- David Digmi & Daniel Mironov
From Ideas to Income: Creating Realistic Revenue Projections for Gaming Startups
Making games is an exciting adventure that can be both challenging and fulfilling. With the gaming industry expected to hit ~$211 billion in revenue by 2025¹, there's never been a better time to jump in. However, coming up with the next big hit like Match Masters, Dice Dreams or Animal Kingdom is a challenging task. It often takes months of brainstorming, and trial and error before a winning idea emerges.
Developing, hiring, acquiring players, and promoting growth through marketing can easily result in high expenses. It's no secret that without enough funding, any studio won't take off and reach a global audience.
Game founders are experts at crafting awesome gaming experiences, but finance can be tricky. To turn passion into a successful business, we need control and understanding of the creative, strategic, and financial aspects of the gaming world.
Marketing efforts are critical for gaming studios, and it's usually the biggest expense. But since each game can be unpredictable, especially at the beginning, it's imperative to manage cash flow wisely in order to scale a game correctly and survive the rough patches on the path to success.
One of the core goals of vgames is to be the best fund for gaming entrepreneurs. Creating realistic revenue projections for free to play games is one of many ways we view ourselves as a reliable partner.
This article will focus on how to plan such projections in the right manner and be aligned with other business aspects that have become more relevant these days.
Solve this puzzle: What do you call a game with no one to play it?
As a gaming entrepreneur, you've put a ton of effort into perfecting your game's mechanics. You've created a captivating plot, developing your game's core loop, constructing compelling characters, and ensuring that all the moving parts come together to create an enjoyable and unforgettable experience.
However, once a free to play game is released, a new critical aspect arises, which involves ensuring that there are plenty of players who will enjoy it and help generate revenue for the studio while striving to make the game as excellent as possible.
Getting people to play your game is key for growth, but it's not easy. Paid user acquisition (UA) can help you reach the right players faster, but how do you know if it's worth the cost? That's where measuring user acquisition comes in. You want to track the right things, like how much people spend on your game, not just how many people downloaded it. Here are some key things to watch:
Lifetime Value (LTV): Total revenue that a player will generate over the course of their entire time playing a game.
Cost Per Install (CPI): The amount of money you invest in marketing divided by the number of new installs you get during that time period.
When your LTV is higher than your CPI, it's a sign you're heading in the right direction.
Return on Advertising Spend (ROAS): ROAS is a way to measure the effectiveness of your advertising spend in terms of revenue generated. Knowing your ROAS targets for different periods, like 3 months, 6 months, and 12 months, can help you stay focused on your goals.
Marketing Payback Period: The length of time it takes to earn back marketing money. Knowing your payback period helps you understand when you can see a return on your investment.
Retention Rate: The percentage of players who keep playing your game is known as the "Retention Rate," and it's usually measured over periods like 1 day, 7 days, 30 days, 90 days, or 180 days.
ARPDAU, or the average revenue per daily active user, is a crucial metric for measuring the effectiveness of a game's monetization strategies. It is also crucial for determining its financial sustainability.
Each of these KPIs provides deeper insights beyond the raw number of installs, as they offer valuable information about the effectiveness of your marketing strategies and your players' engagement levels, while also highlighting your game's popularity and cost efficiency.
Acquiring new players is a continuous process that requires careful monitoring of major demographic segments such as iOS vs. Android players in different regions and assessing their KPIs. This requires cutting down underperforming campaigns and allocating more resources to those that are successful. On top of that and many other factors, there remains the question of how much should be invested in marketing today, given my future revenue?
Efficiently reinvesting returns from previous UA campaigns and having paybacks that align with your budget and long-term goals are crucial for healthy growth. In reality, new games rarely generate the same revenue every month and not every marketing investment yields the same ROI. This is especially true in the early stages of a business, where revenue can be highly volatile.
While the more established companies have a dedicated data team to create a reliable projection and resolve the uncertainty, smaller teams will usually focus on other aspects of their game at an early stage, and in some cases lack the hands-on experience to create a reliable projection that is a crucial part of the business.
We use in-house tools to establish revenue projections and other KPIs for studios we engage with. Sharing such knowledge with our founders helps them gain valuable insights for their roadmap.
We offer two tools that leverage our game industry experience. Together, they allow you to answer key questions such as:
How long is my payback period?
How much can you afford to spend today?
How will DAU, ROI, and other KPIs look a year from now?
The information we utilize comprises industry benchmarks specific to various genres, competitive data, and our comprehensive understanding of the market landscape. Our objective is to deliver a precise projection that reflects the reality of the gaming industry.
Founders are often driven by their love of creating new experiences that impact people worldwide, rather than just making money. However, a successful exit can result in a life-changing payout.
We strive to help founders make the big decisions that will define their studio's future. These include recruiting talent, growing the business, increasing capacity, securing funds and many more.
These are serious decisions and we believe it's best to support them with a data-driven approach.
Want to hear more? Contact Daniel or Dudi
¹ Newzoo Global Games Market Report 2022, p.26