Mastering Retention Blog
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UA vs LTV. Which is more important?

If you’re in the gaming industry, you understand the hustle of User Acquisition. You know that acquiring users is the greatest challenge studios are up against – and you know that it’s a challenge that demands endless resources.

Mike Moran by Mike Moran

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If you’re in the gaming industry, you understand the hustle of User Acquisition. You know that acquiring users is the greatest challenge studios are up against – and you know that it’s a challenge that demands endless resources.

So much of our time and resources are dedicated to UA. And for good reason. Without a steady stream of users, your game is toast. Today I want to encourage you to keep focusing on UA, but also help you understand how important some other metrics are for the success of your game.

Because without these other metrics performing well - your game is still toast.

So, if you’re of the mindset that UA takes priority – and everything else can wait to get your attention – you’re in for a rude awakening. Because here's the thing about players - their lifecycle isn’t limited to a first-touch checkmark. Getting them into the game once isn’t enough to keep them coming back.

So although you've successfully attained them, retention and LTV is really where the bacon is.

Sorry for all the breakfast puns. Apparently, I'm really hungry while writing this.

You need to be capitalizing on the lifetime of the player. The lifetime of excitement and engagement, and the long-term spending that can come with it.

What I'm trying to say is - don't forget about how important retention is and always keep a steady pulse on the lifetime value (LTV). Sure UA is needed, but it's only part of the puzzle. 

So, if you’re ready for that burst of insight (and profitability), keep reading. This article will break it all down – explainers, strategies, and all – so you can make magic happen. 

Let's get to work.

What is First-Time Purchase?

A lot of studios focus on two different metrics. UA and FTP. Basicallly, how much does it cost to get new players. And then how much do we make after their first purchase.

It's simple math, but short-sighted.

So before we get into Lifetime Value (LTV), we first need to understand what we’re walking away from. But let me be clear, we’re not walking away from FTP as a standalone metric – we’re walking away from using FTP as the only complement to UA for understanding the health of your game. 

Okay, but… why? To answer that, we need to answer a few fundamental questions: 

  • What is the First-Time Purchase model of understanding? 
  • Why do studios give it so much attention? 
  • Is it really an essential metric for gaining insight and upping monetization power – or does it just have the right marketing team behind it? 

What is the FTP metric?

The FTP metric – also known as the Time-to-Purchase metric – tells developers how long it takes for their users to make a purchase after entering the game for the first time. Sometimes articulated through days and sometimes articulated through play sessions, this quantifiable piece of intel is important for two reasons:

Reason #1:

Since the first purchase is the hardest purchase to get users to make, it lets developers see where their players land on the commitment scale. How quickly do they decide they’re willing to invest in the gameplay experience? How quickly do they decide they don’t just like the game enough to spend their time, but they like it enough to spend their hard-earned money?

That commitment matters. It’s much easier for a player to walk away from a game they haven’t committed to (via a purchase) than it is for them to walk away after they’ve infused cash into the experience – so it’s clear that churn feeds on untethered players. Knowing this, FTP helps developers take note of where they fall on the churn potential scale. 

If we’re predicting churn rates, a game where most players (who wind up spending) are playing for days or weeks before they make that initial purchase will have a higher rate than a game where players tend to spend in their first session. The longer the average player takes to decide, the higher the potential for them to churn is. So, by getting a clear read on how players are reacting – and committing – to the game, developers are able to implement strategies that speed up conversion, decreasing the likelihood of wide-scale churn.

Reason #2:

By zooming in on when players make their first purchase, developers are given a boatload of actionable information about a) the players and b) the elements of game design. 

  • Players: From a segmentation standpoint, grouping players together based on how quickly they spend – and how much they’re willing to spend right off the bat – allows developers to get to know their player segments more deeply. Then, they can use that understanding to develop and target more personalized content (at more personalized price-points) later on.
  • Game Elements: From a development standpoint, being able to identify the points (features, events, or levels) that convert early players – as well as the points that don’t – gives studios data to steer their next steps with. Whether it’s overhauling content that isn’t performing as expected or further optimizing content that’s producing the best results, understanding where players are buying in, specifically, is invaluable to the adjustment phase.

So yeah: it’s clearly not just good marketing that earns the FTP metric its reputation. There’s no question - tracking FTP helps studios figure out whether their content is performing as planned, whether their audience is more or less likely to churn, and whether their game is operating at a baseline sustainable pace (given its UA efforts). Just like I’m not here to dispute the merits of UA, I’m also not here to dispute the merits of FTP.

But I am here to bring a healthy dose of devil’s advocate monologuing to your attention. 

What if you had a game that was bringing immense numbers of players into the app? What if your UA efforts were working as planned, and your FTUE was through-the-roof engaging? What if you were tracking your FTP, and it was showing you that over 90% of your players were converting in their very first play session?

