Calculating lifetime value of freemium gamers: finding the revenue per daily active user (RPDAU)

On April 19, 2011

Matt Tubergen heads Recharge Studios, a wholly owned subsidiary of W3i that invests in the development and marketing/distribution of freemium mobile games.  W3i is a market leader in distributing and monetizing apps with over 500 million apps distributed for W3i clients. Recharge Studios is actively seeking new investment opportunities, if you have a great idea for a game contact us.

Last week we wrote about the importance of understanding the lifetime value of a freemium game user. You can roll out all the right game mechanics and do all the right things but if you don’t understand what value a user is providing you long-term, it’s challenging to build a successful business model around your game.

In last week’s post we identified two key metrics in calculating lifetime value, Retention and Revenue per Daily Active User or RPDAU. This week we dive deeper into arriving at an RPDAU value.

What is RPDAU?

Simply put, the RPDAU is a key data point, based on a calculation that allows you to extrapolate a value for each active user. That value can then help in forecasting long term revenues.  Basically, how much money are you making divided by your daily active users.

Arriving at RPDAU

The key theme from the above statement, how much money, can be further broken down to: from where? In other words, to calculate an RPDAU most freemium games will look at two revenue streams

  • In-app purchases (IAP)
  • Advertising (Such as an offer wall like the W3i Ad-Funded Payment Platform)

Understanding how users convert at each revenue stream is key to arriving at the RPDAU. It is worth noting that how a user converts in one stream, say in-app purchases, may not be the same as how they convert in the other, advertising.

In order to arrive at the RPDAU, you have to add the average revenue a user generates from both streams. So if the average conversion for IAP is 1.5 cents and the average conversion for advertising is 2 cents the RPDAU would be 3.5 cents.

Once you have that value, you can begin moving forward on calculating a lifetime value and take into consideration retention, the subject of next week’s blog.

Do you have a question about freemium gaming or a topic you’d like us to explore? Let us know in the comments or catch us on twitter @rechargestudios or @w3i.

Freemium Game Blogs are published in partnership with the series on W3i’s corporate blog.