App Business Model: ARPU Estimation

This article was written by our expert who is surveying the industry and constantly updating the business plan for a mobile app.

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The Dojo Business Team

A team of financial experts, consultants, and writers

We're a team of finance experts, consultants, market analysts, and specialized writers dedicated to helping new entrepreneurs launch their businesses. We help you avoid costly mistakes by providing detailed business plans, accurate market studies, and reliable financial forecasts to maximize your chances of success from day one—especially in the mobile app market.

What is your target audience size and how should you segment users for your mobile app?

Effective audience segmentation for mobile apps requires dividing users by demographics (age, gender, location, occupation), behavioral patterns (in-app actions, purchase history), and psychographic factors (interests, lifestyle preferences).

For mobile apps specifically, the most actionable segmentation combines demographic data with in-app behavioral signals. This means tracking not just who your users are, but how they interact with your app—which features they use, when they're active, and what triggers conversions. Device type, operating system, and app version can also be critical segmentation variables, especially for optimizing performance and user experience across different platforms.

Real-world segmentation for mobile apps goes beyond basic categories. You should segment by user lifecycle stage (new users vs. active users vs. at-risk users), engagement level (daily active vs. weekly vs. dormant), and monetization potential (free users vs. trial users vs. paying subscribers). Geographic segmentation matters particularly for pricing strategies, as willingness to pay varies significantly across regions and markets.

The size of each segment will determine your marketing spend allocation and product development priorities. For example, if your analysis shows that 25-34 year old professionals in urban areas have a 12% conversion rate compared to 3% overall, you know where to focus acquisition efforts. Similarly, if iOS users generate 40% higher ARPU than Android users, your monetization strategy should reflect this difference.

You'll find detailed market insights in our mobile app business plan, updated every quarter.

What conversion rate can you realistically expect from free users to paying users?

For freemium mobile apps where free users can upgrade to access premium features, the typical conversion rate ranges from 3% to 5%, with high-performing apps reaching 6% to 8%.

If your app uses a free trial model instead—where users get full feature access for a limited time—conversion rates are substantially higher, typically 8% to 12% for good performance, with top performers achieving 15% to 25%. The difference is significant: trial users experience the full value proposition upfront, which drives stronger conversion intent compared to freemium users who may never encounter paywalls.

The conversion rate you achieve depends heavily on your onboarding experience, the perceived value gap between free and paid tiers, and how effectively you communicate benefits at the point of conversion. Apps that implement strategic paywalls—showing premium features at moments of high user intent—consistently outperform those with passive upgrade prompts.

For your financial projections, start with conservative assumptions: use 3% for freemium models and 8% for free trial models as your baseline. Then build sensitivity scenarios at 2%, 5%, and 10% to understand how conversion rate fluctuations impact your overall ARPU and profitability. Remember that conversion rates typically improve over time as you optimize your conversion funnel, so your first 6 months may underperform these benchmarks while you gather data and iterate.

Which pricing models work best for mobile apps and how do you choose the right one?

The most competitive and realistic pricing models for mobile apps include freemium, free trial, subscription (weekly/monthly/annual), one-time purchase, paymium (paid download plus in-app purchases), and hybrid combinations of these approaches.

Subscription models now dominate the mobile app landscape because they create predictable revenue streams and incentivize ongoing product improvement. However, hybrid models that combine multiple monetization approaches often maximize both user acquisition (through free access) and lifetime value (through multiple revenue streams).

Your choice should align with your app category, target user expectations, and development roadmap. Apps with continuous content updates or evolving features naturally fit subscription models, while utilities solving one-time problems work better with one-time purchases or freemium approaches.

What should you charge per month or per purchase to maximize revenue?

The average monthly subscription fee for mobile apps ranges from $5 to $9, with a median of $6 across most categories.

