Because the iOS and Android marketplace is insanely competitive today (and I would say that ‘competitive’ is an understatement –an all-out blood bath is a better term), you need to know one metric to help you understand how your game makes money while providing you with the knowledge you need to put your game ahead of your competition, thus raking in profits and downloads as a result. What’s the metric called? Customer Lifetime Value (CLV).
What’s so important about knowing the CLV of your indie mobile game? For starters, the CLV measures approximately the average amount of money a customer will bring to your game. It’s also important because CLV allows you to discover a proper brink for your user acquisition activities known as CPI (more on that in a moment), and without question, your acquisition costs must be lower than your earnings. Common mathematics to be sure: if you are spending more money than you are making, you’re losing money.
There are many formulas you can use scattered across the Web to help you to discover a particular customer’s CLV, thus allowing you to better understand how CLV works. Yet, when you are dealing with thousands of transactions and many different customers for your mobile game, you need to find the actual average CLV. This allows you to discover how much money the average customer is bringing into your game, resulting in you being able to know the average worth of every customer. It’s pretty easy to wrap your head around. For example, if the average customer spends only $5 on your game, you can assume that the average customer is only worth $5.
So you have the CLV for your mobile game. You now realize how much money you can expect from a single customer, so what can you do with this data? Move forward in obtaining new customers, because now, you have a threshold for how much your Cost Per Install (CPI) can actually be before you begin losing a profit.
What is the CPI? It’s a pretty simple concept: it’s the amount you can spend per new customer (or ‘installation cost of new customers,’ so to speak). For example, if the average customer is spending $6 on your mobile game, you need to ensure that the cost per obtaining new customers is on the average under $6 (perhaps $3 – $4). Thus, you need to make certain that you can obtain new customers for under $4 per customer, resulting in every new customer bringing you at least a profit of $2.
Now comes the hard part: finding ways to obtain new customers for under $3 – $4 per customer. You could test out different ad networks while keeping the bids for different ad campaigns within your CPI limit. From there, you will be able to find out what the Cost Per Click (CPC) for your mobile game actually is by discovering the conversion rate for how many clicks an ad gets, and how many people actually purchase the game after the click. It’s another layer of information you can use that will help you to be profitable if you want to continue running ad campaigns.
Is there a way to decrease your CPI to ensure you can rake in a bigger profit per customer? There certainly is. In terms of ads, you can improve your conversion rate between the CPC and CPI. You can also add various viral mechanics into your game, such as integrating Facebook invites or Game Center support. Thus, this increases the chances of your current players inviting their friends, having them install the game, and therefore lowering the average CPI.
Speaking of viral mechanics in your mobile game for a moment, there is actually a way to measure the virality of your game, known as k-factor. K-factor measures the new installs of your game that stems from a current player (known as free installs). For instance, if you notice that on the average, two viral installations stem from every four regular customers, then the k-factor for your game is 0.5. Thus, your CPI is decreased, meaning that on the average, you are making more of a profit than before.
While I’ve discussed CPI, CPC (along with the principle of conversion rate for CPC), and k-factor, the main point to take away from all of these terms and ideals is this: none of this matters if you do not know the current average Customer Lifetime Value (CLV). By knowing the CLV of your average customer, you can then figure out all of these small details that will allow you to keep the amount of obtaining new customers below the average amount your current customers are sending your way, thus always earning a profit while figuring out ways to earn bigger profits.
Is it confusing? Absolutely – especially for those of us that were terrible at mathematics in high school and college (such as myself). Yet, consistently knowing the CLV of your game is vital to not only your mobile game’s success, but also your career as a mobile developer. You enjoy what you do, right? Ensure it remains possible and you continue making awesome games for years to come by always being ‘in the loop’ regarding your average CLV!