😬 Worsening KPIs

I suddenly realized that some things that seem obvious to me are not obvious to everyone, so here’s a short and simple reflection on the relationships between metrics.

In the monetization of any SaaS / game / whatever, there are three important metrics:

ARPU = average revenue per user — how much money we earn per active user

ARPPU = average revenue per paying user — how much money we earn per paying user

CSR / PU% = conversion / paying user % — different names, but always about the share of paying users, i.e., the fraction where the numerator is the number of paying users and the denominator is the number of active users.

Some of our tests or improvements, which are clearly positive for the product’s economy, will lead to a decrease in ARPPU. When does this happen?

It’s simple — it happens when we find new paying users who pay less than the existing ones. By definition, this will cause ARPPU to drop, because we’re changing the audience we’re looking at for this KPI.

Imagine you’re selling digital photos of watermelons at a market, and 1,000 people are walking around. 200 of them pay you 5 rubles each. You run an experiment and start selling apple photos as well — and 100 new people pay you 1 ruble for them. As a result, you earn an extra 100 rubles (a 10% increase in revenue), ARPU also grows by 10% (from 1 ruble to 1.1 rubles), conversion jumps from 20% to 30% — but ARPPU drops from 5 rubles to 3.67 rubles. Still, you understand that selling apple photos was a good decision!

It would have been a bad decision if many of those 200 “watermelon buyers” switched to buying apple photos instead. For example, if half of your “watermelon crowd” became “apple people”: now 100 people pay 5 rubles, and 200 pay 1 ruble. Out of 1,000 people, you now earn 700 rubles, or 0.7 rubles per person, or 2.33 per paying user.

In games, we constantly introduce new items — and it’s important to understand that sometimes this behavior — even if it doesn’t cannibalize anything — will still worsen some KPIs. The key is to be aware of where this change comes from.