The number one business metric for freemium games: lifetime value, know it well

On April 12, 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.

In recent weeks we’ve been publishing posts on tips and tricks to enhance the mechanics for your freemium game. After having conversations with mobile developers it dawned on is that perhaps we should briefly back up. Before even thinking about the mechanics of your game there is something far more important you need to know, understand and have your finger on the pulse of.

The only freemium game metric

One million downloads, 5 million downloads, 10 million sessions, thousands and thousands in virtual goods. Whoopee. All the metrics that draw headlines don’t do much to your bottom-line if you’re missing the foundation. When you start thinking freemium gaming, you must think in terms of lifetime value for each acquired user.

What is lifetime value?

Simply put, lifetime value is what you reasonably can expect to earn for each acquired user during their tenure with your game. Calculating it gets a little complicated but focuses on two key metrics:

  • Revenue per Daily Active User (RPDAU)
  • Retention

RPDAU is a calculation of the revenues generated, on average, per daily user.  Retention usually looks at an average of users maintained after one week and 30 days.

Once you have these two metrics you can start closing in on lifetime value for a particular game.

Why it matters

Lifetime value is a key metric at all stages of a freemium game business: in the beginning if you seek funding, in the middle as you’re growing your business and when you’re ready to take your model through transforming growth. Knowing what you can reasonably expect going into a freemium game business, where you’re at once you’re there and where you can go when you’re ready to go big are all key to success. We’ll explore further how to calculate Lifetime value next week.

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.