From those metrics alone, your game screams vitality. Your game is conveying health and promise, and your team is happy-dancing about seeing – actually seeing – the fruits of their labor. 

But here’s the thing: if those are the only variables you’re looking at, if those are the only variables you’re putting your horsepower into optimizing, then you’re exposing yourself to risk. Major risk. Because what happens after your players convert in that first play session? What happens when they move beyond the FTUE into level 3, or 8, or 29? 

If you’re only interested in how long it takes for them to make their first purchase, that means you’re not interested in their experience after the transaction. That means you’re not interested in their post-purchase delight. 

How long will they keep on playing for? How long will it be until their next purchase? How long will it be until they lose interest and move onto the next game?

Without retention, your UA efforts are meaningless. Without retention, your FTP metrics don’t matter one bit. Without retention, your ability to monetize sustainably – to stay profitable – goes out the window. 

retention-meaningless-liveops-userwise

Like I said: major risk. So… how do you mitigate it? How do you make sure your UA efforts have an insurance policy under their sails and your FTP metrics don’t become obsolete by Level 3? The answer is simple: by focusing on the full gamut of your players’ journey. By taking a step back and caring just as much about their experience on D30 and D60 as you do about their experience on D1. 

Without keeping them happy beyond that first purchase, your game’s health will nosedive – of that, I’m sure. So keep FTP as an intel-giving messenger, but don’t let it eat up all of your resources. Think bigger, push harder, and focus on the longer-term. On the lifetime.

Which takes us to Lifetime Value – so buckle up.


Understanding Lifetime Value

Let’s set the scene: an existing customer is 5x as likely to buy from a business as a new one. A business is up to 50% more likely to succeed at selling to someone who’s already made a purchase than to someone who hasn’t.  

Acquisition costs you 5x as much as retention. The longer you can keep a customer around, the more value they’ll give you. And perhaps most stunningly: a 1% increase in retention rate can translate into as much as an 18% increase in yearly revenue. 

Those stats paint a vivid picture: reaching your profitability potential has never been about merely getting players into the app. It’s been about your ability to keep them there. To keep them excited, to keep them engaged, and to keep them spending. By not focusing on retention, you’ve been shooting yourself in the foot (five times over). 

Which is why it’s so crucial you get to know Lifetime Value. 

The metric that tells you the total monetary value of a single user over the whole time they’re playing the game, LTV arms developers with the kind of magnifying glass that reveals the nitty-gritty behind all of their efforts: acquisition, retention, and monetization. If their LTV is strong, their component pieces are working together well; if it’s leaving a lot to be desired, it’s time to double-back and investigate where things go wrong.

To make things easy: you should be thinking about LTV as the performance metric of all performance metrics. 

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Why? Because it gives you the data you need to determine whether you’re progressing the way you want to be, but more than that, it gives you a working doctrine for how to allocate your spending. How much should you be investing in UA? In marketing? In your re-engagement strategies? With LTV serving as your GPS, you’ll know the routes you’re primed to take – and the danger zones to avoid – as you move closer and closer towards your goals.

But what does that really mean? What does tracking LTV actually convey – in practical terms?

  • Profitability: When you know your game’s LTV, you can then estimate how profitable it is – both regarding its market positioning today and its traction potential in the future. Whether that helps you secure outside investments, fatten up your team of talent, or hunker down and redirect your focus, having a clear, evidence-backed picture of your earning pace is vital to making informed decisions.
  • Optimization: With LTV giving you a coherent read on whether your should-be revenue sources are performing as expected or not, you’ll have the intel you need to adjust your tactics for optimal returns. That could mean going back to the drawing board for your marketing strategy or executing slight tweaks on your targeted offers – whatever it is, tracking your LTV in real-time gives you the power to maximize your earning power.
  • Acquisition: The golden rule in game development is to never spend more on a player than you can expect to earn from said player over their lifetime. But, in order to actually abide by it, you’ll need to know what you can expect to earn. Enter LTV. It gives you that value estimate in no uncertain terms, allowing you to pinpoint the threshold for what you should be spending on UA. Then, as it increases, so too can your UA spend. Valuable, isn’t it?

never-spend-more-on-a-player

  • Segmentation: In today’s industry, good games offer great content and great games offer personalized content. That means the more you know about your players, the more you can mold content that delights them. When you track LTV, your ability to hone in on your most devoted players’ behavior – and optimize according to their tendencies – skyrockets, benefiting their experience and your monetization capacity. (Plus, when new players enter the game exhibiting the same early antics, you can identify them as future repeat spenders. And target them accordingly.
  • Engagement: Nobody gets it right the first time around, which means you need the right analysis tools in your corner. With LTV, you have the ability to put out fresh content and track your players’ responses to it – showing you not just whether it’s hitting the mark (or not), but by how much, in quantifiable terms, it’s raising the bar. Beyond just content, you can apply that same logic to tweaks in economy, marketing, and whatever other strategies you’re wielding for engagement.
  • Potential: And then there’s the uncertainty that comes with releasing a new game blindly. How do you combat it? Well, the advantage of being able to determine whether or not it has real potential while it’s still in beta doesn’t hurt. By leveraging LTV, you have the power to evaluate whether your early-stage game shows enough promise to launch…without risking everything. 

