Being where we are and doing what we do, developers often come to me and ask for advice about pricing their In-App Purchase Store Items. This is a very good question. On one side, if you price too high, people might not buy while if you price too low, you will not be earning as much as you can.
What's your Target ARPU?
The first question I always try to ask myself is what will be a good target ARPU. What average revenue per user will be considered a success? There are a few ways to go at it:
Your Purchase Ratio
How many out of your users will end up buying? This is your conversion ratio or purchase ratio. Most games get between 0.5% and 5% of your users to purchase. This depends on many factors but usually grows if your game is well recognized and if users play a long time in it.
Using the Target ARPU and Purchase Ratio as a Benchmark for Pricing
I'm going to explain this one with a few real life example from the developers working with us. One developer came to me when his initial thought about monetizing his game was to sell an extra level pack for $1 and remove ads for another $1. Down the line, he said, I'll make more level packs and will sell them for $1 as well. Let's do the quick math on this one assuming he will make 4 different level packs: The maximum amount he can earn from a user will be $5 but the average will probably be more like $2. Let's call this one the Average Revenue Per Paying User (ARPPU). With an ARPPU of $2, even if his game is able to convert a whooping 2% of the users the ARPU will reach only $0.04. If this developer would have tried to figure out his target ARPU - $0.04 is not the number he would have returned with - not in a million years.
Another example, is from a developer who thought about selling a "Save Me" cheat in a platformer game with levels. Cheats are very dangerous in F2P games as they can become double edged swords. If you let users buy cheats too easily the game will become too easy and users will lose interest in your game. His thought about selling the "Save Me" was to sell a pack of 25 for $1. My argument was that if someone buys a pack of 25 "Save Me" that will be the last thing he will buy in the game. The game will simply not be challenging enough with so much cheating power. If this is true, then the ARPPU is $1 and even with a maximal conversion ratio of 5% the ARPU will only be $0.05. This is not what his game is worth.
Pricing to Reach a Solid ARPPU
The answer to the pricing question is really dependent on the actual game. You should start by calculating the Target ARPPU. If your want to reach a $0.5 ARPU and are expecting a 2% conversion ratio, your average paying user will need to pay $25 which means that some of them will pay as much as $50 (yes, that happens - get over it). Start by playing around with a few options, test them with users before launch and see what makes sense while using the Target ARRPU as your benchmark. Here are a few things to keep in mind while you do that:
Will be happy to discuss more about this or any other game economy design topic. You can find me at Google Plus Yaniv Nizan, the SOOMLA blog or on Twitter.
This article was originally published on the Soomla Blog - How To Price Your In-App Purchases