Effective Title: How to run a studio (Financial section)
GDC Year: 2024
Make sure to know the lifetime value of the users (LTV)
Make calculations based on net revenue. Take out any known cuts like Google Plays 30%.
Important to then find out how much it Costs Per Interaction (CPI). Which consists of how much money you spend to have a user start using your services.
Effective Cost Per Interaction (ECPI) includes organically acquired users that you might not have acquired through advertisements. In most cases, it is best to use CPI to do most of the calculations as it will give you a slightly more reasonable answer and lower the risk of overvaluing or overpromising how many users you will get.
The lower the CPI value is the better it looks as it means you are spending less money to get more users onto the platform.
Another important value to consider is the return on ad spend (ROAS). It is the continuation of CPI where you calculate how much time (Usually days) it takes the users to spend enough money to cover the CPI.
If you see that you have a lot of organic user growth then you can use a blended calculation of ECPI and ROAS but if not it will be safer to calculate based on CPI and ROAS.
It's important to know how much risk/money to spend you are willing to take. If you realize you dont want to spend a lot of money or risk too much time in acquiring new users and having them pay back the investment acquiring them. Then it is important to not spend as much money. If you are willing to wait until the new users spend the money needed to acquire them then you are likely willing to spend more money.
If you can get a product/system where you spend more money to acquire more users at a payback period that doesn't move, then it will be easy to spend a 1 billion dollar product. An example is having 1,000 dollars in marketing to get 100 users and it takes 20 days to get those 1000 dollars back from the users. And spending instead of 2000 dollars to get 200 users still takes 20 days to get the 2000 dollars back. Then you can easily scale the marketing and always know you will get your money back in a set timeframe and everything else is profit for more users. This is normally very hard to do and only is seen with tech companies where you can scale at a way lower cost than other industries.
Donts:
Dont heavily rely on benchmarks for CPI and ROAS as each marketing strategy and software is different. As well as each company's graph may look differently when it comes to when hurdles appear throughout its life cycle.
Assume at some point the amount that each new user can bring is less than what they cost to acquire. Meaning you are losing money with each new user. At this point, it is best to either invest in new features to attract more people, get the rest of the possible money from the remaining users, or start working on a new project.
Assuming that the cost of acquiring new users will be the same after acquiring the initial users.
Dos:
Determining new CPIs every so often as they are constantly changing.
Find ways to reduce CPI and User acquisition costs (UA)
Set an average amount of money you hope to get from each new user.
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