In my opinion, the merits of LTV are too often only associated with the financial value of a game. But, as I’ve proven above, that’s really just the tip of the iceberg. When you have your game’s LTV at your fingertips – and when you’re committed to tracking it as your game evolves – the door to more informed, holistic insight opens up. And it beckons you in with open arms. 

So what am I telling you? I’m telling you that the umbrella of LTV’s impact potential is huge. And when wielded correctly, it can do much more than just help you understand market value. It can help you make decisions, edge out the competition, and ultimately earn more – for longer.

But, that’s only if you’re open to using it. And if you are – I mean, how could you not be by now? – you’ll need to understand how to calculate it. Good thing I’ve got your back.

The Calculating: LTV

Now for the bad news. While at this point it’s clear that all mobile games should be tracking LTV (to stay eyes-wide-open informed in a hyper-competitive market), the process of actually identifying that LTV, and continuously monitoring it, isn’t as clear. In fact, some might call it murky – or at least murkier than they’d like.

And that’s because one official calculation method hasn’t been agreed on. 

For years, the debate over how to calculate LTV has riddled the gaming industry. Some studios have vied for methods that prioritize simplicity over accuracy, while others have required lines of complex formulae before feeling satisfied with their estimates. Some studios have employed third-party tools to drive their calculations, while others still have developed their own custom models based on their resources and their needs. 

All of that’s to say: right now, there’s no one absolute industry standard. But, there are two variables that every approach – no matter how simple – takes into account: Revenue and Lifespan. (So, if you ever feel the water’s too deep for comfort, use them as your buoys. They’ll keep you afloat.)

  • Revenue: In order to calculate the value of a player, we’ve got to look at how much they’re monetarily bringing into the game. Average Revenue per Daily Active Users (ARPDAU), the most frequently leaned-on Revenue metric, helps you do precisely that. By showing you what the average day looks like from an earnings perspective, it gives you what you need to discern how much your players are spending (in general terms) – which is why this metric is a tenet for simple LTV calculations.
  • Lifespan: Since we’re looking at the lifetime value of players, we need to have a sense of what that lifetime looks like. Is it lasting a couple of days? Is it lasting weeks or months? Is it carrying on for years? Through Users’ Average Lifespan – the most commonly deployed Lifespan metric – you can see how long the average player is playing the game, giving you a general understanding of your retention scope. (But remember: there’s no one ‘grading system’ here; the type of game you have will dictate the type of numbers you see.)

Let’s put it all together. Using both of those principal metrics, the streamlined LTV formula is: 

LTV-formula

ARPDAU x User’s Average Lifespan = LTV

Now, if you’re wondering how a formula as simple as that one can really be giving you a hefty dose of accuracy (and specificity), here’s where I tell you – it won’t. This is not the formula for giving you hyper-exact, hyper-reliable figures. It’s not the formula for black-and-white guarantees. But it is the formula for bird’s-eye-view understanding. So if all you need is a quick hit to check out the lay of the land, it’s here for you. Use it.

And while many developers see it as their one-stop-shop for simplified LTV calculations, I’d be remiss if I didn’t mention your other options. That is, the other metrics that can be swapped in or out, depending on your resources and objectives. 

Wait – there are other metrics? You bet your brain there are. Underneath the two metric camps (Revenue and Lifespan, remember?), there are a host of other possibilities for you to get your calculating on with. Let’s take a look at those alternatives – but before we jump in, I’ve got to note: they’re not better or worse than the principal measures up top. They just give you different intel. So take what you need and leave the rest. Alright, now you’re ready – onwards:

  • Revenue: Alternative metrics here include Average Revenue per Monthly Users and Average Revenue per Paying Users. Want even more? Your wish is our command: Average Number of Transactions, Average Monetary Value of Transactions, and Average Conversion Rate.
  • Lifespan: Alternative metrics here include Classic Daily Retention (measured via the number of players who enter the game at a certain day after installing), Range Retention (measured via the number of players who return to the game over a set interval of time), and Rolling Retention (measured by the number of players who return to the game after a set period of time). Do you have a hyper-casual game? Then Hourly Retention, which depicts the number of players returning after ‘x’ hours post-install, might be your metric.

