The beginning of the 20th Century marks the dawn of the Information Age. This is characterized by a rapid shift from an industrial economy to one that has become primarily based on information technology. It is from within this new digital era, that technological applications (apps) have come about.
The total number of app downloads in 2018 was 194 billion. Clearly there is a large consumer base – the app user – that needs to be catered for. The question is, how do you know if you are meeting the needs of your app users?
In this article, we at Process Street will explain how the app metric, ARPDAU can be used to optimize your app for success. This article has been structured as below:
- App metrics: What are they and why are they needed
- ARPDAU: What it is, how to calculate it and why it is important
- ARPU: What it is, how it is calculated and why it is important
- ARPU vs ARPDAU
- ARPU vs ARPDAU: How to improve ARPU and ARPDAU values
App metrics: What are they and why are they needed
App metrics are standards of measurement used to track an application’s success and guide decisions.
As detailed by Braze Magazine, top app metrics include:
- Customer retention rates
- Churn rate
- Daily active users (DAU)
- Monthly active users (MAU)
- Daily sessions per Daily Active User
- Cost Per Aquisition
- Lifetime Value
- Average Revenue Per User (ARPU)
- Average Revenue Per Paying User (ARPPU)
- Return on Investment
App metrics essentially let you know how things are going. They are Key Performance Indicators (KPIs) that tell you what is working and what isn’t.
Using a variety of different app metrics will give you a refined, detailed picture of exactly how your application is doing. To cover all of the above-listed app metrics in the detail needed would be beyond the scope of this article.
Therefore, in this article, I will focus on one app metric. This app metric is essentially a combination of Daily Active User (DAU) and Average Revenue Per User (ARPU) measures (app metrics bolded in the above list).
I am talking about Average Revenue Per Daily Active User.
Or ARPDAU for short. If you can pronounce that, all credit to you. Luckily we don’t have to be able to pronounce ARPDAU to understand and use it.
ARPDAU: What it is, how to calculate it and why it is important
ARPDAU stands for Average Revenue Per Daily Active User. As a key metric, ARPDAU helps you understand how well your app is generating revenue. By revenue, we are talking monetization generated from ads or/and In-App Purhcases (IAP).
More specifically ARPDAU measures how much money you make per active user in a single day. You can think of it as your app tip-jar. That is:
- Your application is downloaded by a user
- The user actively engages with your content
- The active user responds to your in-app monetization model (e.g. reacts to in-app advertisements, makes an in-app purchase or signs up to an in-app subscription)
- With each response, you are tipped
- User payments are summed up on a daily basis and an average is taken to determine payment amount per user, using ARPDAU
For the math loathing individuals out there, you will be pleased to learn that calculating ARPDAU is straightforward. You take your daily income and divide this by the number of daily active users, as shown in the image below.
Simple, yet as an app metric ARPDAU tells you a great deal.
To really understand what ARPDAU is and how to calculate it, let us work through a case study focussing on the gaming app Pokemon Go.
ARPDAU: Case study, Pokemon Go
I was a student in London when Pokemon Go debuted. Watching individuals aimlessly circle the circumference of Hyde Park provided me with some amusement during final exam stress. Pokemon Go was popular. But how much revenue was this application bringing in?
Not only did Pokemon Go’s popularity set records, but Poke-world also clung to the top spot regarding app monetization and customer retention. Retention rates were double the industry standard. Revenue was twice the average for casual games.
To get a picture of Pokemon Go’s prestige in the app world, we can take a sneak-peak at the apps ARPDAU value.
Each user spent on average $ 0.25 per day using Pokemon Go. Compare this with ARPDAU of casual games – ~$ 0.10 – you can see that Pokemon Go’s money-making strategy was creating app wealth double the industry standard.
But how did Pokemon Go achieve such a high ARPDAU figure?
Pokemon Go forged a very unique money-making trick. Can you guess it?
Have a think.
The game took users to places in real-space.
The reason people were circling Hyde Park wasn’t that they were on a new fitness regime, they were trying to capture Pokemon in that area. That is, the app was bringing people to places.
These places included businesses, such as McDonald’s and Starbucks. Businesses that provide Pokemon Go with sponsorship in return for visiting customers. Pokemon Go created an innovative and novel income-generating model: the Cost Per Visit (CPV) model.
