Not quite sure how to calculate the right ROAS goal for your user acquisition campaigns?
Don’t worry, we got you.
We bring you a seven-step guide to guide you through the process. You will learn which metrics you need to consider and how to calculate them.
Let’s get started!
What Is ROAS and Why It’s So Important?
“If I invest X money into a user acquisition campaign, how much profit can I expect?”
“Where should I direct my ad budget?”
“How to improve my future UA efforts?”
ROAS (return on ad spend) answers all of these common advertisers’ questions. For this reason, this metric should be one of the main KPIs for your mobile game’s user acquisition campaigns.
What is ROAS exactly?
ROAS is an ad-oriented KPI. It focuses on particular UA campaigns and measures how much revenue comes from each dollar spent on ads.
It’s pretty simple to calculate it.
Let’s say you spent $1000 on Facebook Ads and made $2,000 from people who engaged with the ads. This means your ROAS is $2000/$1000, or 2.
ROAS tells you how successful your UA campaigns are and how you should optimize them.
User acquisition managers know how difficult it is to keep track of campaigns’ success. ROAS is the go-to metric for this, but setting the right ROAS goal can be tricky.
Luckily, we’re here to help.
What Is a Good ROAS?
There is no such thing as a ROAS goal that works for any game.
For some games, a 4% ROAS after three days will be a great result. For a different game, anything below 13% will be considered a complete failure.
Determining a good ROAS depends on more than one factor. Some of them are:
- The game’s genre
- The game’s monetization strategy
- How well it retains players
- How early it can monetize a user
Nevertheless, there is a consensus on what makes a game sustainable. According to Scalarr, a 3:1 ROAS is generally recognized as viable.
Here’s what this means.
If your game monetizes with in-app purchases, your sales should be at least 3x higher than your ad spend. Or in dollars, you should be making at least $3 for every $1 spent.
This is the point where most games are earning enough to stay sustainable. Everything below it is probably something to worry about.
However, as I already mentioned – it all very much depends on your game.
Determining a ROAS Goal: A 7-Step Guide
Does your game make money from in-app purchases, ads, subscriptions, or all three?
Whatever monetization model your game uses, this guide to calculate a ROAS goal should work for you. It considers all types of revenue streams and metrics that affect your ROAS.
Here are seven steps to help you determine your game’s ROAS goal.
Step 1: Specify Your Game’s ARPU
ARPU stands for average revenue per user. Basically, it tells you what is the average amount of revenue you earn from each user in a certain period.
This monetization metric gives you important information about your game’s revenue and users.
Generally, ARPU provides great insights into the performance of in-game features. It helps you optimize your IAP offer pricing, ad placements, acquisition channels, and revenue quality.
When it comes to ROAS, ARPU is a far more important metric than your campaign’s CPI.
It’s pretty straightforward – if your CPI drops, this doesn’t necessarily mean your ROAS will increase. But if your ROAS increases, so will your ARPU. If one falls, the other will follow.
Here’s how you calculate ARPU.
First, sum up your game’s total revenue over a specific time period (e.g. day or week). Then, divide it by the number of active users you had during that period.
This metric is not static.
For this reason, you should track it with an ARPU curve.
This kind of curve allows you to compare your game’s revenues against its retention rates.
For example, you may notice that the longer average users play the game, the more revenue they bring. Just like in the case of the hyper-casual game above.
Step 2: Determine ARPU and LTV
LTV (lifetime value) is the total revenue a single user will bring you over the whole time they play a game.
This metric is super important for targeting the right users, understanding their behavior, and your game’s total success.
LTV and ARPU are interconnected, so you’ll need to track both.
For example, even if your campaigns’ ARPU is increasing, it’s still possible that the players’ LTVs are decreasing.
If you cross your ARPU and LTV data, you may find out that you should change your approach.
You can calculate LTV with this formula.
Let me put it into numbers.
If a user spent 8 cents a day on average while playing a game for a total of 50 days, this user’s LTV is $4.
Is this good or bad? Again, it depends on your game.
LTV is an important metric because it defines your marketing strategy and profit margins.
How much should you afford to spend to acquire a single user (CPI)? Well, not more than you’re going to earn from them in the long run.
Step 3: Count in Organic Traffic
If you want to set up a ROAS goal properly, you need to consider the big picture.
Not all of your users come from UA campaigns.
Some heard about your game from friends, while others found it while wandering around the app store. This is what we also call the “K-factor”.
The ARPU curve we’ve mentioned earlier doesn’t include these users. It measures only the users you’ve acquired through UA campaigns.
How do you prevent this from happening?
Check your analytics to see where all of your revenues are coming from.
Let’s say you found out that 20% of your revenues are coming from organic users. This is not a neglectable number, so you need to add this up to your LTV calculation.
Here’s a formula to help you out with this.
Paid (including organic) LTV = Paid LTV * [1 + organic revenue percentage]
If you’re not considering organic users – your numbers are wrong. You are leaving quite a bit of revenue share from your ARPU and LTV calculations.
