We need to talk about profits
Tsachi Maimon, CEO at Aspire Global, advises that investing in the right LTV forumla can help determine your level of profitability
Anyone with even a casual interest in internet gaming has noticed that industry revenues have been growing dramatically recently. However, company proï¬ts have not been growing at the same rate; in many cases they have even been shrinking. This means that proï¬t margins are tightening across the board.
Is this just the curse of a mature market Increased competition driving proï¬ts down is a familiar pattern, especially in technological industries. So, how can we be proï¬table again? Obviously, we either have to cut costs or increase revenues.
Cutting costs is all too often seen as an admission of defeat â a reduction of services or quality. However, the fact is that costs have been creeping up unnecessarily.
In the old days when the variety of content, technologies and pricing was more limited, costs were lower. At the end of the month, you simply ran a report, paid your bills, and counted your proï¬t.
These days you have to pay for diï¬erent games providers, your business intelligence platform, a suite of diï¬erent customer relationship management tools, payment processors, support agents, several regulators and a small army of people to keep all your diï¬erent systems talking to each other. Having one central provider is simply more efficient and that keeps costs down.
Decision time
The other option is to increase revenue and that traditionally means acquiring more customers. The problem is that new customers are getting more and more expensive to acquire. It’s not just that there are more competitors chasing the same players, it’s that some operators are prioritising “market share” over return on investment.
Only time will tell if this market share driven approach is proï¬table in the long run but for now it will continue to be diï¬cult for the rest of us to successfully invest in acquisition because operators chasing market share can outbid those who need to generate positive returns on their spend.
My suggestion is to invest in building the right life time value (LTV) formula that will enable you to measure your marketing campaigns within days from the start. When you have that exact CPA + LTV, you can decide the level of your proï¬tability. You control it.
However, the good news is that it costs ï¬ve times less to retain an existing customer than to acquire a new one. Existing customers are also likely to have higher future value than new customers.
It is surprising just how little eï¬ort many businesses put in to keeping a customer compared to how much they put in to getting a new one. If anything, the ratio should be reversed. If you could keep more of your existing customers then any acquisition you achieved would be growth â you wouldn’t ï¬nd yourself running faster and faster to stay in the same place.
Mind the gap
Centralising your service providers is an often ignored method of improving retention. Most negative customer experiences happen when they fall into a gap.
Whether it’s the payments team not knowing that a player has already sent in their veriï¬cation documents to security, or fraud not telling marketing that a player shouldn’t receive a particular oï¬er, or something else entirely, it’s the gaps that are a problem. The more providers you deal with, the more potential gaps there are in your customers’ experiences and the harder it will be to keep them.
Improving productivity means cutting costs or improving revenue â or both. Working with one carefully chosen service provider is the most eï¬ective way of doing this. Not only will you ï¬nd that it is cheaper and easier than managing multiple partnerships, you’ll also ï¬nd that the more coherent customer experience it produces improves your retention.
So, the path back to being proï¬table can be as simple as rationalising your supply chain to work with a single provider.