Okay, so you’ve gotten a taste for the wide range of options. You can see that calculating LTV isn’t simply a one-and-done, but something you’ve actually got to put time and brain-power into molding – so it works the exact way your game needs it to work. Hopefully, you see that personalization potential as a good thing rather than an inconvenience, but in either case, you can’t ignore it. (Because ignoring it really only hurts you.)

We walked through Revenue, we came, saw, and conquered Lifespan. So what else do you need to know before we go any deeper?

One word: Virality.

While the top tier of LTV calculation must-haves only has two spots – Revenue and Lifespan – the next-best tier is home to the Virality camp. Here’s why: Virality metrics show you the value of your users in unconventional terms – by telling you how many additional players they’ll bring into the game. 

That might mean through word-of-mouth. It might mean through sharing the game on social media or posting their recommendation to forums. The point is, they’re proving their worth to the game by more than just how often they’re playing and how often they’re spending; they’re proving it by how often they’re talking. 

More people knowing about your game means more people checking it out. And that means more opportunities for you to show off your offering – to excite them, to engage them, and to monetize them. Not just once, but again and again. 

One more note: Virality measures the recruitment power of players, but only so far as that recruitment power is volunteered. Paid recruitment does not factor into Virality, so keep that in mind.

Alright, now let’s get into the nitty-gritty. Virality matters to LTV because, along with your Revenue and Lifespan metrics, it helps you determine whether your acquisition cost for new players is sustainable (based on the average value they’re predicted to bring in). If you have proof that they’ll be recruiting new users on their own – let’s say the Virality (or K-factor) of each player is 1, so each player is predicted to pull in another one – your cost of acquisition is lower. 

It’s that simple.

No longer is it $1 to bring in a player. Now, knowing that each player will be bringing in another player (on average), it’s $1 to bring in two players – which reduces the CAC to $0.50. When your acquisition costs are lower (but all else remains constant), you walk away with greater revenue and greater ability to heighten your acquisition spend, simultaneously increasing sustainability and traction in the market. 

So: how does Virality factor into the LTV equation? Here’s one advanced option:

virality-formula

Retention x ARPDAU x AdARPDAU x K-Factor = LTV

The breakdown? You’re already familiar with Retention (User’s Average Lifespan) and ARPDAU, so the new guys here are the last two metrics – AdARPDAU and K-Factor. While AdARPDAU looks at the revenue you’re earning from ads, K-Factor deals exclusively with Virality. 

The result is a thorough formula that shows you the multifaceted truth behind your game – how much are your players bringing you directly or indirectly in value over their lifetime, really? 

Whichever route you take for your LTV calculations – simple or complex, manual or outsourced – my biggest piece of advice for you is this: remember that it’s not only about the calculation method. Your prep work, your resources, and your consistent follow-through matter as much for your results as your formula does. And with that, I’ll bid you adieu. 

Conclusion

Congratulations. You now know what you came here to know. You now have the baseline understanding you need to start thinking real-world implementation, and you now have the baseline tools – the formula options – you need to get comfortable with the metric at large.

You know why UA is crucial – but not everything. You know why First-Time Purchase matters – but not enough to forget the rest. You know why only considering your early lifecycle metrics will lead to trouble and lack of vitality, and you know why you need the nuance, the vision, of measures that look further into the future.

You know why Lifetime Value is critical to pay attention to. You know why studios rely on it and why developers mold it to fit their specific needs, and you know how to calculate it. Or at the very least, you know what your calculation options are.

So now, you’re at the table focusing on more than just the attention-grabbing roast – you’re heaping more than just the obvious one-and-done performance indicators onto your plate. 

You’re asking for the LTV. But more than that, you’re taking the steps necessary to make sure it gets to your mouth safely. So you don’t get a crumbled or spoiled helping; so you don’t lose out on any of the nutrients along the way.

By understanding – truly understanding – the value of your players over their lifetimes, you’re priming yourself to make sense of your game with never-before-seen depth. You’re priming yourself to make better decisions, and you’re priming yourself to be – and stay – optimally competitive. Not just today and tomorrow, but months and years down the road.

Lifetime Value is our industry’s not-so-secret weapon. If you’ve been hearing about it, wondering about it, considering it – this is your sign to do something. You have the facts. The context is yours. But if you still feel like there’s something missing in your knowledge – well, that’s why we created Part II.

In Lifetime Value, Calculated – our next segment – I walk you through the ins and the outs of process. I cover my recommendations for seamless, effective LTV-finding and my warnings for all too common pitfalls; I get into how you should choose the elements of your formula and how you should decide the frequency with which you calculate. 

All of that’s to say: if this piece merely scratched the surface of your LTV calculation questions, Part II was crafted for you. So join me as we dive deeper, discuss vaster, and understand greater. From a process standpoint, there’s no better sidekick – so I’ll see you there.