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The Freemium Funnel

11 Aug

Free to play’s been featuring heavily on my mind lately, and I figured I could shed some light on how freemium games make their money. This applies to all free to play games. This is not exclusively a casual concept. Remember that Team Fortress 2, League of Legends, and DotA2 are all free to play games. Many of these lessons, I learned from Design Rules for Free-To-Play Games. Specifically, the extra chapters you get for buying the eBook version.

To understand free to play games, you need to understand three major concepts: Acquisition, retention, and monetization. These are stages of a player’s life cycle, and the company wants to make sure that as many players get to that final stage as possible.

Acquisition

This is the process of acquiring a new player. Getting new players usually comes from spending money on marketing and from organic growth when users get their friends to play. A key concept here is the Cost Per Acquisition (CPA. Also called CPI or Cost Per Install, but let’s stick with CPA), which is how much it costs, on average, to get a player to start playing your game.

Retention

Retention is keeping those players you just spent money to acquire. This is often described as seven day retention, thirty day retention, or something along those lines. A seven day retention rate of 50% means that half of the people who sign up for your game are still playing it a week later. A game with a high retention rate is one that players keep coming back to. Eventually, though, every player stops playing a game, and this is called churn, the opposite of retention. A game with a high churn rate is a game that players aren’t sticking with.

Monetization

When a player decides to spend money on your game, that’s when they’re monetized. If you’re lucky, you’ll see a 10% conversion rate (a term to describe how many players decide to convert into paying players). This is what pays the bills and keeps the game running. The important concepts in monetization are Average Revenue Per User (ARPU), Average Revenue Per Paying User (ARPPU), and Lifetime Value(LTV). ARPU is how much money you get on average from each player you have. ARPPU is how much money you get on average from your paying players. LTV is how much money a player is likely to pay, on average, before they quit playing.

What This All Means

The success of a freemium game can (in extremely broad terms) be summarized by comparing the Cost Per Acquisition to the Lifetime Value. This is how much money you spend to get someone to start playing your game and how much money they’re likely to give you before they stop playing. If you have a low CPA and a high LTV, you’re doing great! On the other hand, if you reach a point where you’re paying more to get a user than they’re going to pay, it’s probably time to sunset the game.

Where Design Fits In

For the most part, design in a free to play game is about retention, retention, retention. That isn’t to say that designers can ignorer acquisition or monetization; the game would fail if they didn’t. I just mean that retention helps with acquisition and monetization all by itself. A healthy retention rate means players stick with a game for longer, giving them more time to convert to being a paying user and giving them more time to convert into a paying user and boost LTV. A game with great retention means that the game gets a large community with a lot of seasoned players who can drive organic traffic and bring in more users, who will themselves bring in more users, which drives down CPA.

There are techniques you can use to design retention into a game. Giving players rewards for logging in on consecutive days is a popular one, and getting the player to schedule appointments to check in on the game (Come back in 24 hours to harvest your strawberries!) is also common. There’s one technique even more common than those two, though, and it’s a technique that every game, freemium or not, strives for, and achieving it has been the subject of countless books and endless debate: Just make the game fun.

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2 Comments

Posted by on August 11, 2014 in Game Thoughts

 

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2 responses to “The Freemium Funnel

  1. Atherz097

    August 11, 2014 at 4:12 pm

    Excellent, informative post. I see many techniques for retention on Facebook games (consecutive day bonuses, limited lives and overtime refill, etc), which is the reason that I stopped playing them. However, such methods may be worth it if retention is a real virtue for the developers.

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  2. Grant

    September 12, 2014 at 9:10 pm

    Yeah. You primarily see retention techniques in freemium games and subscription games. The only games I can think of that have techniques like these without being freemium are… I think Animal Crossing, Pokemon, and Bravely Default.

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