Everything you need to know about LTV
Did you hear that increasing the LTV of a game is one of the best ways to ensure its long term success, but got confused with that sentence? Maybe you do not know what LTV means, what it measures, and how to calculate it? It is possible you have seen the term in previous posts in this blog, but wanted to know more about it?
Then join us as we uncover its secrets! Jump in, the water is great! 🦈
LT What?
LTV is an abbreviation, and it means Long Term Value.
Alright, but what does it mean?
The "value" term in the name represents the revenue generated by the average user in a game, and the "long term" means this represents their full, entire journey in a game, until they stop playing never to return. This event of not returning again is usually called "churn".
Of course, you can never be sure if any user has "churned" - meaning, if at any given time they have already played your game for the last time and will never return. But you can use your own internal retention metrics to determine what is a reasonable time after which it is safer to assume that most users will not return to the game.
In the end, the LTV is a value that combines user retention metrics with monetization metrics, which results in the expected total amount of revenue generated, by the average user, according to current retention and spending behaviours in your game.
OK, but what can I do with it?
Alright, so now you understand what it means, and you might start to understand why it is an interesting value to know. It represents the total revenue that the average user will generate for your game, after installing and playing for a while, until they get tired and quit forever.
We have mentioned LTV in the past in this post detailing the secret business formula for successful hyper casual games - check it out if you haven't before. In short, if you know how much money one user generates on average, you also know how much you can spend on advertising to acquire new users: as long as you spend less in acquisition per user, than the average user generates in your game, you have a positive balance and a very strong chance to build a successful and profitable game!
How to calculate it then?
If you already have internal analytics systems in place, and have been tracking user behaviour data (and you should!), then you probably have all the necessary pieces that you need to calculate your LTV. These are:
- Daily retention metrics (ideally day 1, day 2, etc - all the way at least to day 30)
- Average Revenue per Daily Active User (ie, ARPDAU)
If you don't have these, or maybe you have not yet even released your project, you can still use LTV calculations to play around with expectations for the project to understand the potential revenue generated by a certain audience, if some retention or monetization targets are met.
One simple way to calculate the LTV is to generate retention values for every single retention day from day zero, which starts at 100%, all the way until retention reaches 0%, which would happen in infinity. To keep it simple, you can assume this occurs after 60 days, 180 days, 365 days, 730 days, whatever makes the most sense for your game; for hyper casuals it might be enough to target just 60.
Then you multiply each of these individual retention values by the ARPDAU, and sum it all up.
What you get is a grand total of the average revenue generated daily, every day, multiplied by a diminishing factor which accounts for the lowering of the retention as time goes by. This represents the LTV!
What, maths?? Are you crazy??
Hopefully the above made some sense, and you are now able to create your own calculations for your game's LTV.
If you're having trouble making sense of it all, you can always find an existing template that takes care of all that for you. We've had a look into this one below and had a lot of fun with it, it's very easy to use and even generates the expected retention curve for you!
That's all regarding LTV, as usual let us know if you have any questions, and comment below what you think!