How to use our ROAS, LTV, and Cashflow Calculator

Martin Macmillan
5 min readJan 12, 2023

This explainer video walks you through our ROAS, LTV, and Cashflow Calculator for free-to-play mobile games. The calculator is available on our website. It’s totally free to use, and will help you to model your investment formula and unit economics for user acquisition.

Transcript

Hi there, I’m Ali, and I’m here to talk you through how to use our ROAS, LTV, and cashflow calculator for apps and free to play games.

The point of this calculator is to figure out whether your unit economics for user acquisition are ROAS positive, and if they are, we’ll help you to model financial scenarios to indicate how you can scale.

At a high level we’re trying to establish your investment formula for user acquisition. So, we need to know:

  1. How much do you have to invest to buy a user?
  2. When do you expect to break even on that user?
  3. What is your ultimate LTV and therefore your profit?
  4. And how long does this all take to happen?

Let’s kick off by building a model of your LTV curve. To get started, you need to have your:

  • Retention data — this is the percentage of people who stay using your app or game after X number of days,
  • ARPDAU — average revenue per daily active user
  • CPI — your cost per install, cost per acquisition, cost per event… whichever metric you’re using.

You can use our tooltips to complete the rest of the inputs if you want to go into a bit more detail.

In this example, the summary tab tells us that you invest $1.20 to acquire a new user, and given this retention profile and ARPDAU, you’re expecting to break even on day 33. As users continue to monetize over time, you get to a projected LTV of $1.97 after 104 days. We’re not counting the continued revenue journey after that because from here the curve is really flat, so we just need to find a realistic cutoff point. So basically, your investment formula is $1.20 in, $1.97 out after 104 days and this gives you a profit of $0.77.

Now, all these inputs are configurable. Let’s say your product team has done a great job and introduced changes that adjust your day 7 retention from 20 to 24%. You input that new value into your calculator and it immediately redraws your graph. So it shows that in this case now you break even on day 28 instead of day 33, you’ve increased your LTV to $2.05 which is now expected to come in at 103 days, and now you’re making $0.85 instead of $0.77 profit! So feel free to play around with your own data to model different scenarios and figure out how to optimize your UA machine.

Next we want to look at what your cash flow will look like based on this profile. In this case there’s an assumption that you have $100,000.00 ready to spend on paid ads. Let’s look at the red line first. You have $100,000.00. You’re spending that consistently over a 60-day period. By day 60 you’ve spent all your money. So now, let’s say you’re monetizing on the App Store. According to Apple’s payment terms, somewhere around day 67 you’ll get your first inbound payment from Apple. You take that money and you spend it in a linear fashion consistently over the next 30 days until you get your next payment from Apple, and so on and so on. Over time your cash flow is a little bit spiky but you’re gradually growing because you’re taking all the money you’re earning and you’re reinvesting it back into an ads machine that you have high confidence is profitable.

Next, let’s look at the blue line. This shows your cash flow if you have a revolving credit facility with Pollen VC. Every seven days, we’re looking at the previous week’s revenue that’s been earned but not yet paid out by the App Store or other platforms and also the value trapped in your existing user cohorts. You can borrow against this revenue and then reinvest it immediately back into your UA machine. Rather than having to wait 60 plus days before reinvesting, we are able to do it every seven days.

Reinvesting in an ROI positive UA machine faster will mathematically enable you to scale faster. It’s a really capital efficient way to scale your app, as you’re not relying on external equity funding to grow.

As we said right at the start, the key thing here is your investment formula. Let’s say you want to look at whether a revolving credit facility with Pollen VC is a good idea. To do this you’re going to click on the stats button here which exposes the raw numbers behind the graph.

So again, in summary, your $1.20 invested expects to break even on day 28 and goes on to achieve a lifetime value of $2.05 after 103 days. On that single journey, you have a return on invested capital at 70.6% which takes 103 days. Now 103 days is a weird time frame for any form of comparison. So we want to break this down into a monthly return on capital making it much easier to evaluate different UA options on a level playing field. Our calculator simply divides by 103 and multiplies by 30 to get an estimate of what a monthly return on capital is, in this case 20.5%.

So this is what your UA machine looks like. You have an investment formula where you can net a 20.5% monthly return on capital invested and you believe it’s something you can scale. So perhaps you’ve exhausted your internal cash flow to fund UA, but the UA machine is still profitable. So you apply for revolving credit facility with Pollen VC because you want access to an efficient source of capital to put back into this machine. Let’s say the cost of capital here is 1.5% per month. In order to borrow you have to pay 1.5% in interest for the 30 days it’s going to be borrowed. You’re then investing it into your UA formula which is netting you 20.5% in the same time horizon. You’re borrowing at 1.5% and you’re investing into ads giving you 20.5%. Now just a reminder to make sure you’re comparing them on the same basis — monthly cost versus monthly return and not monthly against annual. So after the cost of financing you’re making a 19% monthly return on ad spend investment, which is a fantastic return.

Another way to look at this is the leverage multiple. This says that for every dollar you’re paying in interest to service the cost of borrowing you’re making $12.67 in return, which is great. You should continue to invest for as long as your UA machine is profitable.

And finally here are the estimates. So what are you waiting for? Go play with your own metrics and reach out to us if you have any questions.

This article was originally posted on pollen.vc/blog

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Martin Macmillan

CEO & Founder at Pollen VC - London, we provide devs early access to revenues earned from the app stores so they can rapidly reinvest https://pollen.vc