Monetization is one of three components that you use to determine LTV (lifetime value of a customer) and is the one that is the easiest to improve. Two weeks ago, I wrote about the central importance of lifetime value to the success of your game and your company. This week I want to discuss monetization, its importance and how you can improve it.
How to define monetization
Monetization at its core is how much money an average player spends in your game. As with the other two components of LTV, there are different facets of monetization that you can use to create a more accurate calculation. With all monetization measurements, you need to incorporate all revenue, including revenue that does not come from in-app purchases (e.g., advertising revenue, subscription revenue) to get a true picture of monetization and LTV.
The primary metric for monetization is ARPDAU (average revenue per daily active user) but there are several other metrics that together can help you get a more robust LTV calculation. ARPDAU is an effective metric because allows for the analysis of a game’s revenue and growth at the per-player level, which can help you identify which games are high or low revenue-generators. Overall, looking at revenue by DAU rather than monthly users or unique users is also more accurate because DAU over time is a better reflection of true usage rather than short term infusion of players by different marketing approaches. The ARPDAU equation is pretty straightforward, total revenue divided by unique users for the day. Thus, if your game generates $100 and has 1,000 players, your ARPDAU is $0.10.
There are several other monetization metrics that can help you build a more accurate LTV. These include (but are in no way limited to):
- ARPU = average revenue per user per month
- Number of repeat purchasers
- ARPPU = average revenue per paying user per month
- Percentage of paying users out of total users
- ARPDAU / DAU = ratio between average revenues per daily active user and daily active users
- Time from free to paid user t{free –> paid}
- Number of players viewing buy page and not converting
- eCPM (if you are generating advertising revenue)
- Time a user will spend money
- Time from first playing the game to first monetization
- Average interval between monetization events per player
- Average number of monetization events per player
- Average transaction
- Split between high-value, medium-value and low-value players
The importance of monetization
This is going to be a short section as most people realize if people do not spend in your games, you do not have a company. As discussed in my first post on LTV two weeks ago, monetization is one of the three categories (along with virality and retention) that determine the value of a player and thus justify whether they are worth the cost of acquiring. If monetization is low or non-existent, there is no profitable way to maintain your game.
Improving monetization
There is no area of LTV that has generated more attention and theories than monetization. There are many different techniques you can use to impact your monetization, depending on the type of game and where the monetization problems lie. Rather than putting together a comprehensive list, below is a prioritized list of the buckets you should look at to determine where you can have the greatest effect on monetization.
- Balancing. Balancing is one of the biggest determinants for a game’s success and the desire for players to monetize. By balancing, I am referring to the price level of virtual goods (both consumables like energy and durable goods like buildings). It also refers to the conversion rate between premium currency and real money. There needs to be enough friction in the game so the player feels as if they are accomplishing something by progressing and where they will progress faster by monetizing.
- Improved impact on gameplay. Virtual goods that impact gameplay sell much better than purely decorative items. Improve the benefits to the player from making a purchase, though always keep balancing in mind.
- More or better virtual goods. Sometimes there are simply not enough items for players to buy or they are not very attractive. Given that a small portion of your players will spend real money, you need to allow them to spend as much as they want to offset the non-paying gamers.
- Limited edition items. Even virtual goods are sometimes more appealing if there is limited availability. Offer items for only a few days or hours or set a maximum number of units that you will sell.
- The shopping experience. There is a reason Walmart is worth billions and Kmart is worth less than the real estate it is located on, Walmart is a much better shopping experience. The same goes for the virtual world. Create a secure, attractive virtual store and shopping experience so the player is more comfortable making a purchase.
- Calls to buy. Ensure there are sufficient prompts in the game o encourage players to monetize. If the player runs out of energy, remind them that they can purchase additional energy. If the player has just leveled up, ask him to reward himself by buying a limited edition item.
- Promotions and sales. Offering items or premium currency at a discount almost always provides a short-term boost in revenue. That said, it does not fix underlying problems and often comes at the expense of future monetization.
With all of these areas, you should A/B test before implementing changes to all players. Some changes that logically feel like they will improve monetization may have the opposite effect. Also, a change that improves monetization may have a negative impact on virality or retention (or both), that offsets the positive change and lowers LTV.
Monetization does not exist in a vacuum
Although monetization is a central element in lifetime value, it is not the only determinant. You can have a game with great monetization but if it has awful retention it would still be a failure. If your game is not profitable (or even if it is), look at all the elements of LTV and determine where you can have the greatest impact. Your goal is to increase LTV, not simply monetization.
The Business of Social Games and Casino 
I think you are missing several key points.. If gamers were able to trade a virtual item after purchase, thus feeling more comfortable making their first purchase, don’t you think a greater percentage of gamers would spend real money? Moreover, if a gamer could convert one games currency into another, thus increasing the utility of that virtual currency, do you not think more gamers would spend real money knowing they could swap into another game?
LikeLike
In my experience, efforts to expand the pool of paying players has not generated nearly the returns as better monetizing players who are already playing. Most visualization of monetization activity has a heavy tail distribution and I think that is the underlying nature of Free-2-Play games, trying to move it into a normal distribution is like acting against the law of physics. Regarding moving currency between games, I was a big advocate two or three years ago but again every effort to do it has failed. The most glaring is Facebook credits. The promise there was people would monetize better because they could use them in any game that took FB credits. The reality was all the games that I saw that had a deep integration of Facebook credits (where Facebook credits replaced the premium currency) saw at least a 25 percent drop-off in ARPDAU and most were over 30%.
LikeLike