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. TWO METHODS FOR MODELING LTV WITH A SPREADSHEET Eric Benjamin Seufert Slush 2013
- 2. WHO AM I?
- 3. WHO AM I? Head of Marketing at Wooga
- 4. WHO AM I? Head of Marketing at Wooga MobileDevMemo.com
- 5. WHO AM I? Head of Marketing at Wooga MobileDevMemo.com Freemium Economics
- 6. DOWNLOAD THE SPREADSHEET 100k rows of fake data
- 7. DOWNLOAD THE SPREADSHEET 100k rows of fake data • Probably doesn’t look like real data!
- 8. DOWNLOAD THE SPREADSHEET 100k rows of fake data • Probably doesn’t look like real data! http://bit.ly/183lFwp
- 9. WHAT IS LTV?
- 12. DIFFICULT TO CALCULATE FOR FREEMIUM GAMES
- 14. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET
- 15. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data
- 16. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions
- 17. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions Sprint prioritizations
- 18. GOOD REASONS TO CALCULATE LTV IN A SPREADSHEET Prototyping using comparable data Project investment decisions Sprint prioritizations General strategic decision making
- 19. WHAT ARE THE INPUTS TO LTV?
- 20. WHAT ARE THE INPUTS TO LTV? Monetization (Value)
- 21. WHAT ARE THE INPUTS TO LTV? Monetization (Value) Retention (Lifetime)
- 25. LTV TIMELINE 180 days or 365 days? Spreadsheet shows both
- 27. RETENTION APPROACH Real Retention Rates
- 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. ESTIMATING LIFETIME Area under the curve
- 31. ESTIMATING LIFETIME Calculating lifetime: • Retention curve essentially a survival function More info: http://data.princeton.edu/wws509/notes/c7.pdf
- 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. 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. CALCULATING LTV Build retention function:
- 35. CALCULATING LTV Build retention function: Retention curve power function model (y=ax^b)
- 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. CALCULATING LTV For the trailing 7 days of data…
- 38. CALCULATING LTV For the trailing 7 days of data… …for users in the UK…
- 39. CALCULATING LTV For the trailing 7 days of data… …for users in the UK… …that downloaded the game organically…
- 40. CALCULATING LTV LTV(180): 25.3 * $0.13 = $3.30 LTV(365): 40.1 * $0.13 = $5.21
- 41. HONING THE MODEL More real data
- 42. HONING THE MODEL More real data
- 44. MONETIZATION APPROACH © 2014 Freemium Economics
- 45. MONETIZATION-BASED APPROACH Real Average Daily Cumulative Spend Data
- 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)
- 49. CALCULATING LTV Build monetization function:
- 50. CALCULATING LTV Build monetization function: Monetization curve logarithmic model ( y = ( c * ln( x )) + b)
- 51. CALCULATING LTV
- 52. CALCULATING LTV Using trailing 3 days of retention data…
- 53. CALCULATING LTV Using trailing 3 days of retention data… …for users in the US…
- 54. CALCULATING LTV Using trailing 3 days of retention data… …for users in the US… …acquired through Flurry Video Ads…
- 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. HONING THE MODEL
- 57. HONING THE MODEL