Metrics for Virtual Goods Businesses

Breakout session by Andrew Chen and David James. They are running this session as a case study of Whirled but I will be pulling out the major framework of the discussion for now.

Key metrics -in case you didn’t know how to measure. (with PuzzlePirates numbers in parentheses)

  • average customer lifetime value (~ $115)
  • conversion (from landing to registration) (~5%)
  • retention (returing after one week) (~35%)
  • purchaser (registration to revenue ~3.5%
  • customer lifetime
  • avg revenue per player per month
  • avg registrant value (~$4)

Profit = lifetime value – cost per acquisition.

Reinvest value into user acquisition.  Look at the factors that drive up the acquisition costs of new users:

Source of traffic (ad networks, publishers), cost mode (CPM, CPC), user requirements* (install, browser plugin), audience and theme (horizontal vs vertical), funnel design (landing age, lengths, fields), viral marketing* (facebook, email), A/B testing process*** (none, homegrown). Of these factors, the most important are followed by *.

if your acquisition costs is less than your customer lifetime value, then you should go out and buy more traffic (to the extent cash allows).

LTV = (100%) * week1 revenue + (% retained) * week2 revenue + (% retained) * week3 revenue

Factors that drive revisit rate %: product depth* (casual, utility), notifications (news, user-to-user), community* (real friends, shared), events (holidays, bdays), usage model (daily, weekly). Of these factors, the most important are followed by *.

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