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Free to play and its Key Performance Indicators
by David Xicota on 05/27/14 05:44:00 am   Featured Blogs

The following blog post, unless otherwise noted, was written by a member of Gamasutra’s community.
The thoughts and opinions expressed are those of the writer and not Gamasutra or its parent company.

 

When I ask other indie game developers what plans they have to make their games financially viable… I can’t tell you how many puzzled faces I get.

It isn’t their fault, really. We’re in the video game industry because we love making games, not for the intricate art of actually selling games. Or, are we not?

It's shocking that most indie developers don’t know on what terms the monetization in the videogame industry operates.

Game concept and it’s monetization formula impact each other. So, eschewing your monetization plan during game development would be ill-advised. It’s easy to fail if you don’t plan ahead how your monetization strategy will roll out.

Fear not! Following is a glossary of the most relevant and common terminology in the online games industry. They constitute the background of why it’s important to design games that engage with the players.

This is very basic information, so take it as an introduction to the Key Performance Indicators —KPI— for free to play video games.

Learning the variables other developers have successfully used to monetize their games will help you make better development decisions.

The basics

You know these, but it never hurts to refresh the basics just to get started.

▪ Freemium / Free to Play

Offering a game free of charge. Often offering the possibility to get advanced features, functionality, or related products and services that can be purchased.

▪ Virtual Goods 

In-game items or game-related services such as power-ups, premium content, or a temporary subscription that enables or enhances gameplay.

Key Performance Indicators

Key Performance Indicators —for free to play games

These will help you trace your revenue strategy for your game.

 

▪ Cost per Acquisition (CpA) / Cost per Install (CpI)

Cost of acquiring new customers. Calculated by dividing the cost of an advertising campaign by the number of new application installs attributable to that campaign.

Cost per Acquisition --CPA

▪ Cost per Engagement (CpE)

Cost of acquiring new customers through an engaging ad. In this kind of ad, the marketer asks the user to take an action that's beneficial for the game offering a reward in return.

How Robert Weber upped user retention by 51% using the cost per engagement metric. Click here to read.

▪ Customer Lifetime Value (CLV) / Lifetime Value (LTV) 

It is a prediction of the net profit (or gross profit for start-ups) attributed to the entire future relationship with a customer at a discounted rate. The prediction model can have varying levels of sophistication and accuracy.

Net Profit

▪ Monthly Active Users (MAU) 

The number of unique users that have played a game at least once over the course of a month.

▪ Daily Active users (DAU) 

The number of unique users that have played a game at least once over the course of a day.

▪ Sticky Factor or DAU/MAU Ratio

Your sticky factor is the ability to turn monthly active users into daily active users. This is a ratio calculated by dividing the DAU by the MAU. Converted to a percentage, it answers the question ‘what percentage of my monthly players turn up each day?’ For example, given a MAU of 600,000 and a DAU of 30,000 gives 0.05, that’s 5 per cent of the total monthly players turning up each day.

What is the Social Game Sticky Factor Tipping Point? Click here to read.

▪ Retention Rate

Your retention rate is the amount of users that continued playing your game during a given time period. You’ve “retained” these continuing players.

Retention Rate

▪ Churn Rate / Attrition Rate

Your churn rate is the amount of users who stop playing your game during a given time period. These non returning players have “churned”.

Churn Rate

▪ Retention Rate + Churn Rate = 100%

▪ Average Revenue Per User (ARPU)

In a given period of time, your game’s ARPU is the result of the division of all the revenue created by all your active users.

▪ Average Revenue Per Daily Active User (ARPDAU)

Your game’s ARPDAU is the total revenue on a day divided by the unique users which logged into the game that specific day.

▪ Average Revenue Per Paying User (ARPPU)

In a given period of time, your game’s ARPPU is the result of the division of all the revenue created by all your active paying users. You only consider the users who spend on your game eschewing all that don’t.

Who are the paying users

Every user has different needs, let me introduce you to them.

How players spend in free to play games

Graphic and data from The Swrve Monetization Report, January 2014

This graph shows two figures grouped by the price tag of the in-app purchase (IAP). The plain bars represent the number of IAP in %. The striped bars represent the revenue raised by IAP in %.

