Markets and business models
Consumer unit metrics
ARPU and DAU/MAU — the two numbers that tell you whether a consumer product can ever pay for itself.
Consumer businesses sell to individuals, not procurement committees. The unit of attention is a human with a phone, a habit and a low switching cost. Unlike B2B SaaS, you rarely get a $50k annual contract that covers months of sales effort. 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.
Concept
ARPU (average revenue per user) is revenue in a period divided by users in that period. Be precise about the denominator: ARPU over paying users and ARPU over all active users answer different questions. DAU/MAU (daily / monthly active users) is a stickiness ratio — roughly how often a monthly user shows up on a given day.
Walking through the two numbers
High DAU/MAU (for example 50%+) signals habit. Low (for example 10%) signals occasional use. Messaging and social aim high. A tax app can be healthy at a low DAU/MAU because the job is seasonal — but then ads that need daily impressions will not work.
ARPU over all actives is the number that must clear CAC. ARPU over payers tells you about the paid product. Mixing them is how teams lie to themselves.
ARPU (all actives) = period revenue / period actives
ARPU (payers) = period revenue / paying users
DAU/MAU = daily actives / monthly activesSuppose 2.0M MAU, 400k DAU, $800k monthly revenue, 80k payers.
DAU/MAU = 400k / 2.0M = 20%
ARPU (all actives) = $800k / 2.0M = $0.40 / month
ARPU (payers) = $800k / 80k = $10 / monthAds need the 400k DAU and the impressions they see. Subscriptions need the 80k payers and whether they stay. Same company, two engines. Pick the primary before you optimize the secondary. See ad-supported economics and consumer subscriptions.
Common mistakes
- ARPU over payers when you mean all actives. $10 looks fundable; $0.40 may not clear CAC.
- Chasing DAU for a weekly job. Stickiness must match the job-to-be-done.
- Ignoring the denominator. "ARPU went up" can mean you lost free users, not that you make more money.
Check yourself
2.0M MAU, 400k DAU. What is DAU/MAU, and what does it suggest?
20%. Often "good" for many apps; messaging/social would aim higher.
Why split ARPU by payers versus all actives?
Payer ARPU describes the paid product. All-active ARPU is what must clear CAC for the whole base.
Key takeaways
- Consumer economics are tiny ARPU times huge scale — or nothing.
- Define ARPU's denominator every time.
- DAU/MAU measures habit. Match it to the job, not to a vanity target.
- Pick ads or subscriptions as the primary engine before optimizing the other.
Further learning
16 Startup Metrics (a16z)We have the privilege of meeting with thousands of entrepreneurs every year, and in the course of those discussions are presented with all kinds of numbers, measures, and metrics that illustrate the promise and health…Andreessen Horowitz
Next, the ads engine: ad-supported economics.