Around 500 million app users have been driven to sponsored locations. Using the app’s CPV model, Pokemon Go’s ARPDAU has been determined by:
Income provided by sponsors in 24 hours / Number of app users in 24 hours
ARPDAU: Why it is important
By using ARPDAU, Pokemon Go obtained a firm understanding of how well the game earned money from its users.
With an ARPDAU value of $ 0.25, the app was in a very strong position. To give some perspective, ARPDAU values of around $ 0.05 are considered healthy.
Any value below $ 0.05, and you may want to re-think your app’s monetization model.
Due to the short time frame ARPDAU measures revenue over, using the metric will allow you to see how changes or events impact your earnings. For example, you could be altering the placement of your ads, revising your subscription prices or trying out new campaigns. With ARPDAU you can track and notice positive (or negative) trends, telling you how to further optimize your app.
So far we have discussed:
- What ARPDAU is
- How ARPDAU is calculated
- Case study: Pokemon Go
- Why ARPDAU as a metric is important
As I previously mentioned, ARPDAU is essentially a combination of Daily Active User metrics and Average Revenue Per User (ARPU). The app metric, DAU, is quite self-explanatory. DAU is how many users take action within your app, measured and updated on a daily basis. ARPDAU uses the number of DAU in its calculation.
The concept of Average Revenue Per User (APRU), is also used in ARPDAU. That is, ARPDAU calculates average revenue on a per user basis like ARPU. However, there are two small but significant differences between the two metrics. To understand these differences, we must first understand what ARPU is.
ARPU: What it is, how it is calculated and why it is important
ARPU stands for Average Revenue Per User (with user sometimes being referred to as unit). This app metric measures how much money can be expected to be generated per individual consumer. Unlike ARPDAU, there is no set time period within the calculation of ARPU. That is, ARPDAU measures the average revenue per user in 24 hours. Whilst with ARPU, the time period has to be specified during the metrics calculation, but this time period can vary from one ARPU calculation to another. In addition, ARPU is not solely focused on active users, rather the number of app users as a whole.
So how do you calculate ARPU?
Calculating ARPU is like calculating ARPDAU but with these two aforementioned, very slight, but significant differences, which I have summarized below:
- The 24 hour time period is removed
- The number of users as a whole is considered, as opposed to only considering active users
The formula for calculating ARPU is shown in the image below.
ARPU: Case study, Harry Potters Wizards Unite
To explain APRU further, we will look at the gaming app, Harry Potters Wizards Unite. So wands at the ready, let’s do some metric magic.
ARPU = 3 million / 6.5 million
We can gauge an ARPU value of $ 0.46 during HPWU first week of release.
ARPU’s for different time periods can be determined to track how well your app is doing overtime.
In addition, ARPU values over the same time period between competitors can be compared. For example, $ 0.46 compared to Pokemon Go’s $ 1.50 shows that Pokemon Go generated more revenue than HPWU in the first week of operation.
HPWU is a fairly new gaming application, so for a true indication of HPWU’s performance, evaluation over a longer time period is necessary. However, these ARPU values provide telling early signals. Signals that can be watched to track how well your app is doing.
ARPU: Why it is important
However, as a standard, ARPU values fluctuate depending on location, industry and pricing model.
By calculating ARPU, you can:
- Track month-to-month (or any alternative time period considered) performance of paying users
- Compare revenue against competitors
- Identify the best customer acquisition channels
- Understand monetization models that work better and plans users prefer
- Forecast revenue growth during the time period considered
ARPU Vs ARPDAU
So far we have considered what ARPDAU and ARPU are, how they are calculated and why they are important. Next, we will consider ARPDAU and ARPU together.
To recap, the calculation for ARPU and ARPDAU is similar, but has two key differences:
- ARPDAU considers only active users in its calculation, whereas ARPU looks at all users
- ARPDAU calculates over a time period of 24 hours, whereas ARPU can be calculated over any time period as long as it is stated
These two differences mean that the two app metrics are used to give a slightly different view of how your app is doing.
ARPU measures the overall effectiveness of a monetization strategy.
ARPDAU, on the other hand, provides a more immediate measure, highlighting a specific subset of the overall user base.
