Driving Free-to-Play Revenue: ARPPU vs Conversion Rate

Header Banner with text says: Driving Free-to-Play Revenue: ARPPU vs Conversion Rate with mobile phone picture trying to attract users and money to symbolise the balance between ARPU and conversion rate. on a blue green background

Mobile apps have become a strong and dynamic market generating billions of dollars in revenue each year. This is why publishers and advertisers are turning mobile app monetization into an entire science and implementing various strategies to reach their goals. One of the most popular and highly effective tactics for growing the number of your users is the free-to-play (F2P) model.

Free-To-Play Model = Many Users, Low Conversion

Namely, free-to-play refers to the strategy of removing any sort of payment as a gateway to your app. This method allows a new and/or small business to expand and increase its user base without wasting resources on expensive ad campaigns.

And while this method is great for attracting players – far better than asking them to pay to enter, the sad truth is the majority of them will simply not convert. The statistics place this percentage at a high 95%.

According to ACI Worldwide’s latest report, 40% of non-paying users on all platforms said they would not spend money on a certain app because they were satisfied with the free experience.

The low conversion rate is the consequence of F2P availability. People enjoy using free stuff and are not very comfortable about stopping. This is the price paid for lowering the barrier of accessibility and attracting a large user base.


Increasing ARPPU Or Increasing Conversion?

So how do you increase revenue for your free app? Will you try to wrench out more revenue from those players who do convert or will you try to increase conversion?

The second solution might be the better one, except in the cases when monetization is inadequately implemented and there is room for improvement, or the conversion rates are already at the maximum of the potential range (7-8%). In the situations where the monetization curve and conversion tactics are equally optimized, focusing on conversion is recommended. This refers to more research and analysis efforts to be able to offer more relevant items.

Mobile Dev Memo’s Eric Benjamin Seufert illustrates this in the form of the free monetization curve which follows the Pareto distribution. In his graph depicting the curve, the Y-axis represents the user base percentage, with the leftmost point demarcating app’s conversion rate, as this percentage of players paid at least the lowest in-app purchase (IAP) price, while the X-axis represents the customer lifetime value (LTV) horizon.

Increasing the average revenue per paying user (ARPPU) would be smart if the monetization curve was normal, ie. if the majority of purchases were happening in the center of the LTV horizon. However, the truth is most paying users are not in that area. In fact, most of them reside in the leftmost region of the curve. The “whales” making up less than 1% of the user base are a statistical anomaly. Increasing their ARPPU or the ARPPU of the users in the center of the curve does not provide the same result as moving the curve upward does, with a higher conversion rate. Boosted conversion entails additional revenue primarily from the densest part of the curve.

A graph shows on the X axis: Precentace of Users, on the y axis: ARPU. the graph shows: Under the Pareto distribution, most of the value resulting from moving the curve to the right yields from the least dense areas of the curve. Moving the curve upwards yields additional value from the whole curve.

Source: Mobile Dev Memo

To put it simply, deciding between increased conversion or increased ARPPU is a matter of moving the whole monetization curve upward (increased conversion) or moving its curvature to the right to incorporate higher LTV points (increased ARPPU). Under the Pareto distribution, most of the value resulting from moving the curve to the right yields from the least dense areas of the curve. Moving the curve upwards yields additional value from the whole curve.

How To Increase Conversion Like A Boss

Another strategy for increasing conversion might be to reduce the prices of your IAP across the board, but the risks of plummeting your total income in the process are just too damn high. Instead, Seufert suggests creating a sales/promotions carousel constantly rotating discounts on items in the center of the product catalog’s price scale. Keep in mind that discounting high-end items may anger the users who paid the original price for them, risking their abandonment of the app. This more focused strategy is less inclined to affect your overall revenue than the all-embracing method.

And there you have it. Although extracting more profit from paying users at the highest end of the monetization curve might be tempting, increasing conversion is a more productive and elegant solution for driving revenue in the free-to-play model, the one that is bound to turn free players into payers.

If you own F2P game and showing your users a significant amount of ads, you want to make sure that you are measuring ad-revenues right. SOOMLA is the industry leader in unbiased in-app ad revenue measurement. If you like to learn more, schedule a demo with our team below.

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