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HOW LIFETIME VALUE DETERMINES YOUR SUCCESS AND HOW TO IMPACT IT
Lifetime Value
Presentation Overview
Relevant background
Why Lifetime Value
Importance beyond social media
Virality
Retention
Monetization
The Cost Side
LTV varies among customers
Uncertainty of LTV
FROM START-UP TO BIGCO
Relevant Background
• Grew to top-5 casual game company • Initiated and negotiated sale to Playdom, which was then rolled into $570
million Disney acquisition
Co-founded Merscom CCO, led all marketing/sales/distribution
• Responsible for Europe, Latin America, Russia and India• Grew it from scratch to 25 percent of Playdom’s revenue
GM of Playdom’s International Publishing team
• Joint venture of EW Scripps and Capitol Broadcasting• Launched Facebook and mobile games
CEO of FiveOneNine Games
• Lead UA, analytics, monetization and community• Social Casino space
Currently Chief Growth Officer at Spooky Cool Labs and Chairman of Globalization Committee at NC Central’s School of Business
Been there, done that
THE THREE MOST IMPORTANT LETTERS FOR YOUR BUSINESS: LTV
Why Lifetime Value
Based on three performance metrics
Monetization
Virality
Retention
Interdepence
Relationship between LTV and CPA
• Success
LTV > CPA
• Failure
LTV < CPA
Think of LTV starting day 1
Green-light
Design and develop
focused on LTV
Beta and other
testing to optimize
LTV
Post launch to focus on improving
LTV
CRUCIAL TO ANY BUSINESS
Importance beyond social media
Online offerings
NetflixEbatesFarmville
B2B
Square
Rackspace
Bronto
SaaS
SalesforceHootSuiteBasecamp
Retail
Restaurants
Department stores
Car dealers
WORD OF MOUTH’S EXPONENTIAL EFFECT
Virality
Definition of virality
K-scoreK=i*conv% (conversion percentage), where
“i” is the number of invites sent out by each new customer and “conv%” is the percentage of invites that convert into costumers
An advanced look
Importance of virality
Lowers cost of customer acquisition
Exponential growth
Improving Virality
K=i*conv%
• Generate virality quickly• Cater to Connectors
Increasing I
• Quality of communication• Provide value for virality
Increasing conv%
CRUCIAL AND HARD TO FIX
Retention
Definition of retention
Customer lifetime
N-day retention
Churn rate
Importance of retention
If they do not come back, monetization improvements are virtually useless
Improving retention
Product qualityGet in their headsMake it socialMake it globalUse email and
advertising for re-engagement
SHOW ME THE MONEY
Monetization
Definition of monetization
ARPU (Average revenue per
user)
ARPDAU (Average
revenuer per daily active user)
Percentage of customers
who monetize
Average transaction
Average number of monetization
events per customer
Importance of monetization
Improving monetization
Product quality
Value
More selection
Balancing
Shopping experience
Promotions and sales
DO NOT FORGET VARIABLE COSTS
The Cost Side
Cost Drivers
Running Costs
• Hosting • Support
Payment Processing
• Platform fees• Payment processors
Software Royalties
• Engine, such as Epic’s UDK• Analytics
IP Licensing
• Properties• Talent
THERE IS NO SINGLE LTV
LTV varies among customers
Cohorts
Time of year
Stage of product lifecycle
Holidays
Segments
Age
Sex
Income
Interests
Sources
Incentived ads
Targeted search ads
Television
Virality
Press Cross promotion
IT IS A PREDICTION
Uncertainty of LTV
Uncertainty Principle
Quantum Mechanics • The universe is random• Perfect predictions are impossible if the universe is random
Not a function that creates a value
You are predicting a future event
Create a range, not a number• Albert Pujols is likely to hit 30-40 home runs is more accurate than
Pujols is likey to hit 36 home runs
Models are simplifications of the world
Risk vs Uncertainty
RiskSomething you can put a price on
Uncertainty Risk that is hard to
measureDo not confuse uncertainty for risk
Correlation of past data does not create certainty
The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at
or repair,” wrote Douglas Adams in The Hitchhiker’s Guide to the Galaxy series.
Wrong assumptions can have profound effects• Independence of variables• Mortgage industry
Chaos Theory• Not a synonym for the game industry• A small change in initial conditions can produce a
large and unexpected divergence in outcomes• Major risk when modeling against past
performance
Do not discount qualitative information
More data is better than less
This includes non-quantitive measures
Billy Beane has dramatically increased scouting
The Smell Test
Avoid Overfitting
Mistaking noise for signal
Fitting a statistical model to match past
observations
Test how much of the variability of the data is accounted for by your
model
Solutions
• Think probabilistically • Distribution shows honest uncertainty
Create LTV range
• Can validate assumptions
A/B Test
• Regularly (weekly or monthly) compare data with predictions• “When the facts change, I change my mind”, John Maynard Keynes
Surveillance
Avoid Overfitting
Include qualitative data
WWW.LLOYDMELNICK.COM@LLOYDMELNICK
Thank you
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