Annual subscriptions typically range from $18 to $38, depending on your platform and target market segment. Annual pricing usually offers users a 15-25% discount compared to paying monthly for 12 months, which improves retention and provides upfront cash flow. For apps using in-app purchases instead of subscriptions, the average revenue per paying user (ARPPU) typically falls between $10 and $20 per month for games, and $5 to $15 per month for utility, lifestyle, or content apps.

Your pricing must reflect both your value proposition and competitive positioning. Users in productivity or business categories accept higher price points ($9-15/month) because the app directly impacts their income or efficiency. Entertainment and lifestyle apps typically command lower prices ($3-7/month) unless they offer highly specialized or premium content.

Geographic pricing matters significantly—users in the US, Western Europe, and developed Asian markets can sustain 2-3x higher price points than users in emerging markets. If you're targeting multiple regions, implement regional pricing rather than a single global price. Also consider offering multiple subscription tiers: a basic tier at $4-6/month captures price-sensitive users, while a premium tier at $12-15/month serves power users who need advanced features.

Test your pricing with small user cohorts before full launch. Start slightly higher than you think is optimal—it's easier to lower prices or offer discounts than to raise them later. Monitor your conversion rate closely: if it drops below 2% with a free trial model, your price may be too high relative to perceived value.

How many users will make repeat purchases or renew their subscriptions?

A healthy mobile app typically sees 20% to 40% of users making repeat purchases or renewing subscriptions, with best-in-class subscription apps achieving up to 70% annual renewal rates.

For subscription-based apps specifically, monthly renewal rates in non-gaming categories like education, productivity, and wellness regularly average 58% to 67%. This means that roughly 6 out of 10 subscribers who start a month will still be subscribed at the end of that month. Over a full year, this compounds into your annual retention rate, which determines the lifetime value of each acquired user.

Repeat purchase behavior varies significantly by app category and user segment. Apps that become part of daily routines—fitness trackers, meditation apps, productivity tools—demonstrate much higher repeat rates than apps used sporadically. Users who actively engage with your app at least 3 times per week are 4-5x more likely to renew than users who open the app weekly or less.

To improve repeat purchase rates, focus on the first 7 days after subscription start. Users who complete key actions during this "activation period"—setting up a profile, completing a tutorial, achieving a first success—have dramatically higher renewal rates. Send targeted retention messages before renewal dates, especially offering users who might churn a reason to stay (new features, personalized content, limited-time discounts).

For financial modeling, assume 25-30% annual renewal as your baseline for subscription apps in your first year, then model improvements to 40-50% as you optimize onboarding and engagement. For one-time purchase apps with optional additional purchases, expect 15-25% of users to make a second purchase within 12 months.

This is one of the strategies explained in our mobile app business plan.

What user churn rate should you expect in the first year?

Typical annual churn rates for consumer mobile apps range from 30% to 70%, with high-performing subscription apps averaging 30% to 40% churn and retaining 60% to 70% of users over 12 months.

For subscription models specifically, a monthly churn rate of 4% is a solid benchmark, which compounds to approximately 48% annual churn. Ad-supported or free apps experience much higher churn—often 50% to 80% annually—because users have no financial commitment and switching costs are zero. The first 30 days are critical: most apps lose 50-70% of new users within the first month, and 80-90% within 90 days.

Your churn rate directly determines how long users stay subscribed and therefore how much revenue each user generates over their lifetime. A 4% monthly churn rate means the average user stays subscribed for 25 months (1 ÷ 0.04 = 25). If your monthly churn increases to 8%, average subscription duration drops to just 12.5 months, cutting lifetime value nearly in half.

Category matters significantly: productivity and business apps that integrate into workflows experience lower churn (25-35% annually) than entertainment or casual gaming apps (60-80% annually). Apps with strong network effects—where value increases as more people use them—also demonstrate lower churn because switching becomes harder as users build connections and data within the platform.

