Glossary

What is ARPU (average revenue per user)?

ARPU is total revenue over a period divided by the number of users in that period — the average monetary value generated per user.

Pricing and return

All 220 terms

What ARPU is for

ARPU is the monetisation counterpart to acquisition cost. Combined with retention it produces LTV, and it is the fastest way to see whether a product's economics are moving in the right direction.

Its virtue is comparability: across periods, across cohorts, across acquisition sources. Its weakness is that it is a mean, and revenue distributions in consumer products are among the least mean-friendly data in business.

What the average hides

In most apps and games, a small minority of users generate the large majority of revenue. An ARPU of £2 might be a broad base of £2 payers, or 98% paying nothing and 2% paying £100. Those are entirely different businesses with entirely different risks, and ARPU cannot tell them apart.

Two companions fix this. ARPPU — average revenue per *paying* user — separates how many pay from how much they pay. And the payer distribution itself, which is what reveals concentration risk.

A rise in ARPU can mean more people paying, or the same people paying more, or fewer free users diluting the denominator. The three call for opposite responses.

ARPU, ARPPU and ARPDAU

ARPU. Revenue divided by all users. Overall monetisation health.
ARPPU. Revenue divided by paying users. Depth of monetisation among those who pay.
[ARPDAU](/resources/glossary/average-revenue-per-daily-active-user-arpdau). Revenue divided by daily active users. The daily operating metric, common in games and ad-supported apps.
Define the denominator explicitly. Active, registered and installed users produce very different numbers from the same revenue.

ARPU for AI products

AI applications typically carry two revenue streams — subscription and advertising — with very different shapes. Blending them into one ARPU obscures the trade-off that actually matters: advertising revenue from free users against the conversion those same users might have made to a paid tier.

The useful practice is to track ARPU by tier and by revenue type, so the effect of monetising the free tier is visible rather than averaged away. Our guides on monetizing free-tier users without killing retention and ARPU benchmarks for AI chatbot apps cover the trade-offs.

Common questions

Is a higher ARPU always better?

No. ARPU rises when low-value users churn, which looks like improvement and is usually the opposite. Read it alongside user growth and retention, never alone.

ARPU or LTV?

ARPU is a period metric and a fast operational signal. LTV is a lifetime projection and the one that governs acquisition spend. Both, for different decisions.

More in pricing and return

What a campaign costs to run, and what it gives back.

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