For example, your revenue from your overall paying users (as calculated by ARPU) might be particularly high, whereas the conversion of these paying users may be low (how many users make in-app purchases). This conversion is measured as ARPDAU (as ARPDAU uses the number of active users in its calculation).
You can use ARPU to gain insight regarding how much revenue your app generates, and then apply monetization strategies (such as a particular advertisement campaign, or in-app purchases), for the creation of another income stream. ARPDAU then tells you how any changes made to your monetization model positively (or negatively) affect your revenue.
ARPU Vs ARPDAU: How to improve ARPU and ARPDAU values
We now have a foundation of understanding of what ARPU and ARPDAU are. Moving forward, we can build on this and determine ways ARPU and ARPDAU values can be increased.
How to increase your ARPDAU
Your ARPDAU value is dependent on many factors, with in-app features and ads working together to equip you with an alternative revenue stream. External factors beyond your control, such as seasonal changes and special holidays must be noted, as these will impact your ARPDAU values.
Luckily you can use factors that are in your control, to mitigate against negative repercussions from factors external to your control. I have detailed four ways you can increase your ARPDAU values below, as stated by IronSource:
- Integrate rewarding video ads into your app: Click-through rates for rewarded videos are about 4-5 times higher than a typical display ad, as users are given a reason to engage. With every opt-in ad engagement, you gain a higher ARPDAU value.
- Nudge non-paying users towards IAPs: One study found that users who watch rewarded videos are more likely to make an in-app purchase (IAP). You can, therefore, use rewarding videos – or alternative video ads – to encourage users who haven’t paid for an in-app purchase, to do so.
- Experiment with ad placements in your app: If you are going to have ads in your application, timing is everything. You don’t want your ad to interrupt the user experience. A/B testing can help you optimize your ad placements. Make sure to also cap the frequency that users are seeing ads in your app.
- Segment your users: Every one of your users is different. Segmenting your users can significantly boost your ARPDAU. You can modify your IAP prices in accordance with different user behavior. This will increase ad engagement, and you can see your ARPDAU values increase as a result.
How to increase your ARPU
ARPU tells you how well you are retaining and continually providing value to your customers, whilst reaping the rewards for your efforts. Improving customer retention and satisfaction will, therefore, have positive knock-on effects on your ARPU values.
Here are four ways you can increase your ARPU metric value, as indicated by WeGrowth:
- Build a large enough growth potential for your app: While trying to increase your ARPU, you are forced to think about your business from the ground upwards. That is, does your business have enough growth potential? For example, consider Mailchimp. As the users’ email marketing strategies succeed, their email lists grow. Bigger email lists require an upgraded account.
- Charge the right amount – adjust your pricing accordingly: You can experiment with different pricing models and keep an eye on your ARPU to see how changes impact your revenue. Adjustments such as lowering pricing tiers, or applying new pricing for new customers can be made.
- Learn who to ignore: You can segment customers based on the likelihood they are to progress to the higher-paying tiers/spend a lot. These can be labeled as low-growth potential customers. Investment in these customers will not reap impactful rewards. Alternatively, you can invest in your top growth potential customers. Delivering outstanding value to this tier with the aim of selling your premium-priced product.
- Identify key touch-points for up-selling and cross-selling: Use A/B testing to identify key times of day, month and even year, where up-selling and cross-selling are most effective. For example, Evernote sends emails when the customers are nearing their storage limit. Think of it as a game, to analyze users’ past behavior for the identification of key turning points where users are most likely to benefit from an upgrade.
Optimize your app today using ARPDAU and ARPU
In this article, we have discussed:
- What the ARPDAU and ARPU metrics are
- How you calculate ARPDAU and ARPU
- Why ARPDAU and ARPU are important
- How you can increase the value of your ARPDAU and ARPU metrics
If you want to create a successful app, you need to understand what is working and what isn’t. ARPDAU and ARPU metrics allow you to do this. By using these metrics, you can streamline and improve your app monetization strategy. Identify key areas to focus your strategy and increase your ARPDAU and ARPU measures. With such increases, the growth of your app-generated revenue will come hand-in-hand.
How have you worked to increase your ARPDAU and ARPU values? What tips and tricks can you share that have not been mentioned in this article? Comment below! We’d love to hear from you!