I have written several times about Moneyball and many times about customer lifetime value (LTV), so I wanted to bring the two together. Moneyball was the Michael Lewis book turned into a successful film about Billy Beane and how he made the Oakland A’s competitive by relying on analytics over intuition (for more detail, please see Lessons from Moneyball for the Social Game Industry and Moneyball Strikes Again). The same principles that help the Oakland A’s compete effectively could help social game companies compete, even against better financed firms. The same phenomenon holds with LTV, in which many of the metrics people focus on do not have maximum impact on long-term success.
Runs = LTV
LTV serves the same role in your business as runs do in baseball. Beane and his analysts realized that the success of a baseball team comes down to scoring more runs than your opponent. They thus reverse-engineered the game and its players into what contributed to scoring runs and what contributed to preventing runs. They then used their resources that maximized the delta between runs scored by the A’s and runs that they allowed. Continue reading “Lifetime Value Part 5: Moneyball and LTV”
I will be speaking today at 11 at Groundwork Labs, the Durham-based technology accelerator, on why companies in any industry need to focus on LTV, the primary levers and its impact on success. Anyone interested and in the area is free to come by. Much of the discussion has been covered previously in this blog, but feel free to check out the presentation on Slideshare:
Retention is one of three components that you use to determine LTV (lifetime value of a customer) and in many ways most important to the success of a product (and the most difficult to improve significantly after launch). Three weeks ago, I wrote about the central importance of lifetime value (LTV) to the success of your game and your company. This week I want to discuss retention, its importance and how you can improve it.
How to define retention
Retention is how often players play your game and thus, also, how long they remain active players. As with all the LTV metrics, different companies use different measures of retention to determine lifetime value.
There are several components of retention for you to track and roll into your LTV formula. Continue reading “Lifetime Value Part 4: The role of retention in LTV and how to impact it”
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. Continue reading “Lifetime Value Part 3: Monetization’s role in LTV and how to impact it”
Last week, I blogged about virality and its importance to LTV. Although I listed some virality variables, it was a relatively high-level look at virality and did not go into detail about calculating it. Alex St. John (with help from Anthony Percorella and Don Alvarez) recently posted a great model that goes into detail on how to measure virality. It also accounts for many variables such as exposure and immunity that I did not discuss. I strongly recommend you read Alex’s analysis and look at the underlying dynamics.
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. Continue reading “Lifetime Value Part 2: Virality’s role in LTV and how to impact it”
The three most important letters for any social game company, and arguably any B2C or B2B company, is LTV, or “lifetime value.” Although most social game industry professionals acknowledge the importance of LTV, they often fail to realize it is the determinant to a company’s, product’s and / or game’s success and survival. It is the primary factor in why companies fail or are sold for tens or hundreds of millions of dollars.
What LTV consists of
LTV is a function that shows the present value of a new customer, how much that customer is worth to your company. Although I will be focusing on its application for social games, LTV can be used for any business, from valuing new customers for a restaurant using a GroupOn promotion, to a car dealer deciding how (and whether) to motivate buyers to visit the showroom. Continue reading “LTV, the lifeblood of your business”