Analytics, Marketing

The Biggest Mistake in Ad LTV Calculations

BiggestMistake_in_Ad_LTV_Calculations

Recently I became aware of game publishers that implemented an in-house solution for Ad LTV tracing but were doing a huge mistake in how they think about ad revenue. We all know that any LTV calculation has 2 main factors:

  • Retention
  • Revenue
The Ad revenue is the factor that companies get wrong when they build in-house solutions for Ad LTV tracing. These solutions often assume that each impression pays the same level of CPM. This is a huge mistake that can lead to errors in orders of magnitude and ROI calculations that are way off.

If this is how your company calculates Ad LTV you should read the following examples carefully.

Example 1 – The Rewards Collector

  • User played during the first month and never came back after.
  • Watched 50 rewarded video ad impressions from Vungle – didn’t click or install any ads.
  • Average eCPM for this month from Vungle $15
Ad LTV Based on Impressions The True Ad LTV Error
$0.75 $0 $0.75

This type of error could lead the UA teams to a false positive ROI calculations. The UA team thinks the ad spend on this user is ROI positive while it’s actually a losing buy.

Example 2 – The Ad Whale

  • User played 5 days during 2 weeks
  • Watched 10 interstitial ads from AppNext, clicked on 2 and installed a Match-3 game and a Strategy game
  • Average eCPM reported by AppNext for those days – $5
  • CPI for that Match-3 game – $2, CPI for the Strategy game – $5
Ad LTV Based on Impressions The True Ad LTV Error
$0.05 $2 $1.95

Here the ROI calculation could be false negative. The UA team will stop buying these type of users since ther reported Ad LTV is $0.05 while it’s actually $1.95 and the buy was actually a good one.

Example 3 – The Retargeted User

  • User played 10 days during 1 month
  • Watched 20 video ads through Inneractive
  • Average CPM reported by Inneractive for those days – $5
  • This user was a whale in Game of War and was part of a retargeting campaign so specific CPM bids for that user were high – $80 x 4 ads, $90 x 2 ads, $100x 8 ads, $110 x 2 ads, $120 x 4 ads
Ad LTV Based on Impressions The True Ad LTV Error
$0.10 $2 $1.9
The ROI calculation in this example is also likely to be false negative. The UA team might think this was a bad user to bring to the game although his Ad LTV alone was $2.

 

If your company needs to calculate Ad LTV you should try to avoid these costly mistakes. Check out SOOMLA Traceback – Ad LTV as a Service.

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