Calculating LTV in Freemium Games

Social gaming has become a space where advance analytics dictates the direction of design, and development.  LTV (Life Time Value) is a metric executives use to understand the value of their product.

 Product Managers are usually stern on the importance of designing a game around LTV for the benefit and the longevity of the application. These revenue based concerns have put a strain on the creativity side of things as of recent, game designers and producers feel confined within a box to be creative are getting tighter and tighter.

Companies that manage to fosters these types of development environments are usually the ones that are ahead of the pack in terms of mobile innovation. Product managers monitor the kpi’s very closely to make sure that ROI, far exceeds the expected numbers.  A good Product Manager will always, under promise and over deliver with any type of freemium game.  This is done by making sure that, on release, he or she has enough levers (design features) to push and pull the users to comeback and possibly monetize them during the process.

LTV is case by case with scenario due to the complexity of calculating LTV.  In laymans terms we are effectively trying to come up with a whole number that represents a cohort of user behavior. Imagine all the assumptions that are comprised of this one value…

For the purpose of simplicity and staying within the confines of the mobile gaming space, this post will look a common method mobile gaming companies utilize LTV to maximize their ROI.

To start user, acquisition (UA) in the mobile space will always be a concern as this open market model Apple and Google have created becomes more and more competitive and saturated.  LTV helps Product Managers understand the effectiveness of the companies UA strategy by segmenting LTV based on each and every community they are coming from. Because of the Open market model, we can assume that niche markets are segmented all over the internet.  Whether it be sports related communities or specific game communities.  

In the UA platform space, Cost per click (CPC) or Cost per Action (CPA) are the most common options provided for advertisers that are looking for users to populate their games.

This means that analyzing the type of users that are coming into your game via UA becomes a major factor in maximizing your marketing spend.

Enter LTV.

LTV will help evaluate the effectiveness of users coming in from specific communities by:

  • Non Paying or Paying Users
  • High Retaining Users vs Low Retaining Users

This would require analysis on what types of players that are actually downloading and playing your application.  Segmenting your communities when performing your UA strategies is recommended so that your marketing dollars are going in the right place.

You can calculate LTV using the below equation:

LTV = ARPDAU (Average Revenue Daily Average User) * Lifetime

How do you calculate lifetime?

This is a good question and lifetime can be determined on many different variables. This can be a 7 Day moving Average or a 180 Day Moving Average. Depending on the stickiness of your game (Take a look at your retention level) or application, its most likely you’ll a long tail graph after 60 or 90 days that will only influence your LTV by the penny.  Thus keeping it within 7- 60 day may be the most appropriate way to segment your LTV.

By providing the effectiveness of LTV per UA platform, the marketing team should maximize any UA platform that contains the following equation:

LTV > CPI

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  • 15+ year mobile application industry veteran, probably product managing multiple apps. If he's not busy running this website, you can probably find him at the gym shooting half court shots, while playing the latest mobile rpg game.

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