Understanding the user acquisition funnel

There are two sides to game growth: monetization, which we discussed in the previous episode, and user acquisition, which is the focus of this class. What happens when you show an ad to a user? What does their journey look like, from impression to install? What are video ads, playables, and end cards? What are the KPIs you should be optimizing your UA towards? Grab a pen and paper because we’ll be answering all of these crucial questions in this episode.

Hey, guys. I’m Assaf and I’m gonna be talking to you about the world of user acquisition.

To start, we’re going to run through the user acquisition journey all the way from viewing your ad to engaging with your app, and touch on the specific KPIs – or Key Performance Indicators- that can be measured to determine the success of your UA campaign.

We’re going to go step by step through each part of the user acquisition journey. Let’s dive in.

From ad to install

So the user acquisition journey starts like this: a user sees an ad for your game. We call this an impression. And an impression is an ad that’s been shown.

Next – the click. A user saw your ad and liked it – and so they clicked on it. The click happens either on the ad’s end card or call to action button. When we’re looking at how many users clicked on an ad that was shown, we call it click-through rate, or CTR.

How do you calculate click-through rate? You divide the number of clicks an ad gets by the number of times the ad was shown, and multiply by 100. So if your ad has 15 clicks and 1000 impressions, its click through rate would be 1.5% – meaning 1.5% of users who saw the ad clicked on the ad.

And then where does the click take them?… To the app store!

The app store is where the user chooses to install your app or not. It’s at this point we start talking about CVR, or conversion rate, which measures how many users actually installed your app after landing in the app store.

You measure CVR like this: You divide the number of users who installed your app from your ad by the number of users who clicked on the ad, and then multiply that all by 100.

So if 4000 users clicked on your ad and 80 users installed your game because of it, the conversion rate would be 2%.

Keep in mind that as an advertiser, you have to pay each time a user converts – or performs a specific action from your ad … depending on the pricing model you choose.

The most common pricing model on ad networks is CPI – or cost per install – meaning you’re paying for each install.

We can use the conversion rate to help us see if the ad is performing well. A low CVR tells us that there’s a disconnect between the ad and your app page. Basically, the user expected one thing from your ad and instead saw something else once they got to the listing in the app store. Meanwhile, a high CVR tells you the ad doing is a good job at showing users what your game really is.

There are two more metrics we should mention here as part of the user journey, that tell you if your ad creative is driving as many installs as possible.

IPM means installs per mille – or installs per one thousand ad impressions. It combines CTR and CVR into a single metric that answers the simple question – how many users installed my app out of every thousand who saw an ad for it?

To calculate IPM, you divide the number of installs by the number of impressions and multiply by a thousand.

There are a few reasons you might see a low IPM, but the most common one is that your ad probably needs some work. A high IPM tells you that your campaign is gonna lead to a lot of installs.

Let’s play this out in an example. Say your ad campaign generated 1 thousand impressions and 5 installs. Your IPM in this case is 5.

The last metric is eCPM. eCPM is the effective cost per mille. But we just say it’s the effective cost for every 1,000 impressions. This metric tells you how much potential your UA campaign actually has by predicting your overall buying power.

What do I mean by ‘buying power’? We’ll get more into it in later episodes, but basically it relates to how ad networks decide which ad campaigns to serve and when. The first thing to understand is that ad networks’ algorithms choose the campaigns they’re going to serve in a given app based on eCPM. So a high eCPM means you have a really high buying power inside the ad network – and that the ad networks’ algorithms will make sure to prioritize your campaigns and give them a lot of impressions across all the best apps. Once you have a lot of buying power, it means you can start taking more risks with your campaign – more on that later. A lower eCPM means you don’t have much buying power, and the ad network isn’t going to give your campaign a lot of impressions.

To calculate your eCPM, you need to multiply your campaign’s IPM and its CPI. In other words, you’re multiplying how many installs your campaign is generating by the amount you’re willing to pay for each of those installs.

From install to engagement

After a user installs your game, their actions and behavior within your app are what make up the next chapter of the user acquisition journey. This is where users start actually engaging with your game and generating revenue for you. In other words, this is where you start making money, so listen up!

Ok, a user installed your game and opened it for the first time. The first thing we start measuring is retention: Retention is the percentage of users who return to your app on a specific day.

Retention is looked at in cohorts, so to calculate it, you divide the number of users who opened the app on a specific day, by the number of installs you received on a specific day, according to the cohort you want to look at. To help understand this, let’s look at an example:

Let’s say you have a cohort of 100 users who download your app on a certain day. If only 40 users came back the next day, this cohort has Day 1 40% retention. If 10 users come back on day 7, this cohort has 10% day 7 retention.

Now – the user’s opened your app and they’re starting to play. As they’re playing and completing levels, they’re moving deeper and deeper into your app’s economy. They finished the tutorial, watched a few ads, maybe even made an in-app purchase. All of these are “post install events”, which we use to assess the quality of a user. These events are measured by the Mobile Measurement Platform SDKs. We talked about MMPs in our Key Technologies episode.

Best case scenario, these post-install events generate revenue for you – like if a user watched an ad or bought something in your store. To measure that, we look at two metrics – ARPU, which we talked about in the monetization session, and ROAS or return on ad spend.

Just like retention, ARPU is calculated on specific days. So Day 7 ARPU is the sum of all the money you received on Day 7 divided by your installs of that cohort, or the number of users who installed your app on day 0. Even though we covered it in the monetization session, ARPU is a super important KPI for the UA side of things too – because it shows you the real monetary value of each user, which you can tie back to the source they came from – or the app where they saw the ad that converted them.

Meanwhile, ROAS measures the amount of money you’re making back from your ad campaign. Basically, it answers the question: was the money a user generated inside your app more than the amount of money you paid to acquire them? If your campaigns are bringing in high-quality users who go on to make lots of purchases and watch lots of ads, then your ROAS will increase – assuming that you’re managing how much you spend to acquire them.

To calculate ROAS, you divide ARPU by your CPI. Now you know how much return your campaign is generating for you by a certain day.

Measuring your users’ behavior through ARPU, knowing your LTV like we talked about in the previous episode, and setting the right ROAS goals (which we’ll learn how to do later in the course) are all absolutely crucial for setting up a killer UA strategy – and is exactly what’s going to let you increase your profit down the line.

Wrap-up

And that just about wraps up this episode. We’ve gone over user acquisition from top to bottom and discussed some key metrics and terms for each part. See you next time!