To manage churn, track leading indicators: declining usage frequency, fewer sessions per week, and days since last open. Users showing these signals are churn risks. Implement win-back campaigns targeting users who haven't opened the app in 7-14 days. For subscription apps, offer a discounted renewal rate to users showing churn signals rather than letting them cancel outright.

In your financial projections, model churn scenarios at 30%, 50%, and 70% annually to understand how retention impacts profitability. A 20-point improvement in retention (from 50% churn to 30% churn) can double your lifetime value and fundamentally change your unit economics.

How much of your revenue will come from ads versus direct payments?

The revenue split between advertising and direct payments depends entirely on your app category, user volume, and monetization strategy—free apps with large user bases rely more heavily on ads, while premium or niche apps generate most revenue from subscriptions and in-app purchases.

For apps targeting mass-market audiences with free access, in-app advertising typically generates 60-80% of total revenue, with the remainder coming from optional in-app purchases to remove ads or unlock features. However, for apps using subscription or freemium models with meaningful paid tiers, direct payments (subscriptions plus in-app purchases) usually contribute 70-90% of revenue, with ads serving as supplementary income from free users.

The hybrid approach—combining ad revenue from free users with subscription revenue from converted users—often maximizes total lifetime value. Apps using this model capture value from both ends: high-volume free users generate modest but consistent ad revenue ($0.50-$1 per user per month), while the smaller percentage of paying users contributes significantly higher direct payment revenue ($5-$9 per user per month).

Ad revenue scales with daily active users and session frequency. Apps with 100,000+ daily active users and 3+ sessions per day can generate substantial ad revenue through banner ads, interstitial ads, and rewarded video. However, ads also introduce friction—they can degrade user experience and increase churn if implemented poorly. Apps in professional, productivity, or wellness categories typically minimize or eliminate ads entirely because users in these categories have low ad tolerance and higher willingness to pay.

For financial planning, model your revenue mix based on category benchmarks: casual gaming apps might project 70% ad revenue / 30% IAP, while productivity tools might project 10% ad revenue / 90% subscriptions. Then adjust based on your specific pricing and ad placement strategy.

What ARPU benchmarks should you use for your app category?

Subscription-based mobile apps typically generate ARPU of $3 to $9 per month, while ad-supported apps generate much lower ARPU of $0.50 to $1 per month.

These ARPU figures represent blended averages across all users (free and paying). Since only 3-8% of users typically convert to paid in freemium models, your ARPPU (average revenue per paying user) will be 10-20x higher than your overall ARPU. For example, if your total ARPU is $0.50/month with a 5% conversion rate, your paying users are actually contributing $10/month each.

Games and fintech apps can achieve higher ARPU through strong in-app economies (virtual goods, premium features) or by facilitating financial transactions that generate percentage-based revenue. Social and dating apps also command premium ARPU because they monetize powerful human motivations—connection, visibility, and status.

Use category benchmarks as your starting point, but adjust based on your specific value proposition, target market, and competitive positioning. A productivity app targeting enterprise users can command $15-20/month, while a productivity app for students might only sustain $3-5/month.

How do app store fees reduce your actual revenue per user?

Both Apple's App Store and Google Play charge a 30% commission on all in-app purchases and subscriptions during the first year, which drops to 15% for subscriptions after the first year for developers meeting certain criteria.

This commission structure directly reduces your net ARPU by 30% in most scenarios. If your gross ARPU (what users pay) is $7 per month, you only receive $4.90 after the app store takes its share. For annual subscriptions in the first year, the math is identical: $70 in annual subscription revenue becomes $49 in actual revenue to your business after the 30% commission.

After 12 consecutive months of subscription, the commission rate drops to 15% for that subscriber, improving your net revenue. Using the same $7/month example, you would receive $5.95 per month from subscribers in their second year and beyond. This creates a strong financial incentive to retain subscribers past the 12-month mark—not only do you continue receiving revenue, but your margin improves by 15 percentage points.

