Feeding the Funnel: Turning Users into Profits

Feeding the funnelTurning users into profitsNicholas LovellGamesbriefwww.gamesbrief.com

Who am I?
Founder, www.gamesbrief.com
Clients include Firefly, Huddle, Rebellion and others
Non-executive director, nDreams
Strategy director, ChannelFlip
Former CEO, GameShadow
Former CFO, ShopSmart.com

What am I talking about?

The funnel
Users
Profits

How most people start
1% convert = £1,000.00
1% convert = £10.00
Say each costs £0.10
Only if the average user stays for 100 months!
I’ll get some visitors
Some who visit will register
Some who register will subscribe
Subscribers will spend an average of £10 per month
I’ll put my Maserati on order

The funnel
Unique users
Registered users
Active users
Paying users
Profits
Revenues

Feeding the funnel
Marketing
PR
SEO
SEM/PPC
Unique users
Harness users to create virality:

Referrals
Facebook Connect
Importing contacts
Twitter

Cross-promote from other titles

Converting the funnel
For your business:
Draw the funnel
Reduce to as few steps as possible
Know the conversion rate for every step
Tweak, iterate, test until you know exactly how your funnel converts
Unique users
Registered users
Active users
Paying users
Revenues

Adding friends - Foursquare

Finding the levers
Users are not the only metric
The others depend on your business, but might include:
Page views
Video views
Game downloads
Purchase of a virtual item
A metric that you can’t influence is no good
Focus on LEVERS

Digression 1: Calls to Action
On every page, you should know what you want your users to do
Then SHOW THEM
e.g. Register/Log In/Buy/Subscribe
But also:
Tell a friend
Play a game
Connect with Facebook/Twitter

Great homepage design
www.shidonni.com

Monetizing the funnel
There are many sources of revenue
Virtual goods / microtransactions are flavour du jour (and my favourite)
In your own business, focus on ARPPU
Advertising
Virtual Goods
Revenues
Subscriptions
Downloads

Digression 2: what users buy

Making profits
Profitability
Assumption: Variable cost = 10% of sales
Any profit can be spent on acquiring customers (CPA)

The equations

Why the funnel matters
The funnel matters because it is your entire business
To emphasise that, we need Equation I
CPA < LTV = good business
CPA > LTV = trouble
Where:
CPA is cost to acquire a user
LTV is the Life Time Value of a user

Harnessing virality
A viral business can be an insanely profitable business
CPA is close to zero, so even if LTV is low, your business is great
Time for Equation II:
Viral coefficient = A% x B x C%
Where
A% = Percentage of your users who invite a friend
B = Number of friends they invite
C% = Percentage of friends who accept the invitation
If viral coefficient > 1.3, time to order the Maserati

But what if I’m not viral?
For most Web businesses, the choice exists between:
Viral: low CPA, low LTV
Monetized: High CPA, high LTV
Either is fine, or even a blend, but keep focusing on the conversion rate

It’s all about the levers
Find the metrics that have the biggest impact on the bottom line
Try to reduce the metrics to one!
Three is more usual
Make sure they are LEVERS
Laser-like focus on pulling and improving these LEVERS
The result will be a better business and a happier team

Glossary and contacts
ARPU - Average revenue per user
ARPPU - Average revenue per paying user
CPA - Cost per acquisition
LTV - Life time value
Nicholas Lovell
@nicholaslovell / @gamesbrief
www.gamesbrief.com
nicholas@gamesbrief.com