Increasing ARPU for 4 Key App Monetization Models

One of the biggest concerns of app developers and marketers is how they are going to earn from their apps. While creating an engaging and valuable app is important, app developers and owners should determine how they produce meaningful revenue from their hard work.

Thankfully, there are different ways to earn from a mobile app. However, there are four app monetization models that have emerged to be the most popular strategies. These are the following:

1. Transaction fee monetization model
2. In-app purchase monetization model
3. In-app advertising monetization model
4. Subscription and freemium monetization model

So, how do you know whether your business model is working or your app is earning? You need to track your Average Revenue per User or, simply, ARPU. Your plan is to increase your ARPU. The higher your ARPU, the better your earning potential is.

In this post, you will discover effective strategies on how you can increase your ARPU for each of the most popular app monetization models.

Understanding ARPU

Before we proceed, it is crucial that you understand first what ARPU means. Here are some of the things you need to know:

What is ARPU?

ARPU, or Average Revenue per User (ARPU) in mobile apps, is a key metric that allows businesses, marketers, and developers to measure the average earnings that they get from one app user.

How to calculate ARPU?

Calculating ARPU is easy. All you need to do is to get your total revenue and then divide it by the total number of users.

So, for example, your app generated $1,000 in revenue. Then, you have 100 users. The equation would be like $1,000 divided by 100 users. This gives us an ARPU of $10 per user, which is translated as each user has contributed $10 to your app’s revenue.

Why is calculating ARPU important?

The most important reason you need to calculate ARPU is to determine your financial performance. ARPU effectively gives insights into the profitability of your app. Because you know how much you’re earning from each user, you get to know how to make better and more informed decisions when it comes to determining pricing, resource allocation, and monetization strategies.

Perhaps, the best reason you should know your ARPU is for benchmarking and industry comparison. By looking at your ARPU and comparing that to your competitors’ ARPU, you will know with more accuracy the areas of your marketing strategies where you might be excelling or underperforming. All these can help you adjust your marketing campaigns accordingly.

Now that you know what ARPU is, it’s time that you know how to increase ARPU for each of the app monetization models highlighted in this post.

How to increase ARPU for subscription and freemium monetization model

Perhaps, the subscription and freemium monetization model is the most commonly used monetization model today. Mobile apps in productivity, business, entertainment, lifestyle, education, and health and fitness categories usually use this model for their revenue.

With the subscription and freemium monetization model, users are given both free and paid options. The strategy is clear here: app developers allow people to use the app for free, but they can only access the basic functionalities of the app. If they want to access the additional features or content of the app, they can pay for a recurring monthly, quarter, or annual fee.

To increase your ARPU for subscription and freemium monetization model, you can do the following:

1. Upsell and/or cross-sell your premium plans, complementary products or services, and other features.
2. Create different subscription tiers so that users can choose the options that best meet their budget and needs.
3. Offer discounts and promos. Limited-time offers, and occasional discounts build a scarcity mindset in your users, which can motivate them to become paying subscribers.
4. Introduce optional services or add-ons that customers can purchase to improve their usage of the app. These add-ons may include personalized recommendations, exclusive content, customer support, and early access to new features.

How to increase ARPU for in-app advertising monetization model

As its name suggests, the in-app advertising monetization model relies on displaying advertisements within the app to generate revenue. In this model, users don’t need to pay to access the app’s features. However, in exchange, they would need to view ads.

There are different types of ads that app developers may display within the app. These may include interstitial ads (full-screen ads), banner ads, native ads, rewarded ads, and video ads.

To increase ARPU for the in-app advertising monetization model, consider the following:

1. Optimize ad placements. Be sure that your ads are showing in the right place and at the right time. You need to strike the delicate balance between maximizing ad engagement and great user experience.
2. Identify the best way for you to place your ads. You can perform A/B tests. Don’t rely on just assumptions, but rather experiment so that you know exactly what works and what doesn’t work.
3. Choose the right ads and the frequency they are shown. Remember that ads can be annoying. You should make sure that the ads you’re showing are relevant. Moreover, implement frequency capping to control how many times an ad is shown to your users. This way, ads won’t be too repetitive.

How to increase ARPU for in-app purchase monetization model

The in-app purchase monetization model involves giving users the option to make purchases within the app. Depending on the type of app, users can pay to buy virtual goods, digital content, services, and even in-game items or power-ups.

To increase the ARPU for the in-app purchase monetization model, you can do the following:

1. Bundle purchases. Users are more likely to buy your goods when they are bundled together in one offer. People perceive that there are greater savings when they buy in bundles rather than buy items individually.
2. Offer limited-time or exclusive discounts. Special offers and discounts always encourage users to make purchases by creating a sense of urgency.
3. Create virtual goods or in-app currency. These in-app elements serve as a currency system that compels users to spend more in your app. You can even consider adding gamification elements to your app.

How to increase ARPU for transaction fee monetization model

The transaction fee monetization model might be the least popular in our list of four models, but it is still a common monetization model nonetheless. In the transaction fee monetization model, an app generates revenue by charging a commission or fee for facilitating a financial activity or transaction. The app serves as an intermediary or platform that connects businesses to their users.

Usually, the apps that use a transaction fee monetization model include e-commerce apps, online marketplaces, and peer-to-peer payment apps.

Here are some of the best ways to increase ARPU for the transaction fee monetization model:

1. Do your best to encourage users to perform higher transaction volumes. You can do this by incentivizing users to increase transaction size and frequency. Incentives may be in the form of discounts, loyalty programs, and rewards.
2. Include tiered fee structures. Tiered fees give users a sense of control over their decision. The perceived freedom in using your app could help your users to take action in doing more transactions.
3. Consider adding value-added services. Aside from the fees that you directly earn from transactions, you can add extra services to get more earning opportunities. Value-added services can be extended warranties, premium customer support, quicker transaction processing, and improved security features.
4. Add more payment options. Sometimes, users are willing to use your service and pay the fee, but they just can’t because your payment process won’t allow them. The best way to address this is to give your users additional payment options.

Increase your ARPU today

There is no doubt: ARPU is one of the best indicators of whether your app is succeeding or not. With that in mind, you might be thinking of better ways to increase your ARPU, but you just don’t have the time, tools, or knowledge to do so. Thankfully, ShyftUp is here for you.

ShyftUp has the necessary knowledge, experience, and tools to help you increase your ARPU. Whatever your app monetization might be, they can help you create the right marketing plans for you. Aside from that, they are the leading user acquisition agency today that could help you get more engaged, loyal, and paying users.

Give them a try today!

What are the four key app monetization models?

The four key app monetization models include the transaction fee, in-app purchase, in-app advertising, and subscription and freemium monetization model.

What are some effective strategies for app monetization?

The best strategy for app monetization is to create an app that people are willing to pay for. That means you need to have an app that solves problems or entertains people. Give users so many reasons to pay for your app. Aside from that, some effective strategies for app monetization include understanding your users, choosing the right monetization model, giving the best user experience, implementing personalized pricing, and offering value-added features.

What are the most common challenges app developers face when applying app monetization models?

The most common challenges app developers face include balancing user experience and monetization, finding the correct monetization model for their app, user resistance to spending, pricing optimization and strategy, ad blockers, ad fatigue, and market saturation and competition.