How gaming companies can leverage lifetime value (LTV) for better profitability

By Raviteja Dodda, CEO & Co-Founder, MoEngage

While new customers may bring in short-term gains and immediate gratification for gaming companies, it is the lifetime value of loyal customers that is critical in the long run.

In the gaming context, LTV is the estimate of the average revenue generated throughout the customer’s lifespan with the game. It is proving to be the trump card that will lead gaming companies to better their customer retention levels, monetization and top-line growth.

A 2019 study showed that, compared to the normal customer base, the top 10 percent of customers spend three times the amount per order, while the top one percent spend about five times per order¹.

Gaming companies can use the LTV parameter to evaluate a customer and forecast their financial strategy in terms of making marketing budgets and allocating resources to different customer segments for profitability.

LTV enables companies establish clearer relationships with users to drive in better returns and plan the costing of future products based on user profiles. It also helps in segmenting customers based on their spending, which in turn helps them identify and allocate greater resources towards both acquisition and maintenance of high LTV customers.

Why should retaining existing customers be a priority?

Retention is the sole growth metric that drives acquisition, monetization and virility—the three categories that primarily define LTV.

Usually, new customer acquisition is five times costlier than the cost of retaining existing customers. If companies are on the lookout for new customers, the cost of acquiring one new customer should be lower than the LTV of that customer. Customer acquisition cost indicates how long it takes to recover the investment (in terms of sales and marketing costs) the app/company has made to get the user. This means taking into consideration how often people come back to the game, how frequently they play within a certain period of time (e.g., every day, every week, every month), and how often they stay in the game when they play.

Businesses with low customer loyalty will experience lower returns. It’s a no-brainer that companies have to focus on users who spend substantially rather than pour valuable marketing money on low-value spenders. As a yardstick, the ratio of lifetime value to customer acquisition costs is standardized at 3:1.

Retained users also fast-track new user acquisition by sharing information, inviting potential users, engaging in word-of-mouth promotion and creating endorsement content on behalf of the app, thus increasing the virility of the game.

In addition to all these, companies have to understand how customers are engaging with their brands—to see if they are interested in any activity and are getting into public discussions on a specific topic. These users can then be profiled and segmented based on research.

Monetization involves how much customers spend over their lifetime in the game that includes ARPDAU (average revenue per daily active user), ARPPU (average revenue per paying user) and ARPU (average revenue per user). Improved retention accelerates monetization as apps/companies can retain a larger proportion of a cohort, monetize more from that group within a given period of time, and Increase the retention time, which in turn enhances LTV.

Cohort analysis is valuable as it helps in predicting future user behaviour with present data, identifying features, activities, or changes that retain customers, and planning for customer engagement. This analysis is done through segmenting customers based on factors like Regency [R], Frequency [F] and the Monetary [M] Value of Interactions with the brand. Insights gained from running cohort analysis and RFM methodology can be leveraged to create Omni channel customer journeys.

Successful gaming companies also use AI-based testing to identify and deliver relevant in-app offers that helps players progress further in the game. These tests recognize the different channels that each customer has engaged with in the past and tags this information as an attribute against the customer profile. With this data, companies can tweak user journeys, plan reactivation mails, figure the best time and digital channel to communicate with players. 

Increasing retention to get a higher LTV

• Grip them with the game: Players who think about the game even when are not playing are likely to stay with the game for a long time.
• Ensure great FTUE: The first few minutes are crucial as this is when most apps lose a lot of players. Therefore, designing the game to give a great first-time user experience (FTUE) will get the app’s loyalty from players.
• Infuse games with multiple gameplay loops and mechanics: New mechanics ensure that players do not get bored even after months. The game should make players feel that they are working towards something very special.
• Reach out to lost players: Send out emails or run advertisements on social media targeting at players who have left the game and re-engage them.
• Global appeal through native language:  Games with vernacular content are always a hit as players are more likely to play a game in the language they are most comfortable in.

Other dynamic elements include creating timers, in-game events and updates and taking the game viral.

Companies should also identify user trends and predict churn. They can create a poll with some new ideas and connect with users through blogs, social media accounts, and email. Changes or updates can be made based on customer feedback and give them public credit for their contribution.

All these efforts will help businesses make smart long-term projections and scale their marketing campaigns swiftly and effectively, ultimately leading to better long-term health and superior business profitability.