Working on mobile F2P games comes with a myriad of KPIs (key performance indicators). And often the relationships between these factors are more important than the values per se.
Being active in this industry will give most people a feeling of these KPI relationships. But for people that, love to hack their way into understanding these concepts here it goes Daantje(TM) LTV simulation exercise.
Since I want to go into depth, this is a 2-part post. In this first part, we’re going to break down some terminology and set up a scenario that we will use in order to reason about and understand these concepts.
LTV, ARPDAU, D30, CPIs – Definition time!
LTV is lifetime value. This is the estimated value that you expect to extract from the player. It makes more sense to couple this lifetime value with a number of days during which the user interacts with the product (the game in this case). This enables us to study whether we are on the right track, and to reason about the product.
So, LTV365 is the expected (read average) value or revenue we get from a player after 365 days or 1 year after coming into contact with the game for the first time.
Retention is a measure that will tell us how the players will keep interacting with the game. Day 1 retention (D1), is a percentage of how many players returned to the game after launching it for the first time (D0). The higher the retention, the better because it means that players keep coming back, so there is something about the product/game/app that motivated them to return.
ARPDAU is average revenue per daily active user. This metric is very convoluted. By itself, it doesn’t say much. An ARPDAU of 2€ says very little. If you have a restaurant and DAU (daily active user), is the number of customers that walk in, 2€ ARPDAU might leave you bankrupt. For a mobile game, if you create a compelling title where on average you get 2€ per daily active user then you might have struck gold.
CPI is the cost per install. Lately, User Acquisition (UA), is an integral part of the business model of scaling F2P mobile games. And with more and more publishers paying to acquire users, the market is getting more and more competitive, and the cost per install and acquiring a new player is going through the roof.
So User Acquisition works just like the old fashioned advertisements. You pay upfront, to get customers/players/users walking in, and hopefully, those that convert (end up buying something), will make up for the price of the advertisement and yield some extra revenue. So it’s an upfront investment and in order to minimize the risks associated with this investment, we have to study and predict how we will make the money back with a profit.
Becoming the next Warren Buffet
According to Forbes (https://www.forbes.com/sites/gurufocus/2018/06/29/warren-buffetts-portfolio-stumbles-in-first-half-2018/#27df659c2809), “Buffett is considered one of the best investors in the world, swelling Berkshire’s stock price by 20.8% per year from 1965 to 2016.”
So, let’s become the Mr. Buffett of mobile games! The target is set and we want to get a yearly return on investment (ROI), of 20.8%.
We’ve built an amazing Strategy game that we think players will love, but the competition is fierce. And now we will have to analyze how much it costs to get a user.
After doing some market research, we see that some CPI for our genre in the US (our biggest market), is 2.22$ (or around 2€).
The next step is to simulate and set our retention and monetization targets in order to achieve our target ROI of 20.8%.
Check the second part of this post on How reasoning about LTV, ARPDAU, and CPIs can help product development strategy (Part 2) for the next part of this series.
If you like it so far let me know. If you would like me to give a talk/workshop at your organization, please reach out.