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Managing Risk in Video Game Development
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Managing Risk in Video Game Development

May 3, 2013 Article Start Previous Page 5 of 9 Next

Again, I remind the reader that all figures presented here are essentially arbitrary and represent semi-educated guesses for the sake of this example. 

If you intend to use the attached spreadsheet, do not use these numbers; do your own research to determine the optimal values for each assumption.

Now, we'll estimate our conversion rate.  We assume that 3.5 percent of active users will convert to paid users, which allows us to combine this with our DAU and MAU calculations to estimate how many customers we expect to be purchasers every day and every month.

Next, we'll segment our paying customers into three categories: high-spending "whales," medium-spending "dolphins," and low-spending "minnows." 

Assume that we estimate that 10 percent of paying customers will be whales and 35 percent will be dolphins, leaving the remaining 55 percent as minnows. Then assume that our marketing department has estimated our likely ARPPU (average revenue per paying user) at $29, $5.50, and $0.90 for whales, dolphins, and minnows. 

This allows us to combine our ARPPU numbers with our customer base percentages and our previously calculated daily and monthly purchaser estimates to determine our average monthly revenue from each segment.

In the last step, we combine the monthly revenue from all three customer segments, then factor in the platform holder royalties to determine average monthly revenue and lifetime revenue. Note that we do not list the platform holder's revenue percentage as an assumption, since it is known exactly and not realistically likely to change.

Again, the selection of a freemium model for the revenue exercise is arbitrary.  The DDP could just as easily use a paid-up-front, ad-driven, or any other revenue model, and would need to use appropriate assumptions in each case.  The intention is only to show how the DDP process works in practice, not to present any kind of accurate approximation of the freemium model. 

Article Start Previous Page 5 of 9 Next

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