New metric to assess risk/reward of UA opportunities?
As a reformed investment banker sometimes I like to hark back to my old days and borrow concepts from traditional finance, applying them to the world of mobile gaming and apps.
I wanted a metric that would track the volatility of UA investments that could be tracked over time to quantify the risk/return of UA opportunities — a UA equivalent of the Sharpe ratio.
The Sharpe ratio in finance compares the return of an investment with its risk — a mathematical expression of the insight that excess returns over a period of time may signify more volatility and risk, rather than investing skill.
I’m thinking the UA equivalent could be based firstly on a finite period of time, eg last 12months, and use an aggregated ROI of the cohorts to compare versus a risk free rate, let’s say the SOFR benchmark. The volatility on the denominator could be based on a standard deviation of cohort performance over time.
Note: could use pLTV of cohort where it has only partially monetized
All cohorts could be rebased to time zero then plotted on top of each other. A curve could be fitted to plot the mean performance of the cohorts and then the standard deviation calculated to show how much spread exists in the performance of the cohorts — giving a measure of volatility.
The output could be useful in a few scenarios:
- To look at both historical and live risk/reward metrics on UA performance
- Comparing volatility of UA spend across different channels
- For a lender looking at providing debt financing to publishers using cohort residuals as collateral
🤷 What do you guys think?
🕺 Something valid here? Or 🐶 barking up the wrong tree?
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