Posted by: Matt Shanahan
Outside of sponsorships and donations, a publisher has to drive revenue from an audience member’s engagement. Whether it’s games, software, information, or media, a digital publisher has a limited audience and limited revenue potential. Some audience sizes are in the hundreds of millions, but the vast majority of audiences are in the hundreds or tens of thousands. The 1,400+ regional news publications in the US are a good example, and so are the more than 1,000+ SaaS firms. The limited size of an audience and the need to be profitable requires a publisher to answer the question: “What is the maximum amount of revenue that can be made from a unique audience member?”
That is why Scout Analytics developed the Publisher ARPU Equation™. From benchmarking more than 50 organizations, we found the four possible revenue components from audience engagement are RPM (i.e., ad revenue), subscription, transactions (e.g., purchase data or access archived article), and events (e.g., conference). These components make up an equation for the average revenue per unique audience member (ARPU) is:
ARPU = (page views)*RPM + (% subscriber)* PRICE
+ (% attend event)* PRICE + (transactions)*PRICE
While the concept of ARPU is not new, transforming it into a single equation and looking for optimizations based on engagement is.
Engagement and ARPU are intertwined. Predicting ARPU potential increases in accuracy if a publisher understands engagement across their audience segments. For example, the largest segment of an audience is usually the drive-bys which are unlikely to generate much more than ad revenue, whereas the engaged audience members are much more likely to subscribe (note: see previous post about Macworld Insider).
In the next blog post, I will look into modeling the four segments of audience loyalty that creates engagement.
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