Calculating lifetime value of freemium gamers: finding the revenue per daily active user (RPDAU)
Last week wrote about the importance of understanding the lifetime value of a freemium game user. You can roll out all the right game mechanics and do all the right things but if you don’t understand what value a user is providing you long-term, it’s challenging to build a successful business model around your game.
In last week’s post we identified two key metrics in calculating lifetime value, Retention and Revenue per Daily Active User or RPDAU. This week we dive deeper into arriving at an RPDAU.
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, start with RPDAU.
What is RPDAU?
Simply put, the RPDAU is a key data point, based on a calculation that allows you to extrapolate a value for each active user, that value can then help in forecasting long term revenues. Basically, how much money are you making divided by your daily active users.
Arriving at RPDAU
The key theme from the above statement, how much money, can be further broken down to: from where? In other words, to calculate an RPDAU most freemium games will look at two revenue streams: In-app purchases (IAP); Advertising (Such as an offerwall or the W3i Ad-Funded Payment Platform).
Understanding how users convert at each revenue stream is key to arriving at the RPDAU. It’s worth noting that how a user converts in one stream, say in-app purchases, may not be the same as how they convert in the other, advertising.
In order to arrive at the RPDAU, you have to add the average revenue a user generates from both streams. So if the average conversion for IAP is 1.5 cents and the average conversion for advertising is 2 cents the RPDAU would be 3.5 cents. (Source: Smart App Marketing)