CLV, or customer lifetime value, is the single most important business metric you have. And the truth is there’s a lot of video game companies out there that have no idea what the heck it is.
So, let’s start by unpacking just what the heck CLV is.
Basically, it’s a prediction of the money you can expect to make, on average, from every new customer you get, every new player of your game.
But before we move on, let’s clear any confusion about CLV because it has other names. It’s also known as LTV, or lifetime value of a customer. Actually, there’s more names than that, but those are the two most recognized so we’ll stop there.
Apparently us marketing heads love acronyms. Sorry.
Why You Need Your Video Game’s Customer Lifetime Value
Notice the word need, and not want. It’s a need.
Simply put, if you don’t know your CLV you have no idea how much you can spend on digital marketing and advertising without killing your business. And equally bad, no idea what the return on investment (ROI) has been for anything you’re doing now, or have done in the past.
So for example, let’s say your video game’s CLV is $5. And let’s say you figure out it takes $10 to attract a customer with digital marketing and advertising (CAC). Well, that means you’re losing money at a rate of 50% every time your game gets a new player.
It’s not rocket science.
And that’s why CLV is your most important metric.
A Simple CLV Calculation For F2P Mobile Games
First of all, you need game analytics data. I know, seems rudimentary for me to suggest, right? Well, you’d be surprised.
Don’t take this lightly, research a respectable game analytics solution and start collecting data now even if you don’t plan to use it until later.
Now, let’s get started.
Calculating CLV is like the ocean, there’s shallows and there’s deeps. Staying in the shallows is way better than not being in the water, but it’s important to know that as you grow your company you’ll also want to grow the complexity of your CLV calculations.
Here’s the basic calculation we’ll use:
ASPCPS (Average Sales Per Customer Per Session) * ASPW (Average Sessions Per Week) * ACL (Average Customer Lifespan) = CLV (Customer Lifetime Value)
Here we go.
Step 1: Average Sales Per Customer Per Session
The goal of this step is to figure out, on average, how much your players are spending on in-app purchases (IAP) per session.
Let’s say the average amount of in-app purchases per session is $0.50.
Step 2: Average Sessions Per Week
The goal of this step is to find out, on average, how many times customers play your game during a week’s time.
Let’s say the average amount of times a customer plays your game during the week is 10 times.
Step 3: Average Customer Lifespan
The goal of this step is to figure out how long your customers, over their lifespan, play your game until they leave.
Let’s say your players only stay with your game for about 12 weeks, not bad for a F2P game.
Step 4: Calculate Your CLV
Ok, now that we’ve got all our numbers let’s do the math. Here’s our simple formula including our data:
ASPCPS ($0.50) * ASPW (10) * ACL (12) = CLV ($60)
In words, this means we predict that new players are worth $60 each. That’s good.
Let’s say you launch a campaign to help acquire new players. You’ll now know that whatever our costs they must break down to a profit, meaning less than $60 per new player. Or else you’ll just break even.
Exploring The Depths With CLV Formulas
Like I said before, as your business grows you’ll want to dive down into deeper, more complex formulas, ones that account for metrics like profit margin and retention rates.
But you’re an expert at making video games, not necessarily deep business analytics. So, just as you’d reach for a digital marketing expert to sell your games online, you should also reach for business analytics expertise if you have the need for frequent, independent CLV calculations.
If there’s one thing you take away from this post it should be that your customer acquisition cost (CAC), meaning the money you spend to get a new player, needs to be less than your CLV in order to make a profit.
Breaking even is not an option.
If you had no idea about this CLV stuff I hope it helps optimize your digital marketing spend. You don’t have to share numbers, but please post your experience with calculating your CLV in the comments. Chances are you’ve run into something we can all learn from.