Focus on monetization, not retention

I’m going to lead off here with something that might be a bit controversial. At the very least it’s not in line with one of the dominant tropes in the industry that assumes that monetary success primarily results from engagement and retention. Most data actually clearly suggests the opposite:

Monetization is more important than retention for the monetary success of your game. Even for the long-term monetary success.

Now this doesn’t mean you need to go out of your way to create a bad game and tank your retention numbers. You need to constantly be striving to have players stay in your game as long as possible. But it does mean that monetization – and early monetization patterns – are what’s most critical in the long-term success of a game.

Also – although not directly related to the above point – it’s much harder to increase long-term retention by adding features or systems. Retention is the result of your game’s identity, of the holistic experience which is composed mostly of intangible and non-measurable aspects: art, gameplay, narrative thematic, etc. Relatively speaking, it’s much easier to improve conversion or monetization. You can add features to increase monetization that are simple layers and don’t interfere with the game’s core loop or it’s identity. On the other hand, it’s very difficult to meaningfully increase retention metrics if you don’t fundamentally alter what your game is.

There are a few key points that support that conclusion. First most spending occurs early in the player’s life-cycle. If you were to break up revenue depending on when users are spending, you will most likely see that 50%+ of your title’s revenue comes from spending that occurs within 30 days of users installing, and 75% between the 90 and 120-day mark.

 

So long-term does matter – 25% of the title’s revenue is clearly not negligible. But the late game is also clearly not the most important period for your title’s monetary success. Even if you were to double your day 120+ retention – a tall order by any measure – the majority of your revenue would still happen before that. The first days and weeks following install are clearly the most crucial moment for your title’s monetization.

Of course, there is a relation between retention and monetization. The LTV curve flattens because as time goes on the number of installs returning to the game decreases – so there are fewer installs contributing to the title’s revenue. One interesting way to look at that – and control for the impact of retention – is to look at LTV retrospectively. In other words, take customers active in your game 180 days after install – and go back to look at what their LTV looked like to that point. That will help control for the retention aspect and show what the revenue progression looks like for an engaged user. In this case you want to be looking at the LTV of customers because 1) the LTV of nonpayers, no matter how active will always be 0 (I’m not discussing ad revenue here) and 2) as time goes on your customer concentration will naturally increase. Only your most engaged and committed users will keep coming back. When you look at the LTV of customers who have shown a certain level of engagement, then you will see that the LTV curve is linear and doesn’t flatten.

 

Looking at graphs of this type could lead to the misleading conclusion that the priority should be to have customers stay in the game as long as possible. It can be tempting to conclude from this that that your main efforts should be on retention, and that monetization will naturally follow. Since the LTV curve is linear, you can assume the longer users are in the game the higher the LTV curve will go. Of course, the longer a customer stays in your game the better – no questions about that. But what matters most is the level to which you monetize your customers.

As I’ve previously discussed, monetization doesn’t naturally follow engagement. What this assumption is leaving out of the picture is that not all payers have the same LTV progression. Engagement with the game is not the biggest factor that contributes to revenue.

Of course, a small percentage of your payers will account for a disproportionate amount of your revenue. So, what most customers are doing is not representative of what drives in the most revenue. You need to “follow the money” – not what most customers are doing. In order words, it’s important to segment your customers based on their spending, and see the differences in engagement and monetization. This is another case where looking at metrics retrospectively can be enlightening: start by identifying the segment of users whose behavior matters the most to your game today. Then look at what the behavior patterns of those users between install day and today looks like. That’s what I mean by retrospective: the conclusion is known (a top payer, a retained player), and you go back to see how those users got there.

For the following, divide users based on their LTV bracket. For example, how do customers who are in the top 1% LTV compare to customers in the top 10%? How do they compare to customers in the bottom 50%? Just like the previous graph, you can go back and retrospectively map the LTV curve of customers based on their LTV bracket. In other words, start by looking at all your lifetime customers, and order them based on their LTV percentile. Then look at what the LTV curve or each bracket looks like. When you look at the LTV of customers this way you see that the LTV of a customer in the top 1% of LTV is levels of magnitude higher than users in lower spending brackets. More importantly, your top spending group is the only one where the LTV curve grows steadily. For all other groups, the LTV curve quickly flatten.

 

Now there are various things that can explain that. First, most of the time higher payers spend more per transaction. But there still is another part of the equation. Is the LTV that much higher because those users play more, or because the pay more frequently? In other ways, is total spending higher because engagement is higher or because monetization is higher?

You can look at total days played, to get a sense of how engaged each group of customers is. Lifetime days played is: after so many days following install, how many total days has a user actually played the game.

 

When you look at things that way, you will likely see that the relative differences in engagement do not explain the differences in LTV. Players in the top 1% spending bracket might play 25% more days than customers in the top 5% bracket. But their LTV can be 3 or 4 times more. That clearly indicates that the main differentiating factor between a high paying customer and a lower paying one is not engagement or retention.

The main difference that explains higher spending is that your highest paying users spend more frequently. When you look at the number of distinct days where users in each spending bracket made a purchase, then it becomes clear your best customers have a higher LTV because they spend more often – not because they play more often.

 

The main difference between customer tiers is not how much they play the game; it’s how often they make a purchase. Users who monetize the most are users who spend the most frequently when they are in the game – not simply users who are in the game the most.

 

All these points strongly suggest that the difference between monetizing a little and monetizing a lot is not due to engagement. It’s due to monetization – it’s the frequency of payment, the amount spent per transaction, and ultimately the $/time played. So yes, you should strive to have strong retention numbers. The stronger the better. But you need to focus your efforts on monetization. The biggest difference between a low/moderate payer and a top customer is not their level of engagement. Rather, it has to do with the degree to which they monetize every time they engage with the game. The best lever to increase monetization in your game is to have your best customers spend more frequently, not to have them spend more time in the game. That’s what you should be focusing on.