-app purchases).

It is important to consider the share of paying customers. The fact is that if ARPPU grows, but Paying Share falls, this will lead to a reduction in your income - the profit from paying customers will not be able to compensate for the reduction in their number. This metric helps to evaluate and forecast your income.
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