Lifetime Value (LTV) is one of the most important metrics for a mobile game developer to understand in evaluating their game’s potential for profitable user acquisition (UA). The simplest definition of LTV is the amount of revenue generated over the lifetime of a single user in your app. Therefore, should you want to run paid UA campaigns, you’ll want to know if the LTV of acquired users in your game is greater than the cost per install (CPI) of those users. If not, your campaign is unprofitable. The application of the CPI vs. LTV equation and the variables that drive it can be a major source of confusion for those new to paid user acquisition. To make things easier, we offer here a simplified method of estimating LTV that focuses on two key factors: retention and monetization.
To get started, download Tilting Point’s Simplified LTV Calculator spreadsheet below:
In the spreadsheet you’ll need to know and enter some of your game’s KPIs (Key Performance Indicators). For revenue figures enter gross values and the spreadsheet will compute net values after platform shares are taken out. Let’s define the variables.
- In-app Purchase Average Revenue Per Daily Active User (IAP ARPDAU): This is a measure of how much the average player spends on in-app purchases in your game on a daily basis. Take the average daily consumer spend in your game and divide it by the average number of daily active users.
- Advertising Average Revenue Per Daily Active User (Ad ARPDAU): This is a measure of how much revenue is generated from advertising on a per-daily-user basis. Take your total daily revenue generated from advertising in your game and divide by the number of daily active users.
- Day One Retention (D1): This is the percentage of your players returning to the game on the day after install.
- Day Seven Retention (D7): This is the percentage of your players returning to the game on the seventh day after install.
- Day 14 Retention (D14): This is the percentage of your players returning to the game on the fourteenth day after install.
- Day 30 Retention (D30): This is the percentage of your players returning to the game on the thirtieth day after install.
- After entering each value, you’ll see the projected LTV for 90 days, six months and one year of a player’s life inside your game.
How to Use This Information?
While this calculator can provide a good baseline understanding of your game’s LTV and help inform user acquisition decisions, there are limitations. This is a simplified approach that generalizes and extrapolates player behavior after only 30 days. This model does not account for the differences in player behavior between various cohorts of users. For instance, players who download a game because it is prominently featured in the App Store will tend to have a lower LTV than players who intentionally seek out and download your game because it interests them. Nor does this model account for differences based on the player’s platform, geography, demographic, preferences, etc., all of which are very important for large scale UA campaigns. Furthermore, if your game is very viral, you’ll want to consider whether its K-factor should be taken into account as part of your LTV calculation.
Despite these limitations, the simplified LTV estimate you generate here will be useful when making UA decisions. With this knowledge, you will know what is an appropriate CPI target and you will be able to measure the profitability of marketing campaigns moving forward.
If you’d like Tilting Point to take a look at your LTV calculation or have any questions, get in touch with us: