There’s nothing we geeks enjoy more than inventing new words. Performant. That’s not a real word. It’s just another way of saying efficient: the server is performant. The world doesn’t need the word ‘performant’, but at least it’s meaning easy to guess. Online game jargon, on the other hand, is not so straightforward. K-Factor anyone? A new reality TV show? A new cereal? Nope, it’s the measure of viral growth. Obvious when you think about it…
That’s why I thought I’d start the year with a social game and virtual world glossary. I’ve listed the 13 most important terms, what they mean, and benchmarks.
So if you’ve ever wondered how much the average person spends in a virtual world, or what stickiness actually measures, then this post is for you.
The percentage of users who leave your game each month, or sometimes measured as the percentage who leave each week. For example, if a game that has 100 users at the start of the month, and 70 of those users are still playing the game at the end of the month, then we would say the churn rate is 30% because 30 of the original 100 people left that month.
The churn rate can also be thought of as a probability that a player will leave. For example, imagine a game that has 100 players and a 30% of any player leaving (30% churn). That 30% chance of leaving could also be thought of as a 70% chance of staying. So if we want to figure out how many players will be left at the end of the month all we multiply the chance of staying by the number of players at the start of the month. So
70% x 100 = 70 players at the end of the month.
To calculate how many will be left after two months we can simply do it twice,
70% x 70% x 100 = 49 players after two months.
Treating churn as a probability allows us to estimate how long the average person plays your game. The equation is simple:
1 / % Churn = Ave. Player Lifetime. For example, with our 30% monthly churn rate we find that
1 / 30% = 3.3 months average player lifetime.
This comes in important later when we want to calculate how much the average player is worth to us, or the LifeTime Value (LTV).
Ignoring the first week (we’ll talk about that in the Onboarding definition) a social game or virtual world will typically see week to week churn around 5% to 15%. A 5% weekly churn is equivalent to roughly 20% monthly churn. While 15% weekly churn is equivalent to 50% monthly churn.
Phew, that was a long one, don’t worry, the rest are shorter!
Average Revenue Per Paying User, usually measured each month. In other words, how much money does the average customer spend (most of your players will never spend any money, ARPPU only includes those who spend money). It can be calculated as total monthly revenue divided by total monthly paying users. Some benchmarks:
- Virtual World: Habbo Hotel: $30 ARPPU (Sulake)
- Online Game: Puzzle Pirates, Three Rings: $50 ARPPU (Gamasutra)
- Social Game: Playdom: $20 ARPPU (Lightspeed Venture Partners)
Club Penguin, on the other hand, has subscriptions and no micropayments. Their ARPPU is somewhere around the $6 mark.
Average revenue per active user, and like the ARPPU this is also measured each month. The ARPU is calculated by dividing the total revenue for the month by the total number of unique players for the month. Sort of. Depending on the account methodology used it could be said that revenue from the purchase of a virtual clothing item should be amortized over the players lifetime, where as energy and consumables can be recognized immediately. I think that’s just making it all a little too complicated!
From the Zynga IPO filing (link) that the average revenue per user per month is around $0.40. Of course, that’s across their whole portfolio of games. In practice, different types of games monetize better than others.
- Casual Social Game: A casual game is designed for anyone, including those without prior gaming experience. Such as Farmville, Cityville, Bejeweled, Words with Friends. ARPU around $0.10 – $0.20
- Virtual Currency Poker and Casino Games: Traditional gambling games that only allow players to play with virtual currency, such as Zynga Poker, Slotomania. ARPU around $0.25 – $1.25
- Mid-core Social Game: Typically more investment is required to succeed. Tends to be more competitive in nature, and players can be punished for not playing well, such as Mafia Wars and Backyard Monsters. ARPU: $0.25 – $1.25
- Virtual Worlds: Online worlds where players create avatars and interact in realtime, such as Habbo Hotel, Club Penguin, Runescape, and Puzzle Pirates. ARPU around $0.84 – $1.62
The Life Time Value is the average amount of money spent by each player. The LTV includes paying and no-paying players. To calculate the LTV you multiply the ARPU by the average number of months a player stays in your game. For example, if the ARPU is $0.50 and the average player lifetime is 5 months then the LTV is
$0.50 x 5 = $2.50.
Earlier we used the Churn Rate to calculate the average player life time. This is really useful. After only 1 month you know roughly how long the average player will stay in the game, and you know how much they spend on average (ARPU) and therefore how much each player is worth over their lifetime (LTV). Through knowing how much each player is worth you can figure out how much you can afford to spend on advertising for new players.
