Virality is one of three components that you use to determine lifetime value of a customer (LTV) and is the one where small changes can have the greatest impact. Last week I wrote about the central importance of LTV to the success of your game and your company. This week I want to discuss one of the key elements of LTV, its importance and how you can improve it.
How to define virality
Virality can be defined as the number of new players an existing player recruits (for free), and is often referred to as a “K-score” or “K-coefficient.” The viral coefficient K is usually calculated as K=i*conv% (conversion percentage), where “i” is the number of invites sent out by each new customer and “conv%” is the percentage of invites that convert into costumers.
Although calculating the K-score seems pretty straightforward, there are many different measures you can use in your LTV calculation. In a future post, I will detail how lifetime value is calculated, but I can only provide a framework, as companies calculate it differently based on their priorities and needs. There is no perfect formula and you will always be adjusting your formula to get a more accurate picture of your player’s lifetime value.
The K-score is a time- and cohort-dependent variable. Thus, based on the earlier equation, you may measure i*conv% over the life of the game, over a month, over a week or simply in one day. You may also want to use a combination of these metrics, for example both 1-week K-score and lifetime K-score. A related measure to track that could be incorporated into your LTV is Viral Cycle Time, that is how long it takes for a user to bring in another player (and another and another); the shorter the cycle time, the quicker your growth.
The importance of virality
There are several reasons why virality is crucial to the success of your product. As discussed in last week’s post, virality is one of the three categories (along with monetization and retention) that determine the value of a player and justify whether s/he is worth the cost of acquiring.
By bringing in new users at no additional cost, virality lowers your average cost of acquiring a player. Since your decision on whether to advertise is effectively whether the cost of acquiring a new player is less than the value of that player, if you lower the cost of acquiring the new player it is easier to reach the revenue threshold to justify advertising. As an example, assume you have to pay $1 to acquire a new player. Now assume that player spends $0.75 over their lifetime in the game. If there was no virality, you would be losing $0.25 on every new player and it would be irrational to advertise. However, if you had a K-score of 1, then every player you pay to acquire brings in one additional player. You are effectively getting two players for that $1, thus your cost of acquiring each player is $0.50. If the lifetime revenue remains constant at $0.75, now you are making $0.50 on every marketing dollar, a 50 percent margin. In the latter case, you would continue to advertise, grow your game and your business. With zero virality, your game would be dead.
Virality can also have an exponential effect on your game, growing it by orders of magnitude. I will not detail the underlying math behind threshold (or tipping point) theory but unlike other variables, virality does not grow in a linear fashion. A small improvement to virality could mean the difference between a K-score of 0.2 and a K-score of 1. This phenomenon occurs because virality starts to feed itself and creates a loop that leads to explosive growth. A great example of this is how a contagious disease, such as the flu, spreads. Initially, only a small percentage of the population may catch it. If that number stays small, so few people connect with each other the disease remains manageable. But if you hit a certain point (called a threshold or tipping point), then almost everyone starts to come into contact with the disease and it infects the entire population. The exact same principle applies to virality as it affects your LTV.
Virality is one of the components of LTV that is easiest to impact. Although virality is somewhat contingent on the platform, there are certain things you look at to impact it quickly. First, remember the basic equation for virality: K=i*conv%. Thus, you will increase virality by increasing i (the number of invites a players sends out) or the conversion rate (success) of the installs.
To increase the number of invites sent, start by ensuring players send out invitations as early as possible in their gameplay experience. In any game, you will quickly lose a percentage of players, either in the tutorial or after the first session (I will discuss retention in a future post). If you “encourage” all players to send out invites when they first enter the game, you then get value from the player even if s/he leaves after one minute and never returns. If players invite enough people (who then accept the invitation), you can justify their acquisition cost even if they almost immediately leave the game and do not spend a penny, because of the value of the players they invite. In my experience, we tried to encourage people to send out invites at least four times in the first session of gameplay.
To encourage players to send out more invites, there must be justification for sending the invite. Ideally, both the player and the invitee will benefit from sending the invite. You can reward the player with gifts, currency (premium or standard), energy, etc. You can give the same—or different—awards to recipients, so the player feels they are actually helping their friends rather than spamming them. You can provide further incentive for sending the invite by incorporating reciprocity, in which the recipient is then encouraged to send a gift back to the sender, creating a virtuous cycle.
The other element of the K-coefficient equation is conversion rate, which can be impacted largely by focusing on improving the quality of your communications. The tone of your communications should be lively and interesting, so recipients are more likely to read and respond to them. Zynga had tremendous success when they made the Frontierville invites racy with sexual innuendo. This tactic would not be appropriate for all (or many) social games but shows that creative writing can have a strong impact on virality.
Catering to users who send out hundreds or thousands of invites is as important as catering to your highest spending players. Just as you will have some customers who spend orders of magnitude more than others, you will also have players who bring in orders of magnitude more new players than is typical; I call these players “viral connectors.” These connectors have a huge impact on your lifetime value as they can significantly impact the K-score.Just as you build a game to cater to your high-spending customers and also often provide them with superior customer service, connectors need the same level of love.
Virality and success
As we have discussed, virality is one of the three determinants of LTV. It is also the easiest to boost and can help turn a failing game into a success.
2 thoughts on “Lifetime Value Part 2: Virality’s role in LTV and how to impact it”