It reveals that most purchases (67%) come from the $ 1-5 price tag, but they only raise the 27% of total revenues.

▪ Minnow

Minnows spend the smallest amount possible in a month, typically 1€.

▪ Dolphin

Dolphins spend an “average” amount. Typically its forecast they spend an average of 5€ per month.

▪ Whale

Whales spend a lot. Typically its forecast they spend an average of 20€ per month.

▪ Heavy spenders

Freeloaders spend buckets of money. This is where the most variability is found in spending. The amounts can range from several hundreds to a few thousands of € per month.

 

What players contribute more to revenue of free to play games

Graphic and data from The Swrve Monetization Report, January 2014

This graph shows the bottom 10% of users who spent the least in total on the left, and move in 10% steps to the top 10% who spent the most in total on the right.

The bars represent the % of revenue that can be attributed to every group.

Now you have a better idea of what your players look like, you'll be able to put to good use this new knowledge.

I hope this basic introduction to the key performace indicators has helped you have a quick look to the business side of game development.

Have you found this glossary useful, do you have any friends that could benefit from reading it? Send them a link!

This is cross-post from Gamedonia blog, if you enjoyed the read, come visit us!


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Comments


Daniel Santos
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Good article. It is really helpful for those who are designing a F2P for first time. Well done!

George Blott
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Good article but the naming conventions for F2P spender types left me confused.
"Freeloader" is an odd choice, the conventional meaning of a freeloader is someone who pays the least they possibly can.
I'm not sure how that became the term for a player who spends "buckets of money" on a F2P. Almost any other term would serve the intended purpose much better, my vote is for "Kraken"

David Xicota
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My bad. I changed it to "Heavy spenders", so it makes sense. Why isn't Kraken the default term to describe top spenders? :D

Ian Griffiths
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This is a nice intro but I would have to say that there are better ways to measure retention. Here's an article on 6 different ones, but there are even more than that - http://www.applift.com/blog/user-retention.html

One thing that always bothered me, why use the terrible sounding ARPPU which is easily subject to spelling errors being so close to ARPU when you can use ARPS - Average Revenue Per Spender, it's much better :D

Interesting version of a Lorenz curve at the end there too, I prefer to visualise this kind of thing over time so you can see how spend distribution changes.

David Xicota
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Definitely! This modest article is just meant to be a basic introduction to the world of online game metrics.
The article you refer to is the perfect next step in the learning curve for game KPIs. Plus, it features sleek informative graphs!

Rafael Costa
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Great article!

Ben Newbon
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For some reason I have always differentiated between freemium and free to play, though it seems many others use the terms interchangeably. IMHO free to play means access to all gameplay content without having to pay anything at all - paying giving access to optional extras, costumes, powerups etc. and 'hurries' for timers by way of microtransactions; I consider freemium as games that restrict access to certain parts of the game to paying players only, for instance allowing access to up to a set level for free but further levels require payment. Freemium games can also include microtransactions but as soon as a F2P game includes pay only gameplay content it becomes freemium.

Have I made this distinction up or do other people use these definitions too?

Eric Finlay
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Personally, I've always thought the two were interchangeable.

Ben Newbon
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I'm also interested to find out how other people are measuring their retention rates because there seem to be several methods but no industry standard as such.

Is it best to look at the current playerbase? everyone who played yesterday? everyone who played in the last month? people who joined in the last month? people who joined on a specific day? everyone who's ever played?

When measuring things like 7 day retention, do people look at how many people played on exactly the 7th day after joining or how many people played on their 7th day or later (thus backfilling retention for people who play on their 8th day but missed the 7th)?

Judy Tyrer
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This is so great! I just finished the fist draft of my business plan (about 18 mos. late but I didn't need it until now) and the parts on marketing were challenging. Saving this to devour when I write the next draft. I know how to set up server performance metrics, no problem. Marketing metrics? What do I even measure?

I would hope a lot more people on the business savvy side of game development chime in with their experience and knowledge. Some of us are running to catch up.

David Xicota
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Thank you! This is exactly why I wanted to write this introduction. I hope it makes getting into the marketing metrics lingo easier for you :D


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