The measure of viral growth. It’s calculated by multiplying the Infection Rate by the Conversion rate. The conversion rate is when the ‘Infection’ turns into a new user.
A K-Factor of 1 means every member is bringing one additional member to your game, your game is not growing nor is the game declining. A K-Factor of less than 1 means that without ongoing marketing your game will run out of players. While a K-Factor greater than 1 means that your game is growing exponentially.
It is very rare that any game will ever have a K-Factor greater than 1. That’s why Zynga spent $40,000,000 on marketing in Q1 2011. All games need marketing to continue growing. Of course the difference between a successful game and a failure is that a successful game spends money on marketing but still makes a profit on each player they acquire. That’s why the next definition is so important…
The Cost Per Acquisition is a measure of the cost of bringing that user to your game. The CPA can be measured in different ways. We recommend measuring the CPA as the cost to convert a new visitor from the homepage into someone who has registered, finished the tutorial, and become a player. So the CPA for an advertising campaign can be calculated by dividing the total spend by the number of new players. If we spend $1000 on Google Adwords and get 2000 new players then our CPA is
$1000 / 1000 = $1.00 CPA.
The Effective Cost Per Acquisition includes the effect of viral growth on the CPA. The eCPA is the real cost to acquire a new player. For example, imagine a game with a K-Factor of 0.5 – the game will not grow without ongoing marketing – and a CPA of $1. Remember, than K-Factor of 0.5 means that for every player who comes into the game they are responsible for bringing 2 more players through word of mouth and viral invites.
In this scenario spending $1 gets 1 player who (on average) invites another 0.5 players. So really we spent $1 to get 1.5 players. But it doesn’t end there, that 0.5 of a player invites 0.25 of another player. It’s 0.25 because we multiply the new 0.5 of a player by the K-Factor of 0.5 to get
0.5 x 0.5 = 0.25. So now we’ve spent $1 to get 1.75 players. And of course this continues, that 0.25 of a player brings in
0.25 x 0.5 = 0.125 more players. And so it continues for ever and ever (kind of).
When calculating the eCPA we have to figure out how many people we actually get as a result of all those invites. The equation is simple, it’s
1 / (1 - K-Factor). For the example above, with a K-Factor of 0.5 we get
1 / (1 - 0.5) = 2. Which means that for every player we buy (the CPA) we actually get 2 players into our game.
So going back to the original problem. With a CPA of $1 and a K-Factor of 0.5 we find that the eCPA is
CPA / (1 - K-Factor) = $1 X (1 - 0.5) = $0.5 eCPA.
For a game to be a success the eCPA must be less than the LTV. In other words, the cost to get a new player into the game must be less than the player spends during their lifetime.
We’ve developed an excel game business model that covers these topics in more detail. Check out the series of posts.
8. Addressable Market Size
The number of people who who could become players of your game. For example, imagine creating a children’s game. Globally, there are over 200M children aged 5-19 with internet access. But you game is unlikely to appeal to all those 200M children! Your addressable market is a fraction of those 200M children – only those who will be switched on to your theme and concept.
Its tempting to go after a broad target market. After all, the larger the addressable market the greater the profit. However, the things that young boys like to do in virtual worlds are quite different to the things older teenage boys want to do, let alone teenage girls.
Instead, its important that your games delights and excites a smaller core group of players. By spreading that target market too wide you risk diluting the concept and struggling to engage or retain users.
The Addressable Market Size is important because not only does it determine how big your game can become, but also how quickly it will virally grow.
9. Network Saturation
As more players join your game through viral growth or marketing common sense tells us that our conversion rates should start to fall; our viral invites or banner ads are going to players who have already played the game. Of course, some people will become active again (re-engagement) but most will not. The result is that the viral ratio falls as the game becomes more popular.
I’ve written in detail about this concept as part of our game business model series. The post about network saturation and the effects on your profits can be found here.
Daily active users. Just what it sounds like. The number of unique active users in a day.
Monthly active users. Again, pretty much what it sounds like. The number of unique users in a given month.
A measure of engagement, for every user who plays the game in a month, how many play each day. In other words, it’s the DAU divided by the MAU. For example, imagine a game that has 100 MAUs, and average 30 DAUs. We would say the stickyness is
30 / 100 = 30%.
13. Virtual Currency
An in-world or online currency typically purchased with real money, that can be redeemed inside a virtual world or online game, usually for virtual goods.
I think that’s covered the bases. But what do you think? What have I missed? Let me know in the comments below.