Step 1: Define Your Monetization Strategy

The first step in computing LTV is to define your monetization strategy. This could include advertising, in-app purchases, subscriptions, or any combination of these. It’s important to have a clear understanding of how you plan to make money from your game, as this will impact the metrics you use to calculate LTV. For example, if you plan on making most of your revenue through in-app purchases, you’ll want to collect data on player spending habits and offer promotions that incentivize them to spend more.

Step 2: Collect Player Data

To compute LTV, you need player data. This could include information such as average session length, engagement rate, retention rate, and conversion rate. You can collect this data through analytics tools, surveys, or user testing. It’s important to have accurate and up-to-date data in order to get an accurate LTV calculation. For example, if you find that your players tend to spend more money when they are playing during certain times of day or on certain days of the week, you can adjust your monetization strategy accordingly to maximize revenue.

Step 3: Determine Your Average Revenue per Player (ARPU)

The next step is to determine your average revenue per player (ARPU). This is the total amount of money a player will spend on your game divided by the number of players. To calculate ARPU, you’ll need to multiply your monetization strategy metrics by the average spending rate of your players. For example, if your players spend an average of $5 per month and you have 10,000 monthly active users (MAUs), your ARPU would be $50,000 per month ($5 x 10,000).

Step 4: Calculate Your Churn Rate

Churn rate is the percentage of players who stop playing your game over time. To calculate churn rate, you’ll need to divide the number of players who stopped playing by the number of players who started playing during a specific period. For example, if you have 10,000 MAUs and 2,000 of them stop playing each month, your monthly churn rate would be 20%.

Step 5: Calculate Your LTV

Now that you have your ARPU and churn rate, you can calculate your LTV. To do this, multiply your ARPU by the length of time a player is expected to stay engaged with your game, minus the expected churn period. For example, if your ARPU is $50 per month and you expect a player to stay engaged for an average of 12 months before churning, your LTV would be $600 ($50 x 12 – 24).

Step 6: Optimize Your Monetization Strategy

Once you have your LTV calculation, it’s time to optimize your monetization strategy. This could involve testing different pricing models, adding new in-app purchases, or adjusting your advertising rates. The key is to find a balance between maximizing revenue and keeping players engaged. For example, if you find that players are more likely to churn after they reach a certain level of spending, you may want to offer them promotions or discounts to incentivize them to continue playing and spending.

Case Study: Candy Crush Saga

Candy Crush Saga is one of the most popular mobile games of all time, with over 50 million daily active users worldwide. The game generates revenue through in-app purchases, advertising, and special events. To calculate LTV, we’ll use the following metrics:

• ARPU: $0.74 per day
• Churn rate: 12% (this means that on average, 12% of players stop playing each month)
• Average engagement period: 12 months

First, we’ll calculate ARPU: $0.74 x 10,000 MAUs = $7,400 per day or $2,679,360 per month. Next, we’ll calculate expected churn: 12% of 10,000 MAUs = 1,200 players.