Consumer business economics

Consumer businesses sell to individuals, not procurement committees. Distribution feels magical when it works and financially brutal when it does not. You get tiny payments (or ad impressions) multiplied by millions of users — or you get nothing.

The economic question is always the same: can you acquire and retain users cheaply enough that monetization covers the cost and leaves contribution margin? Most consumer apps fail that test. The ones that win usually combine strong organic acquisition with retention that compounds.

ARPU is revenue divided by users — say whether you mean payers or all actives. DAU/MAU is stickiness. Ads need huge habitual DAU. Subscriptions need conversion and retention at a tiny ACV after store fees.

A pair of sketches

Ads: 1M DAU, 20 impressions/DAU, $5 CPM → $100k/day ≈ $36.5M/year. At 100k DAU the same rates are ~$3.65M/year. Ads are a volume game.

Subscriptions: $10M ARR at $10/month needs ~83,000 payers. At 4% free→paid that is ~2.1M free actives. Paid CAC at this ARPU often does not pay back unless LTV is long and a large share of growth is organic.

Concepts in this section

Step	Concept	What it answers
1	Consumer unit metrics	What are ARPU and DAU/MAU, and which denominator?
2	Ad-supported economics	How do impressions and CPM become revenue?
3	Consumer subscriptions	Why is freemium conversion and store tax the whole game?
4	Consumer virality	When is paid acquisition irrational?
5	Consumer retention	Which curve actually drives LTV?
6	Hits and platform risk	What happens when the store or the algorithm moves?

As an engineer you will feel these economics in roadmap fights: growth teams pushing invites, monetization pushing paywalls, brand pushing "don't annoy users." The useful contribution is instrumentation — funnel metrics that match the model, cohort retention, and clear COGS if inference sits in the free tier. Pick one primary engine (ads or subscriptions) until the product works; add a hybrid when it funds the first, not when you are bored.

Common mistakes

Planning ads at small DAU. The arithmetic needs huge habitual scale.
Paid acquisition at consumer ARPU without long LTV or organic share.
Watching install spikes while payer cohorts melt.
One store, one algorithm, one ad network. Platform risk is existential.

Key takeaways

Ad models need enormous scale: revenue ≈ DAU × impressions × CPM/1000.
Consumer subscriptions live on conversion, churn and store fees. ACV is small.
Freemium conversion is often low single digits. Most users never pay.
Organic/viral acquisition is usually the only affordable growth; retention powers it.
Measure cohort and payer retention. Plan for algorithm and fee shocks.