Why Increasing DAU Doesn't Always Increase Ad Revenue | DARO

Is the ad market like the stock market?

When I look at the ad market with its rapidly fluctuating supply and demand, I often think it's quite similar to the stock market. Reading the morning market reports explaining the previous day's stock price changes, I sometimes have an "Ah, so that's why" realization, but other times I suspect they're just retrofitting reasons for the sake of an explanation. However, unlike the stock market, the ad market has the distinct advantage of allowing us to look into the causes of its fluctuations a bit more clearly.

Because ad revenue is basically the product of impressions and eCPM, it's easy for many people starting ad monetization to expect that as the product's DAU grows, impressions will increase, and ad revenue will climb proportionately. But just as things in life don't always go our way, ad monetization often doesn't scale linearly with a rising DAU. Fortunately, we can track down the reasons why a bit more clearly, and that's exactly what I want to share today.

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Our DAU went up, so why hasn't ad revenue followed suit?

As I mentioned earlier, revenue changes in the ad market are influenced by just as many factors as the stock market. Nevertheless, I'd like to share a few points to help you better understand the relationship between DAU and revenue.

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The volume of DAV (Daily Ad Viewers)

DAV (Daily Ad Viewers) is a metric that measures how many unique users were exposed to an ad each day. As the quick-witted among you might have already figured out, an increasing DAU very often does not mean a proportional increase in users seeing your ads.

Because most app developers often view ad exposure itself as something that harms the user's product experience, they tend to place ads deeper in the app rather than in the core flow. In this case, even if new users keep pouring in, if those users only stick to the core flow and never reach the screens where ads are placed, your DAU will increase while your actual ad-viewing user count stagnates, keeping your total impressions standing still.

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Demographics of the new users

As we just saw, the number of users viewing ads is important, but who those users are is also a massive factor. Just like the stock market, the ad market has different supply and demand for each country, and since it reflects the economic situation of that specific country, the price measured for the exact same ad placement will vary by region.

For example, India has an overwhelming population of 1.4 billion, meaning if you successfully enter the market, you can secure a huge number of users. However, the ad unit price is incredibly low compared to the US. If your service expands globally and boosts its DAU, but the ad prices in these newly entered countries are lower than your previous average, you can hardly expect revenue to grow proportionally with DAU.

This difference occurs not just across countries, but also across mobile OS platforms. And as the importance of First Party Data continues to rise in the recent ad market, exactly what characteristics your acquired users have is expected to impact revenue even more significantly.

We shouldn't assume every user in our app is the same.

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Differences in user activity

Differences in user activity are another critical factor. Since ad revenue ultimately consists of eCPM and impressions, going beyond just exposing users to an ad screen and looking at how often they visit that ad placement is extremely important. Naturally, a user who opens the product multiple times a day and navigates through various screens will generate more ad revenue.

Therefore, if you achieve a DAU spike through a one-off or short-term promotion, but users don't explore beyond the promotion-related pages, the ad volume exposed per user will drop. In that scenario, expecting a proportional increase in impressions and revenue alongside the DAU bump is unrealistic. That's why looking at ad revenue alongside metrics that represent service usability—like impressions per user, screens navigated per user, and dwell time per screen—is vital to truly understanding what's going on.

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A drop in eCPM

It might sound obvious in a way, but eCPM is an unavoidable factor. Much like the stock market, the ad market strictly follows the law of supply and demand. As a supplier, a publisher ideally wants to sell their ad space at a premium. However, just as stock prices plummet when a flood of shares suddenly hits the market, a sudden surge in your ad placement's impressions can make that placement less attractive to the market, sometimes causing it to be traded at an even lower unit price. (Curious to learn more about eCPM? https://daro.so/)

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So, which metrics should we look at?

Because ad revenue is influenced by such a variety of internal and external factors, I don't think there's a single silver-bullet metric that covers everything. (If you know of one, please get in touch!) But to get a clearer picture of how revenue shifts in response to DAU changes, you can refer to the ARPDAU (Average Revenue Per Daily Active User) metric.

ARPDAU divides your total daily revenue by your DAU, stripping away the noise of DAU fluctuations to show you exactly how the actual revenue per user is trending. Taking it a step further, if you break ARPDAU down into ad impressions per user and eCPM, you can accurately diagnose whether a current shift in daily revenue is genuinely an issue with ad unit prices or an issue with the number of ads being shown to users.

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The ad market ≈ The stock market

Ultimately, just as you can't grasp the entire stock market at a glance, trying to perfectly understand everything in the ad market is impossible. A far more efficient approach is to narrow down the areas you need to focus on as much as possible, find actionable steps within them, and optimize through continuous experiments. Rather than getting bogged down in any specific metric, I'll wrap up this post by recommending that you elevate your understanding of the phenomena through monitoring based on proactive metric design.‍‍

Originally published at https://daro.so.

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