Freemium Monetizing

Every game designer who enters the world of Freemium games is bombarded by tons of new jargon! ARPPU, CR, DAU, MAU… and it goes on and on! Some efforts to get a grip of these terms end before they are even born.

It is really obvious now that freemium apps offer a great revenue in the AppStore. One quick look in the iTunes Top Grossing list will show that most of the apps in the top 50 ranking offer paid services during the game and are offered for free. In this post we will try very briefly to get an understanding of the fundamentals of the freemium universe and its metric factors.

Freemium Game Monetizing Metrics

First of all, when a designer wants to create a mobile game expecting to have revenue, he/she should first take into consideration the ability to “produce” income from this app. In order to do this, first he needs to estimate the amount of people that will actually play the game. If you release a game and pay for promotion (promotion is really important), it is true that lots of users will download this game. However, no one guarantees that the people who downloaded the game are actually willing to play it.. So, the game designer needs to have an idea of the ratio between the people who download the game and the actual players. The players who are going to play the game each day are called Daily Active Users (or if you are cool, you can call them DAU!). The DAU are the people who are going to spend time on the game. So, they are your potential buyers.

Even if you know that a number of players is going to enter your game every day, you also need to know how many of them are indeed going to play for the services offered in the game (don’t forget that your game is offered for free). The percentage of people who will pay for services in the game is called Conversion Rate (CR). Conversion rate varies from 0% – 4% of a game’s DAU. Probably, the more intriguing and addictive a game is, the more possibilities there are to increase the Conversion Rate. Also, different genres of game producer different CR. So, now the designer knows how many people are going to buy. But how much are they actually going to offer? This factor is called Average Revenue Per Paying User (ARPPU). In the AppStore, this number starts from Tier 1 and goes on! Different genres produce different ARPPUs. Slots and Poker games probably have a bigger ARPPU than other genres but also may have lower conversion rates or daily active users. So, the game designer should devise a unique strategy for each game and genre.

Revenue = DAU * CR * ARPPU

Usually, the more you play a game, the more its Life Time Value (LTV) increases.
Take these things into consideration when developing a game. They are really important. If you can also track purchases in your games, you will have a better understanding of your game monetization model.

Terminology
DAU = Daily Active Users
MAU = Monthly Active Users
CR = Conversion Rate
ARPPU = Average Revenue Per Paying User
LTV = Life Time Value

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