Over the last decade, games has become a major component of entertainment, and your primary focus as a game developer is probably to create the best experience for your players. However, games are also a business, and businesses need to make money.
Games is a $184.4 billion industry with intense competition and significant challenges. Successful game companies must find ways to boost revenue in a competitive market. Your ARPPU calculation is a key metric you can use to determine where you are and what you need to do to meet this challenge.
ARPPU stands for, “average revenue per paying user,” which is the average amount of revenue your company earns from each paying customer in a specific period. Analysts designed ARPPU for subscription-based apps, such as games that users pay a monthly fee to play, to better analyze the value of paying game users.
ARPPU focuses only on paying customers. Average revenue per user includes all users who have installed and played your game. Average revenue per daily active user focuses only on players who engage with your game every day.
ARPU is useful for measuring the overall effectiveness of your monetization strategy. Analysts use ARPDAU and ARPPU to analyze specific pricing decisions' immediate impact. ARPDAU and ARPU are also useful metrics for companies that generate revenue through ads.
To get your ARPPU calculation for subscriptions, you must first calculate your monthly recurring revenue, which is the total revenue your game earns from all of the active subscribers in a month. Next, divide your monthly recurring revenue by the number of active subscribers.
For IAP or in game purchases that are not subscriptions, you use the same formula. First calculate the total revenue monthly revenue from the in game purchases or IAP. Next divide this monthly revenue from the number of paying users in that month.
Paying users are users who pay to play your game either through subscriptions, paid downloadable content, or in-app purchases. Do not include free users, inactive subscribers, or canceled subscriptions in your active paying users number.
Monthly recurring revenue = $30,000
Active paying users = 1000
ARPPU = $30,000 / 1000 = $30
ARPPU helps you measure how much revenue each of your customers generates. This makes it possible for your marketing team to calculate how much it can spend on customer acquisition while remaining profitable. ARPPU can also be useful in several other ways.
A low ARPPU may indicate that your game is losing appeal with your player base. By contrast, a high ARPPU may demonstrate a more engaged player base that is spending more money on your product.
Effective game marketing is not just about attracting as many customers as possible. It is also about targeting the customers who are the most likely to generate high levels of revenue. A high ARPPU can indicate that you are marketing to the correct customers and enticing them to spend with the appropriate incentives.
If your marketing efforts are not working as well as you hoped, you can use your ARPPU calculation to identify which types of players are generating the most revenue. You can then refocus your marketing efforts on attracting similar players.
You can use ARPPU to identify whether you are pricing your offerings correctly by isolating the revenue from the highest-paying customers. For most games, the highest-paying customers generate the majority of the revenue, so it makes more sense to focus on maximizing the revenue from these customers, rather than trying to coax revenue out of players who may never make a purchase.
Two main factors can drive down your ARPPU.
The less you charge for subscriptions and other recurring purchases, the lower your ARPPU will tend to be. If your customers do not tolerate price increases, you may have to supplement with other types of revenue or attract more players.
If you are offering players too much value in your free or lower-priced plans, they may not have the motivation to move up to higher-priced plans. Similarly, if you do not offer enough value in your higher-priced plans, players may not purchase them.
There are a variety of approaches you can take to improve your ARPPU. However, anything you adjust can backfire, so you must proceed carefully.
You can attempt to increase your revenue by charging more money for the things your active users already pay for. However, if you increase prices too much, some users may quit playing, and if too many users leave, this strategy could ultimately cause your revenue to drop.
Adding additional content to your game can provide users with something new they are willing to pay for. For example, you could offer an expansion pack with new levels or missions to play. You can also add new items to in-game stores or implement new challenges that prompt players to purchase more items that help them advance in the game.
You can encourage more spending by adjusting the mechanics of your game. For example, if players currently have to wait 12 hours to get some resource they need to continue playing, you could increase that time to 24 hours to encourage more players to purchase the resource instead of waiting to collect it for free.
However, proceed with caution. Any time you change the mechanics, some players may decide to quit playing, particularly if they feel like they are being pushed to spend more money. Ideally, you can introduce new mechanics that both encourage spending and add value for the user.
Sonamine utilizes metrics, such as your ARPPU calculation, to analyze how well your game is performing and identify ways you can achieve your goals through monetization, engagement, and retention campaigns. Contact us to get started.
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