Step 4: Setting Your Margins
At this point, you’ve specified three important monetization metrics (ARPU, LTV, organic revenue).
This means you’re all ready to set your ROAS goal.
You have only one thing left to do before that – determine your margins. Profit margins are here to let you know if your campaigns are breaking even. For this reason, you have to set the margins right.
How do you do that?
First, think about your goals.
Are you more interested in high short-term profits, or long-term revenues?
If you increase your margins, you may get more short-term revenues, but at a lower scale.
For example, if your eCPI is $0.50, and your margin is as high as 15%, you will earn $0.08 per user. With this approach, you would get fewer, but more valuable users. Also, you would hit the break-even point sooner.
On the other hand, if you set lower margins per user, you’re bidding on higher CPIs.
For example, if you lowered your margin to 10%, your eCPI would automatically increase to approx. $0.55. This way, you would acquire more users, but it would take longer until you break even. However, in the long run, this approach should pay off.
Step 5: It’s Time to Determine a ROAS Goal
Once you set the margin, it ’s finally time to calculate your ROAS goal.
If your game is based on ad revenue, you should focus on a short-time goal. Best practices suggest that you fixate on day 3 ROAS.
If it’s based on in-app purchases, focus on a longer time period. In most cases, advertisers focus on day 7 ROAS.
In this formula, we’re focusing on a day 3 ROAS.
Day 3 ROAS goal = Day 3 ARPU / (LTV*organic revenue*(1- goal margin))
Let me explain it.
Take your day 3 ARPU and divide it by the ARPU of the breakeven day (e.g. day 60). This is the day when your users finally give you a 100% return on investment.
In the example above, the calculated ROAS goal is 46%. In other words, this game expects to get 46% of a user’s total worth by their third day of playing.
Step 6: Consider Both IAP and Ads Revenue
Many mobile games monetize with both in-app purchases and in-app ads, which is known as a hybrid monetization model.
A common mistake developers do is to determine ROAS goals based solely on in-app purchase revenue, not taking ads revenue into account. This results in incomplete ROAS values.
Here’s how to mitigate that.
Some developers come up with a ROAS goal based on IAP data, but then increase it by ad revenue share. For example, let’s say a game earns 70% of its revenue from IAP and 30% from in-app ads. In this case, you’d increase your ROAS goal by 30%.
However, this method is still incomplete as it doesn’t take into account monetization data on users like different monetization behaviors, the quality of organic and paid users, etc.
Here’s an example of how to calculate a day 7 ROAS goal that includes both IAP and ads data.
- Determine LTV for IAP and ads revenue separately
- Set your margins based on LTV curves
- Calculate ARPU (IAP + ad revenue)
- Divide ARPU for each day by the total LTV and you’ll get day 7 ROAS goal
Step 7: Don’t Put Everyone in the Same Category
When you’re determining your players’ LTVs, there are many things you should consider. This includes your game’s genre, the players’ locations, their operating systems, etc.
Let’s say you’re targeting Android users in Pakistan for a hyper-casual game.
You shouldn’t expect too much from them.
It’s nothing personal, though.
The thing is, Android users are usually less valuable than iOS users. Since Pakistan is a Tier 3 country, it is expected to bring lower value users.
Plus, when you have a hyper-casual game, you generally don’t expect high LTVs. They usually range from $0.20 to $0.40 (Department of Play).
If you have a mid-core game and you’re targeting iOS users in the US, this is a whole other story.
Mid-core games’ LTVs usually range from $2 to $5 (Department of Play). Plus, we have a Tier 1 country and an iOS user. Therefore, in this case, you can expect higher LTVs.
All of these different segments influence your players’ LTVs and other monetization metrics.
Therefore, they influence your ROAS goals as well. For this reason, you need to adjust your ROAS goal according to all these different segments.
If you don’t do this, you won’t have exact LTV data. As a result, you won’t be able to optimize your UA campaigns effectively.
Step 8: Repeat The Process
None of this is a one-time job.
This is because monetization metrics are dynamic by nature.
For example, your players’ LTVs are changing all the time. There are so many things that influence them – new competitors, seasonality, in-game updates, etc.
Let’s say a new game by a big publisher appears in the genre. This can make a lot of players transfer from one game to the other.
Real-world events also have a significant impact on game monetization. Think about Christmas, Valentine’s Day, or Thanksgiving. All of these events will have an impact on player LTVs.
Consequently, they will influence your ROAS goals as well.
Then, there are all the changes that happen within the game. For example, if you’ve just added new ad placements or new game content, your metrics will feel it.
Wrapping up On Calculating A ROAS Goal
That’s it, you’re all set to determine ROAS goals for your user acquisition campaigns!
If you still feel confused about all of this, feel free to contact us! We have a user acquisition team that generated over 150 million users and launched numerous games into the top charts.