Mobile games have become a huge industry, and their popularity is expected to continue growing in the years to come. But for mobile developers, it can be difficult to measure the success of their games and to determine their return on investment. One way to do this is by calculating the lifetime value (LTV) of your mobile game.
What is LTV?
Lifetime value refers to the total amount of revenue a customer will generate for a company over the course of their relationship with that company. In the case of mobile games, LTV refers to the total amount of money a player will spend on the game over time. This can include in-app purchases, ads, and subscriptions.
Why is LTV important?
Calculating the LTV of your mobile game is important because it helps you understand how much revenue you can expect to generate from each player over their lifetime as a customer. This information can be used to make informed decisions about marketing, development, and monetization strategies.
How to calculate LTV
There are several methods for calculating the LTV of a mobile game, but one of the most common is the cohort analysis method. This involves segmenting players into different groups based on their behavior and then calculating the average LTV for each group.
Calculating LTV using the cohort analysis method:
- Identify the metrics you want to use to segment players. This might include time spent playing the game, number of purchases made, or total amount spent.
- Calculate the average revenue per user (ARPU) for each segment. This is the total amount of money generated from a group of users divided by the number of users in that group.
- Estimate the churn rate for each segment. The churn rate is the percentage of users who stop using the game over time. You can estimate this based on historical data or by conducting surveys.
- Calculate the LTV for each segment using the following formula: LTV = ARPU * (1 – churn rate)^number of periods. In this formula, “number of periods” refers to how long you expect a player to continue playing the game.
- Sum up the LTV for all segments to get your overall LTV.
Case study: Calculating LTV for a popular mobile game
Let’s take a look at an example of how to calculate the LTV for a popular mobile game, Candy Crush Saga. According to a report by Sensor Tower, Candy Crush Saga generated $1.3 billion in revenue in 2018, making it one of the highest-grossing mobile games of all time.
Calculating LTV for Candy Crush Saga:
To calculate the LTV for Candy Crush Saga, we can use the cohort analysis method. Let’s assume that we have segmented players into three groups based on their behavior: high spenders, mid spenders, and low spenders. We have also calculated the ARPU and churn rate for each group.
High Spenders:
* ARPU: $20 per month
* Churn rate: 10%
Mid Spenders:
* ARPU: $5 per month
* Churn rate: 20%
Low Spenders:
* ARPU: $1 per month
* Churn rate: 30%
Using the cohort analysis method, we can calculate the LTV for each group as follows:
High Spenders:
* LTV: $2,400 ($20 * (1 – 0.1)^12)
Mid Spenders:
* LTV: $600 ($5 * (1 – 0.2)^12)
Low Spenders:
* LTV: $300 ($1 * (1 – 0.3)^12)
Finally, we can sum up the LTV for all three groups to get our overall LTV:
Overall LTV: $4,300 ($2,400 + $600 + $300)
So, based on these assumptions, Candy Crush Saga has an estimated LTV of $4,300 per player over their lifetime as a customer.
Real-life examples: How mobile games are using LTV to make informed decisions
Many mobile game developers are using LTV to make informed decisions about their games and to optimize their monetization strategies. Here are a few real-life examples:
- Clash of Clans: Supercell, the developer of Clash of Clans, uses LTV to inform its advertising strategy. According to an interview with Pekka Rautio, CEO of Supercell, the company spends more money on advertising players who have a high LTV because they are more likely to make in-app purchases and contribute to the game’s revenue.
- Angry Birds: Rovio, the developer of Angry Birds, uses LTV to inform its decision-making around new levels and features. According to an interview with Peter Vesterbacka, CEO of Rovio, the company releases new levels and features that are likely to appeal to players who have a high LTV because they are more likely to generate revenue for the game.
- Candy Crush Saga: King, the developer of Candy Crush Saga, uses LTV to inform its decision-making around promotions and events. According to an interview with John Skewis, CEO of King, the company runs special promotions and events that are likely to appeal to players who have a high LTV because they are more likely to generate revenue for the game.
FAQs:
* How often should I calculate my game’s LTV? It’s recommended to recalculate your game’s LTV regularly, at least once a month, to ensure that you are up-to-date on your players’ behavior and to make informed decisions about your monetization strategy.
* What metrics should I use to segment my players? The metrics you use to segment your players will depend on the goals of your game and your monetization strategy. Some common metrics include time spent playing, number of purchases made, and total amount spent.
* How do I estimate my churn rate? You can estimate your churn rate based on historical data or by conducting surveys. It’s important to regularly monitor your churn rate and make adjustments to your monetization strategy as needed to reduce churn.
* Is LTV the only metric that matters for mobile games? While LTV is an important metric for understanding the revenue potential of your game, it’s not the only one that matters. You should also track other metrics such as user acquisition cost (UAC), retention rate, and engagement to get a complete picture of your game’s performance.
Conclusion:
LTV is a crucial metric for mobile game developers to understand the revenue potential of their games and to make informed decisions about their monetization strategy. By calculating your game’s LTV regularly and using it to inform your decision-making, you can optimize your monetization strategy and maximize your revenue.