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If it costs you $1 to acquire a customer, how can you make money charging $0.99 for a game

By on July 8, 2011
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If your customer acquisition cost is $1, you can’t make money charging $0.99 for your game.

The key is to change your thinking. Think of your game as the top of your sales funnel, not the bottom. It is expensive to get people into your funnel.

That’s OK if you are charging $40 per game (although I think that the pay-once model is in trouble and will only work for the biggest blockbusters).

If you plan to charge a small amount ($0.99, $2.99), think about what you are doing. You are acquiring customers (which is expensive and difficult), and then finding a way to charge them. If acquiring players is so expensive, you need to make your business work by:

  • Charging more for your game, to make the game financially viable (the traditional publisher, pay-once route). There is downwards pressure on pricing, when a game like Infinity Blade, with a $2 million development budget, sells at only $5.99, and most indie game struggle to get over $1.99
  • Encouraging each of your customers to invite their friends, hence reducing your effective CPA (the Zynga strategy). Bear in mind that virality is harder than it used to be now that we have been trained to think of many game invites as spam.
  • Viewing each game as a marketing opportunity for other games (the cross-promotion strategy). Independent developer Appy has used this strategy very successfully, while it is also the core strategy of Zynga. Services such as Applifier bring this strategy into reach for independent developers
  • Offering In-App Purchases to enable your biggest fans to spend a lot of money (dare I call this the GAMESbrief-recommended strategy?)

I am a big fan of the last strategy. Enabling your whales to spend tens, hundreds, even thousands of dollars on your game means that it becomes cost-effective – in aggregate – to acquire customers.

It works for indie iOS developers Nimblebits and Snappy Touch. It works for Epic with Infinity Blade. It works for Zynga and Bigpoint and Playfish. It works for my clients.

It could work for you.

My recommendation to you is to end the limitation of the single price point. Find ways to offer more value to your biggest fans. Let them spend more if they wish to.

That way, you may find that CPA < LTV. And you have cracked the basic equation of online games.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com