Two Methods for Modeling LTV with a Spreadsheet

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NB! The bitly link in the deck DOES NOT WORK, please use this one: http://bit.ly/1JTymzd

This is the presentation I gave at Slush 2013 in Helsinki, Finland. It describes two methods for modeling Lifetime Customer Value (LTV) in Excel. Linked within the presentation is a spreadsheet exemplifying both methods against 100k rows of fake user data that I generated with a Python script to "look" real (although they probably don't).

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Two Methods for Modeling LTV with a Spreadsheet

  1. 1. TWO METHODS FOR MODELING LTV WITH A SPREADSHEET Eric Benjamin Seufert Slush 2013
  2. 2. WHO AM I?
  3. 3. WHO AM I? Head of Marketing at Wooga
  4. 4. WHO AM I? Head of Marketing at Wooga MobileDevMemo.com
  5. 5. WHO AM I? Head of Marketing at Wooga MobileDevMemo.com Freemium Economics
  6. 6. DOWNLOAD THE SPREADSHEET 100k rows of fake data
  7. 7. DOWNLOAD THE SPREADSHEET 100k rows of fake data • Probably doesn’t look like real data!
  8. 8. DOWNLOAD THE SPREADSHEET 100k rows of fake data • Probably doesn’t look like real data! http://bit.ly/183lFwp
  9. 9. WHAT IS LTV?
  10. 10. FUNDAMENTALLY A PROJECTION
  11. 11. PRIMARILY USEFUL FOR MARKETING
  12. 12. DIFFICULT TO CALCULATE FOR FREEMIUM GAMES
  13. 13. USUALLY CALCULATED PROGRAMMATICALLY
  14. 14. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET
  15. 15. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data
  16. 16. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions
  17. 17. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions Sprint prioritizations
  18. 18. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions Sprint prioritizations General strategic decision making
  19. 19. WHAT ARE THE INPUTS TO LTV?
  20. 20. WHAT ARE THE INPUTS TO LTV? Monetization (Value)
  21. 21. WHAT ARE THE INPUTS TO LTV? Monetization (Value) Retention (Lifetime)
  22. 22. WHICH DIMENSIONS?
  23. 23. WHICH DIMENSIONS?
  24. 24. WHICH DIMENSIONS?
  25. 25. LTV TIMELINE 180 days or 365 days? Spreadsheet shows both
  26. 26. RETENTION APPROACH
  27. 27. RETENTION APPROACH Real Retention Rates
  28. 28. ESTIMATING LIFETIME Power function
  29. 29. ESTIMATING LIFETIME Power Function: y = a * x ^ b a -> =EXP(INDEX( LINEST( LN(Known Ys), LN(Known Xs)), 2)) b -> =INDEX(LINEST(LN(Known Ys), LN(Known Xs)), 1)
  30. 30. ESTIMATING LIFETIME Area under the curve
  31. 31. ESTIMATING LIFETIME Calculating lifetime: • Retention curve essentially a survival function More info: http://data.princeton.edu/wws509/notes/c7.pdf
  32. 32. Example survival curves for two groups of patients given different Leukemia treatments Source: Survival Analysis, a Self-Learning Text (Klein 2005) http://books.google.de/books?id=GNhzxRkFnJ0C&lpg=PA262&ots=Z3foUkFg-4
  33. 33. ESTIMATING LIFETIME Calculating lifetime: • Retention curve essential a survival function • Mean is value of integral More info: http://data.princeton.edu/wws509/notes/c7.pdf
  34. 34. CALCULATING LTV Build retention function:
  35. 35. CALCULATING LTV Build retention function: Retention curve power function model (y=ax^b)
  36. 36. CALCULATING LIFETIME Build retention function: Lifetime (180): Integral (1 -> 180): Y = 0.61x ^ -0.37 = 25.3 Days Lifetime (365): Integral (1 - > 365): y = 0.61x ^ -0.37 = 40.1 Days
  37. 37. CALCULATING LTV For the trailing 7 days of data…
  38. 38. CALCULATING LTV For the trailing 7 days of data… …for users in the UK…
  39. 39. CALCULATING LTV For the trailing 7 days of data… …for users in the UK… …that downloaded the game organically…
  40. 40. CALCULATING LTV LTV(180): 25.3 * $0.13 = $3.30 LTV(365): 40.1 * $0.13 = $5.21
  41. 41. HONING THE MODEL More real data
  42. 42. HONING THE MODEL More real data
  43. 43. MONETIZATION APPROACH
  44. 44. MONETIZATION APPROACH © 2014 Freemium Economics
  45. 45. MONETIZATION-BASED APPROACH Real Average Daily Cumulative Spend Data
  46. 46. MONETIZATION-BASED APPROACH Logarithmic Function
  47. 47. PROJECTING THE CURVE Logarithmic Function: y = (c * LN( x )) + b c -> =INDEX(LINEST(Known Ys, LN(Known Xs)), 1) b -> =INDEX(LINEST(Known Ys, LN(Known Xs)), 1,2)
  48. 48. MONETIZATION-BASED APPROACH LTV
  49. 49. CALCULATING LTV Build monetization function:
  50. 50. CALCULATING LTV Build monetization function: Monetization curve logarithmic model ( y = ( c * ln( x )) + b)
  51. 51. CALCULATING LTV
  52. 52. CALCULATING LTV Using trailing 3 days of retention data…
  53. 53. CALCULATING LTV Using trailing 3 days of retention data… …for users in the US…
  54. 54. CALCULATING LTV Using trailing 3 days of retention data… …for users in the US… …acquired through Flurry Video Ads…
  55. 55. CALCULATING LTV Using trailing 3 days of retention data… …for users in the US… …acquired through Flurry Video Ads… y(180) = ( .45 * ln (180)) + .41 = $2.75 y(365) = ( .45 * ln( 365 )) + .41 = $3.06
  56. 56. HONING THE MODEL
  57. 57. HONING THE MODEL
  58. 58. THANKS! eric@ufert.se

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