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Average Revenue Per Paying User (ARPPU)

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How is Average Revenue Per Paying User (ARPPU) calculated?

Average Revenue Per Paying User (ARPPU) formula

To calculate ARPPU, you'll want to take your monthly recurring revenue (MRR) within a given period of time and divide that by the number of paying customers within that same time period.

What is Average Revenue Per Paying User (ARPPU)?

ARPPU was originally designed for mobile games where the monetization strategy is often free-to-play games with in-app purchases (IAP) for add-ons or power-ups. As a result, ARPPU is often combined with ARPU to measure the gap between users that have purchased add-ons and those who have not.

ARPPU is also relevant for SaaS businesses that have a freemium pricing model (like Commonality 🚀). SaaS businesses also often have add-ons or opportunities to upsell their customers into higher pricing tiers.

If the gap between your ARPPU and ARPU is large, then you might want to focus on monetizing your free users into paying customers.

How can I increase my ARPPU?

Raise prices

The first way is to charge more for your product. Most customers will be willing to pay for a quality product if they know that it will provide them with the value that outweighs the price.

Product-wise, you might investigate how to add more features or increase the value of your product. For example, a company may have changed their pricing from $10/month recurring for 10GB storage space and 1TB transfer speed to a flat fee of $50 per month for unlimited storage space and 10TB transfer speed.

Another way is looking at adding higher tiers and upselling existing customers into these higher tiered packages. Additional offerings could also entice users to upgrade with additional storage space or a longer free trial period. 

Charge more based on usage

An easier strategy would be to charge the customer based on usage instead of a fixed price. This allows you to charge more for larger plans without having to raise your entry-level pricing.

Most SaaS businesses and subscription-based apps start by offering a cheap entry-level plan to attract new customers and upsell them into higher plans after using the product for a short period.

For example, Dropbox started with unlimited storage space at $99/year (or $9.99 per month), which went down to 50GB of storage space at $49/year for small users who only need to send information back and forth between each other. Since then, the price range has been raised to $9.99-119.88/month, depending on storage space and the number of users within a plan.

Focus on delivering value to your customers

The second way to improve ARPPU is to look at what features your customers enjoy the most and focus on them rather than adding new features to make your product appealing to everyone.

It might be that most of your customers would rather pay more for a product that is easy to use, simple, and reliable than a product with advanced features they don't need.

Research your ecosystem and tap into other revenue streams

The third way of improving ARPPU is by finding out what other products or services our customers use so that you can offer bundled packages or other opportunities for cross-selling. User research or understanding industry insights will aid you in this effort.

Understanding what features your customers use in conjunction with your product or service will help you better understand what's most valuable to your customers.

Why is Average Revenue Per Paying User (ARPPU) important?

ARPPU is a metric to help you analyze your existing customer base. If your product has multiple pricing tiers, ARPPU often highlights upsell opportunities. For other freemium products, like mobile games, ARPPU shows how well you're selling add-ons to your user base. In either scenario, the size of the gap between your ARPPU and ARPU will better inform how much resourcing you'll need to invest into monetization efforts.

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