The freemium business model is a peculiar business model. You work hard for months or even years in building a high quality product that you feel the market will enjoy. And then you give the product out for free, in the hope that few of the users will be engaged enough with your product to find it worthy of spending money on. At an average, these users are indeed few and even fewer of these users form a strong enough emotional bond with the product to find it worthy of being spent a good chunk of money on.
The freemium business model in games in particular is cut throat, with the rising competition and thus costs of user acquisition, you really have to pay a premium to land highly engaged users on to your game. And if you’re not getting help from the platform in terms of a feature or are reliant on organic traffic from search, the industry can be particularly ruthless.
So, just how much money do players need to spend in your game to make the freemium model work?
Let’s assume you have made a freemium casual game and are seeing 2% paying users on your game. To compete in the user acquisition market, you want to target at least $2 LTV from IAPs (Not including advertising revenue in the analysis) in your target markets.
In freemium, the power law applies. Most of this $2 LTV is going to be contributed towards by a small portion of of your payers. At an average, you would expect 10% of your payers to contribute at least two thirds of your revenue (66%).
So, 0.2% of your users contribute $1.33 of your LTV. Basic mathematics will tell you, you need the Top 10% of your payers to pay $670 each at an average.
Not just that, you would expect the Top 1% of the payers to contribute at least 20% of the revenue. Again, doing a bit of mathematics, you would require these users to pay you $2000 each.
With that in mind, you would need the top payer in your game to pay you at least $10,000 in the game. The figure sounds astronomical but that’s just how freemium works, a small minority of users are responsible for the vast majority of the revenues.
This is the reason why you need endless content for your payers and you need to keep them engaged for a very long time. This is the reason that Candy Crush has 1400+ levels in the game and keep adding more.
When making a freemium game, thus, it becomes absolutely essential at the very beginning to make sure your game has the potential for users to pay 1000s of dollars and the game can be scaled to have a 1000 levels (If a level based game) or at least 500 levels, so as to make it possible. Design your game in such a manner than new content can be added at any point. (Keep this in mind when writing the story-line as well)
ARPPU Targets Spreadsheet
You can download a simple spreadsheet on the above here — https://docs.google.com/spreadsheets/d/1hqP16pRvkte-gFgAmpA94vujdbJFe5u9StLqch58BMU/edit?usp=sharing
You can play around with the numbers and see the ARPPU targets change.