These commissions apply to all digital transactions processed through app stores, including subscriptions, in-app purchases, and one-time digital content purchases. They do not apply to physical goods purchased through your app (like an e-commerce app) or to services delivered outside the app. Some categories like reader apps can qualify for reduced commissions, but these exceptions are narrow and require specific approval.

For financial modeling, always calculate ARPU on a net basis after app store fees. If you're projecting $6 ARPU, your actual received revenue is $4.20 in year one and $5.10 thereafter. This distinction becomes critical when calculating break-even points and return on user acquisition spend. Never compare your gross ARPU to competitors' net ARPU—ensure you're comparing equivalent metrics.

Alternative payment methods and direct distribution (outside app stores) can avoid these fees, but they come with significant trade-offs: reduced discoverability, increased payment friction, compliance complexity, and potential violation of platform policies. For most mobile apps, app store distribution remains essential despite the commission costs.

When will your ARPU cover the cost of acquiring each user?

Most mobile apps target break-even within 3 to 9 months of user acquisition, meaning the cumulative net ARPU must equal or exceed the Customer Acquisition Cost (CAC) within this timeframe.

The calculation is straightforward: if your net ARPU (after app store fees) is $5 per month and your CAC is $25, you reach break-even in month 5, assuming the user remains active and continues generating revenue. However, churn significantly impacts this timeline—if 4% of users churn monthly, only 96% of your initial cohort reaches month 2, 92% reaches month 3, and so on. By month 6, you've lost 22% of the cohort, which means your actual break-even point needs to account for lost users who stopped generating revenue before repaying their acquisition cost.

Apps with higher ARPU relative to CAC achieve break-even faster and can afford higher acquisition costs. If your net ARPU is $8/month and CAC is $20, you break even in month 3 (2.5 months technically). This faster payback reduces financial risk and allows you to reinvest profits into growth more quickly. Conversely, apps with low ARPU relative to CAC face longer payback periods and higher risk—if net ARPU is $2/month and CAC is $30, you need 15 months to break even, assuming zero churn (unrealistic).

The break-even timeline also determines how much working capital you need. If your average break-even is 6 months and you're acquiring 10,000 users per month at $25 CAC, you need $250,000 monthly in acquisition spend. You won't see positive cash flow from these users until month 6, meaning you need at least $1.5 million in capital to fund 6 months of acquisition before revenue catches up to costs.

To improve your break-even timeline, focus on three levers: increase ARPU through better monetization and upsells, reduce CAC through more efficient acquisition channels and better targeting, and decrease churn to ensure more users reach the break-even point. A 20% improvement in any of these metrics can reduce your break-even timeline by 1-2 months, dramatically improving your unit economics and capital efficiency.

We cover this exact topic in the mobile app business plan.

What user growth rate do you need to maintain or increase ARPU?

To sustain or increase ARPU, your growth in monetizing users must match or exceed the acquisition rate of free users and offset churn, typically requiring monthly active user growth of 8% to 15% depending on your conversion and retention dynamics.

ARPU can paradoxically decline even as your user base grows if you're adding free users faster than you're converting them to paid. For example, if you have 10,000 users with 5% conversion (500 paying) generating $7 ARPU from paying users, your blended ARPU is $0.35 per user. If you add 5,000 free users next month but only convert 3% of them (150 new paying users), your blended ARPU drops to $0.29 even though you added paying users, because the ratio of free to paid users worsened.

The key metric is not just total user growth, but the growth rate of revenue-generating users. If you're growing total users at 15% monthly but your paying user base is only growing at 8% monthly, your ARPU will compress over time. You need paying users to grow at the same rate or faster than total users to maintain ARPU, and faster than total users to increase ARPU.

Churn adds another layer of complexity. If you acquire 1,000 new users monthly with 5% conversion (50 paying users), but churn 4% of existing paying users each month, you need your paying user base to be large enough that the 50 new paying users exceed the number lost to churn. In early stages with small paying user bases, this is achievable. But as you scale, maintaining growth becomes harder—churning 4% of 10,000 paying users means losing 400 paying users monthly, requiring 400+ new conversions just to stay flat.

