Guest Post: How to be profitable with less than $20,000 in marketing per game

Editor’s note: The following article comes from Sridhar Muppidi, CEO of mobile social developer YesGnome, and offers advice to smaller developers on how their social/mobile titles can still be profitable even without massive marketing spends to drive them up the charts. YesGnome develops games for iOS and Android devices, specializing in city-builder, RPG and strategy titles. The company’s first success is the folklore-inspired city builder FairyTale City, and it recently developed Madagascar – Join the Circus. The studio’s titles are supported by the proprietary SocialKinesis back-end web service, allowing it to control the game experience dynamically in real time.

Even though we haven’t spent millions in marketing and our games haven’t hit the top charts more than briefly, YesGnome is still a profitable company.

One of our first games, FairyTale City, has hit the top charts only briefly, and has not been wildly popular, but we consider it a success for a simple reason: on a month to month basis, it makes significantly more money than we spend on it.

This does not mean that we are seeing dramatically high Lifetime value (LTV). In general, our games on iOS make around $1 on a 90-day average revenue per user. True, this is not even close to what some of the top mid-core developers are seeing, but when you do the math, these numbers still make us very profitable. This article is an attempt to demonstrate how to be a successful and profitable social games developer even with average revenue per daily active user in the range of $0.06 to $0.08.

Retention and alternative monetization

For retention, a good benchmark to shoot for would be 40 percent on day one, 20 percent on day seven and ten percent on day 30. Good retention is an important factor in organic growth since loyal, long term users are more likely to promote your game to others. For us, nearly all our organic users come from word-of-mouth or basic social integration.

Good retention also helps in maximizing ad revenue–especially since it lets you monetize non-paying users. This is an important alternative revenue source for small developers, and can account for as much as 40 to 45 percent of the total game revenue.

A word of caution though: Ad integration should not cannibalize your in-app purchase revenue, so set up your games in such a way that when a user makes an in-app purchase transaction, ads are disabled for that particular user. In fact, consider actively ensuring your users are aware of this method of disabling ads; this will noticeably improve your free to paying user conversion rate.

User acquisition

These days, the cost of user acquisition on free games tends to average about $1.50, often going as high as $3 per user. But this does not necessarily mean that a game can be profitable only if it can make $2 LTV or more. The trick is to assess your game’s revenue potential, and ensure that the cost of acquisition per user is always below the LTV of the game–well below $1, if necessary.

Here are a few ways we’ve been able to keep our costs low:

  • Use small, limited campaigns: Acquire a small number of users per game per month by spending as little as $0.50 to $0.60 per download. This may seem extremely low, but our experience shows such low rates are still possible as long as you aim to acquire only a small number of users per day.
  • Use multiple sources: The trick is to never exhaust a source and never bid above your limit. We have noticed that setting the maximum bid price at $0.60 works well, though you may want to start even lower, and set your limit based on the results you get. To use your sources effectively, make deals with other developers (Chartboost is an effective tool), and use ad networks as well as other agencies (We use W3i  and have heard good things about Fiksu too) as necessary, but always make sure you communicate your budget constraints to them clearly.
  • Be flexible: In a way, this is a little like using the ‘my dates are flexible’ option to look for the lowest rates available when booking flights. Be flexible about volume as well as timing, always stick to the budget, and you will get a steady, small, and inexpensive stream of new users.
  • Bank on organic: Good retention earns you a higher percentage of organic users, which would bring your effective user acquisition cost down by 50 percent or even more. To be sure, when people talk of spending $1.5 on user acquisition, they are also not accounting for organic users. When you ensure that each paid user brings in two more, you are reducing the effective user acquisition cost by one third, which would make a significant difference to your margins.
  • Review your sources regularly: Make an extensive list of your user acquisition sources, and categorize them based on the volume they can sustain, how quickly you can activate them, what they would cost, what types of games they are most suited for, and so on. Once you have acquired users from a particular source, track key metrics for them carefully, and assign a quality score to this source based on the retention as well as the LTV of these users. This is not meant to be a fixed list, so be sure to review it regularly, and add new sources as they come up.
  • Avoid burst campaigns: If you are looking for high volume burst campaigns to break into top 10 charts of the App Store, costs of $1.5 or above per user come into play. This may be the most glamorous strategy, but it is also the most expensive and prone to high-cost failure if certain sources do not kick off or at the last minute fail to deliver the volume expected.

The general idea here is to resist the temptation of chart-topping focused burst campaigns (unless you are extremely confident that your game can sustain such marketing or ranking), and rely on the actual numbers to guide you. Instead of running big campaigns, only try to acquire 40-60 users per day per source, and use around 20 different sources. This rate can get you up to 30,000 new users a month. Add in the organic user growth, and the total number of new users for the month could go up to 100,000. These are good numbers to aim for: if your game sustains an LTV of $1, you are potentially looking at a revenue of $80,000 to $100,000 per month for a $20,000 spend on user acquisition.

Portfolio

It’s a little tricky to explain the importance of having a portfolio of games, especially since traditional thinking would be that if you only have limited marketing funds, you should go all out to promote one or two games. Nevertheless, having a wider portfolio of titles allows you to keep user acquisition costs low, while maintaining a steady stream of new users. Here is how this (roughly) works:

If a publisher has 10,000 users, and you show your game ad to all of them in the course of a day, you would maybe get 10 new users from this little campaign. For the publisher, this would mean a revenue of about $6. Now if this publisher shows the same ad to this same user base again, the number of downloads you get this time would be a lot lower, since you have captured all the early adopters, and made the easiest conversions in the first campaign itself. So the second time you promote your game to the same user base, it’s costing you more and getting poorer results. These are poorer results for the publisher too, who would then typically advise you to increase your bids and try harder for conversion–for them, the benchmark is now $6 per campaign–unsustainable, since all the users have seen this ad already. But if you have a portfolio of games, you can utilize each source fully. You can place a new ad for a different game, and again get 10 new users at a low cost.

Having multiple games also allows you to transition your most loyal users to your other games, which in turn reduces overall user acquisition costs. To transition your users from one game to another, consider using cross-promotion ads, channels such as  support emails, Facebook page posts and also reward mechanisms in the form of incentives in the current game.

Using the above model, we have been able to spend $7,000 to $10,000 a month on acquiring new users for Fairy Tale City, which consistently makes us around $25,000 to $30,000 from those users over a 90-day period. At the end of the day, like anyone else, we build games that we believe in, and enjoy playing as well as creating. But our approach is not to try to break charts with every single release, but to ensure that each game we release is consistently profitable within the revenue potential it offers.

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