Lifetime Value Part 27: How to know if your advertising is working (with benchmarks)

The key to any successful product, particularly a mobile game, is for your CPI (cost per install) to be less than your LTV (lifetime value of a customer). As long as it costs less to acquire a new customer than they are worth, you have a healthy business. Once the cost of acquiring a new customer exceeds the value of that customer, your product or company will languish and eventually die.

The challenge of computing LTV

While virtually nobody would argue the logic behind using LTV to drive your marketing, implementing it is not always easy. Many companies do not have a reliable LTV formula for all of their products or a data scientist (or team) to create one. New products also do not have enough data to calculate LTV.

Even when you have a reliable LTV calculation for your product, every cohort of user will have a different LTV. Players acquired one month will not have the same LTV as those acquired a different month. Players acquired through one marketing channel will not have the same LTV as players acquired through a different channel. Same can be said for country, marketing creative, platform and many other factors.

You will also not have enough data early in a campaign to calculate LTV reliably. However, you do not want to spend on unprofitable campaigns and you want to support good campaigns with more resources.

The answer to measuring campaigns reliably

The best proxy for understanding if your CPI is below your LTV is ROAS (return on ad spend). ROAS measures how much revenue a certain cohort of users generates over the first X days of acquiring those players (with X normally measured after 3, 7 and 30 days).

While it sounds overly simplistic, short term ROAS tracks very closely with your long-term return, thus whether CPI < LTV. You can be very certain if your 30 day ROAS is performing ahead of target, your acquisition is profitable. Moreover, I have found that even 3 day ROAS is very indicative of long term profitably. I have not yet come across a situation where ROAS has indicated a campaign is profitable for it to falter when analyzed after months or years. I am now very comfortable relying on 3 day and 7 day ROAS metrics to decide whether to continue, increase or decrease spend for a product, specific vendor or campaign.

Benchmarks to target

Without benchmarks, ROAS numbers would be useless. You need to know what numbers to target. As I have been in the social casino space for about five years, I am only comfortable providing social casino benchmarks. When evaluating a product or campaign, I target a 3 day ROAS of 5 percent, 7 day ROAS of 10 percent and 30 day ROAS of 20 percent. For other genres, such as hyper-casual (where you generate most of your return early), your targets would be very different so understand your space before making decisions (actually before launching a product).

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What to do if you are missing your benchmarks

As with all metrics, ROAS provides guidance, not black and white answers. If your ROAS is slightly below the benchmarks, you may not have a problem, it could be noise. If one agency is outperforming another by 1 or 2 percent, again it may not be indicative, it may be luck (one caught an extra VIP). Conversely, if you are missing even by a little, it could be indicative of a deeper issue. A small miss also means that you should adjust conservatively until you see your 30 day ROAS numbers.

If performance is significantly behind ROAS benchmarks, then you need to find the cause. If it is across the board (all campaigns), then your product has issues. You either need to address these issues and improve retention or monetization (the key drivers of LTV and return) or not invest in the product. If the performance is worse on a particular platform, you need to dive deeper into your technical performance on that platform versus other platforms and how the user experience (CX) differs on the underperforming platform. If the underperformance is with a partner or channel, you should adjust your spend to focus where you have a stronger ROAS.

Key takeaways

  1. While the success of any product or company long term is ensuring its cost for acquiring a customer is lower than the value of the customer, it is difficult to calculate in the early days of a product or marketing campaign. ROAS (return on ad spend) based on the first 3, 7 or 30 days of a campaign provides a good proxy for whether the campaign is successful.
  2. In the social casino space (other genres may be different), the benchmark target ROAS is a 3 day ROAS of 5 percent, a 7 day ROAS of 10 percent and a 30-day ROAS of 20 percent.
  3. If your ROAS is underperforming significantly, you need to evaluate if you should continue investing in the product overall or in the specific marketing channels, while adjusting your marketing mix to optimize ROAS.

Key themes in Digital Branding and Engagement

I recently finished a course on EdX, Digital Branding and Engagement from Australia’s Curtin University, and while it had a lot of information that is commonly known, there were also some tidbits I wanted to share.

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You need to engage with, not talk to, your customers

The focus of marketing is now on an engagement model and not a sales model, where you provide actual value to your customer or player. Traditional disruptive one-way advertising messages are being replaced with deeper two-way relationships with consumers. As a business, you have to consistently engage your customers; which requires compelling content that is interesting, creates value, and has opportunities for interaction. A true value exchange is one that creates loyal customers.

A key dynamic driving this engagement model is that consumers are no longer captive. A captive audience is one where a message is created and channeled to consumers who passively receive content. Consumers are now the beneficiaries of a power shift. The power shift is from media companies who used to control what consumers saw, when they saw it, and how they saw it. Now the power shift is with the consumers.

As they pointed out in the course, the notion of captive audiences is one that lives in the past, even in the online environment. There is a growing acknowledgement that marketing has changed more in the past one to two years, than it has in more than half a century before.

To succeed in this environment you need both to communicate interactively and add value. Give them something for interacting. It could be tips, discounts, compelling stories, etc., with the key being it needs to be something they value.

Customers expect communication

Consumers now expect two way communication. When they are dissatisfied, not only will they communicate this to you but they expect a (fast) response. Consumers expect a two-way dialogue with brands and personalized ads relevant to their needs. Even if you are sending a newsletter, it should be personalized based on your customers’ preferences.

Go to the customer, don’t expect them to come to you

An evolving opportunity with social media marketing is participation marketing. With participation marketing, you build a team around an event that is going to happen on social media, then have them talk about it and respond very quickly (Super Bowl, Oscars, World Cup, eSports, etc.). Rather than creating the event, you piggyback on to a topic people are engaged with, connect your product or game with that content, and create a conversation with potential customers.

Once you engage with customers, on their terms, you can then bring them to your assets. Reaching people in areas they are most interested in, engaging them with content that is directly relevant and taking them through to your owned resources.

How to create great content

Unlike the Mad Men era, content is no longer about making the brand look great. Good content is now focused on the customer and not the brand. The key is when creating content you should put people first, with the product in the background. Good content should be focused on the customer, not the brand.

At a high level, there are four keys to creating compelling marketing content:

  1. A brand should start with a clear vision, focus or story
  2. The vision should be set at senior or strategic levels
  3. The vision must permeate all levels of the business and there should be a long term commitment to the strategy with clear objectives
  4. The vision must be aligned with and support a brand’s DNA

Overall, a successful content strategy is clear and aligned internally not only in the marketing department but with all decision makers.

Key takeaways

  • Marketing has evolved to an engagement model, where rather than talking to to your customers you provide them value and engage in two-way communications.
  • Rather than expecting your customers to see your content or visit your owned media sites, you need to reach out to them where they are, for example when they are online discussing a sporting event.
  • The key to creating effecitve content is putting people first, with the product in the background