Game devs: 5 things to always remember about LTV
There are a bunch of reasons why LTV is important, not least of which is it’s the KPI that predicts the value of each player and determines how you can maximize spend. Determining LTV is a complex endeavor for many devs, and there are countless resources out there that can guide you on how to do the calculations. But here are a few “big picture” concepts that I think every mobile game dev should take into consideration when determining players’ LTV.
LTV isn’t a “real” number. Don’t forget the “lifetime” in LTV and that calculating it would technically require, well, a lifetime, or short of that a crystal ball. And while generally speaking you can think of it in terms of maximal lifetime, like 180 days or 365 days, waiting that long for data just doesn’t work when you need to monetize. In the early lifespan of a game, LTV is only a prediction, and with many successful games it’s only well-evaluated after live for 30 days.
The magic lies in predicting LTV as soon as possible. While of course it depends upon the genre of the game (in some games purchases don’t happen until late in the game), generally speaking you want to shorten the feedback loop as much as possible. Do your players monetize linearly, logarithmically, or exponentially? Predict as soon as you can so you can adjust your monetization strategy accordingly. You should be able to see if your players pay $0.05/day for 30 days, or if their payments gradually increase from $0.10/day, then $0.20/day and more.
Approach LTV holistically. “Holistic” has taken a lot heat for its ubiquity as a business buzzword, but when it comes to calculating LTV with mobile game players, it’s the right term: you want to account for everything if possible. That includes IAPs, ad revenue per player, and even referrals. The ‘why’ of this isn’t as simple as you might think, however. It’s not just that you want a high LTV, it’s that when you factor in ad revenue in particular with your LTV, you get paid sooner so you get a higher CPI.
Ad revenue and IAPs aren’t entirely discreet. A lot of people assume that ad revenue and IAPs are unrelated, or even that ads can negatively impact IAPs. But really they’re connected, and it can be in a good way: ads can increase IAPs, particularly when the user experience is positive, as is usually the case of rewarded video. It’s actually the case that rewarded video and power-ups such as currency and bonuses can get your players to spend sooner — and that’s always good for LTV.
“Success” can be arrived at in different ways. While of course all game devs need the LTV to be greater than your CPI (on average), after that, the important thing is that your LTV is steady or increasing. There are games with LTVs as low as $0.03 and others with LTVs that are as high as $20. For example, traditionally casual games have low LTVs but a high volume of players while RPGs have very high LTVs but fewer players. The important thing is that your LTV never declines — that’s a sure indicator that something is very wrong with your game, and you should revisit your monetization strategy by understanding your players’ purchasing behaviors and seeing where they drop off. When do they stop spending? Once you understand where exactly LTV drops, then you should test ways to correct it. It could also be the case that they’re just leaving the game, so you have low retention. That’s a user experience issue, so you need to look at your data to see where exactly they’re leaving and then improve your game by creating ways to get them to keep playing.
Again, if you’re a game dev, projecting your LTV is one of the most important aspects of monetization. But it’s important to remember that while it’s not a “real” number, you still want to predict it as soon as you possibly can. Take everything into account when you calculate it, and know that if you use rewarded video ads, they can have a secondary impact on your LTV because they encourage players to make IAPs. Finally, know that when it comes to LTV, you should shoot for the number that makes sense for your game and adjust until you get there.