Model your growth rate requirements explicitly: if your goal is to maintain $5 ARPU with 5% conversion and 4% monthly churn, calculate the minimum new user acquisition rate needed to offset churn while maintaining your free-to-paid ratio. Most apps need 10-12% monthly active user growth as a baseline, with higher growth rates required if conversion is below 5% or churn exceeds 5% monthly.

What scenarios should you model to test ARPU under different conditions?

Run sensitivity analyses across conversion rates (2%, 5%, 10%), churn rates (30%, 50%, 70% annual), user growth rates (5-20% monthly), and repeat purchase rates to understand how ARPU responds to changes in each variable.

• Conversion rate scenarios: Model what happens if conversion is 50% worse than expected (from 5% to 2.5%), at your base case (5%), and 50% better (7.5%). Each percentage point change in conversion directly impacts the number of paying users and therefore total revenue. A drop from 5% to 3% conversion means 40% fewer paying users, which could cut ARPU by nearly 40% if other variables stay constant.
• Churn scenarios: Test annual churn at 30% (best case), 50% (base case), and 70% (worst case). Higher churn reduces lifetime value, which reduces the total revenue each acquired user generates. At 70% annual churn, average user lifetime is only 1.4 years compared to 3.3 years at 30% churn, cutting cumulative revenue per user by more than half.
• User growth scenarios: Model what happens if you grow users by 5%, 10%, and 20% monthly. Slower growth might improve ARPU if you're more selective about user quality and achieve higher conversion rates. Faster growth might decrease ARPU if you're acquiring less qualified users with lower conversion probability. Map how each growth rate impacts your free-to-paid ratio.
• Pricing scenarios: Test ARPU at different subscription price points. If you raise monthly subscription from $6 to $8, model the likely impact on conversion rate (probably a decrease) and the net effect on ARPU. Even if conversion drops 20%, the higher price might still increase ARPU. Include scenarios where you introduce annual subscriptions or multi-tier pricing.
• Repeat purchase and renewal scenarios: Model what happens if 20%, 40%, or 60% of users renew subscriptions or make repeat purchases. Higher renewal rates extend lifetime value and increase ARPU. A shift from 30% to 50% renewal rate could increase lifetime ARPU by 40-60% depending on how long renewed users stay active.

Build a dynamic financial model where you can adjust these variables and immediately see the impact on ARPU, break-even timeline, and profitability. The goal is to identify which variables have the highest leverage—often it's retention and conversion rate rather than user acquisition volume. A 10-point improvement in annual retention (from 50% to 60%) might increase ARPU more than doubling your user acquisition rate.

Also stress-test combined scenarios: what if conversion drops to 3% while churn increases to 60% and CAC rises by 30%? This "worst case" scenario reveals whether your business model is resilient or whether small negative changes could make the app unprofitable. Understanding these scenarios before launch allows you to build contingency plans and identify early warning signals that indicate you're tracking toward a negative outcome.

Conclusion

This article is for informational purposes only and should not be considered financial advice. Readers are encouraged to consult with a qualified professional before making any investment decisions. We accept no liability for any actions taken based on the information provided.

Sources

1. Adjust - How to Define and Reach the Target Audience for Your App
2. Matomo - Audience Segmentation
3. Crazy Egg - Free to Paid Conversion Rate
4. Lenny's Newsletter - What is a Good Free to Paid Conversion
5. FoxData - Mastering App Pricing Strategy
6. Adapty - How to Price Mobile In-App Subscriptions
7. Social Plus - The App Subscription Model Strategies for Recurring Profits
8. RevenueCat - Average Subscription Renewal Rates by App Category
9. UXCam - Mobile App Churn Rate
10. Stash - Mythbusting App Stores 30 Percent Commission