The velocity of UA money

Hyper-Casual Games and the Velocity of Money

Hyper casual games are hugely popular among users of all age groups. However, while some hyper casual developers have experienced considerable success, their ability to achieve full scale is often hampered by a lack of funding and having to wait for payouts by advertising networks before reinvesting back into user acquisition (UA).

In this article, we focus on the cash flow characteristics of hyper casual games, and how a clear understanding of the velocity of money can help developers achieve sustained growth during their critical launch window.

Once a game starts to build momentum, it is especially important to keep financing UA in order to continue pushing it further up the charts.

Martin Macmillan

The problem

Hyper casual developers face a unique scaling challenge. A successful game will benefit from a very short ROAS recovery/breakeven on ad spend. Let’s assume ROAS breakeven in five days and the majority of LTV achieved in 20 days. However, these short timeframes contrast with long ad network payment terms before funds are received by the developer.

Once a game starts to build momentum, it is especially important to keep financing UA in order to continue pushing it further up the charts. Without funding to keep aggressively investing in UA, momentum will die along with the potential revenue from new users. Ultimately leaving the game to wither on the vine and fall off the charts.

Well funded hyper casual developers — or those with large Facebook/Google credit lines —  are able to continue to ramp their games, but it can be a very capital intensive business requiring a lot of funding in reserve in order to invest before any return is delivered. Ad network payout terms range from 15 days from the end of the month (so average payables days of 30 days), up to 60 days from the end of the month (average payables days of 75 days) from the worst payers. 

Having the capital to continuously invest in UA is out of the reach of most developers, which normally forces them down one of two paths:

  • Seek a publisher who has the financial resources to support the game, but give up a substantial revenue share — usually 50% after UA costs
  • Fade into obscurity knowing that, even though you had a great game and initial success, the lack of capital to invest ultimately cost you the opportunity to grow 

This is why understanding the velocity of money in the mobile advertising industry is critical, and those who have their financial planning done early can fund themselves in an efficient manner and achieve success without having to have a huge amount of capital in reserve.

What is the velocity of money, and why should I care?

The velocity of money in mobile advertising has to do with understanding how, and — critically — when, money flows around the ecosystem and how this can impact growth. Most UA and monetization managers are focused on P&L metrics. In other words, the day that 100% ROAS is recovered (breakeven day on ad spend) and projecting LTVs into the future. But many fail to take into account how the actual cash payments lag the P&L days by not focusing on the importance of payment terms.

Simply put, the longer an ad network’s payment terms, the more impact it has on your ability to reinvest revenue back into user acquisition. In order to effectively plan your growth strategy, you need to be very focused on two metrics.

  1. Average payables days of the relevant ad network — the average number of days you wait to receive payout (Note: not days from the end of the month, but days from the middle of the monthly accounting period until the date funds are released)
  2. Number of days to 100% ROAS recovery

If you divide the number of payables days by your ROAS recovery day, this will indicate how many “spins around the track” you could actually achieve in just one ad network payout cycle, and give you an estimate of how much faster you could be growing, if you could access your revenues more quickly and eliminate the ad network payout delay.

Example

Let’s say you have a ROAS breakeven on Day 7. And the average payables days across your range of ad networks is 35 days.

If you invest all your UA budget up front over a week, you can see the game breaking even on day 7 of each new cohort, but you are waiting until day 35 before you actually receive the cash payout from the ad network. Only then are you able to reinvest the funds paid out by the ad network into more user acquisition, by which time you have lost all your momentum.

Let’s assume now that payment days are eliminated altogether. Our developer would then be able to reinvest proceeds every 7 days as soon as breakeven has occurred, rather than every 35, into new marketing cohorts with a short breakeven period 

In other words, they would accelerate their pace of growth 5x.

If the developer is using an accounts receivable (AR) facility, such as the type of credit lines provided by Pollen VC, they would be able to access their earned mobile ad revenues capital on demand.  It could be immediately reinvested into UA with a predictable ROAS recovery day and LTV profile, and achieve significantly faster growth without requiring external capital.

How to calculate your growth

In order to give you better insight into your own growth potential, we created this simple Hyper Casual Cashflow Calculator to show you how many times you could reinvest your revenues during a single payout cycle compared across a range of ad networks, depending on their payout terms.

Pollen VC Hyper Casual CalculatorPollen VC Hyper Casual Calculator

The need to scale early is important

Ad network algorithms favor those who can achieve a sustained level of spending in a short period of time when the game is new, as opposed to a gradual ramp up. Many games have faltered as they either burn through all of their cash and flame out, or they stretch out their UA investment but never achieve the level of traction required to achieve scale and a good chart position.

It’s hard to get a second bite at the cherry, so it’s important to have a clearly articulated strategy that you can scale quickly if the numbers align. Sales teams within the large ad platforms are getting better at realizing this and helping developers with some of their planning.

Third-party publisher vs self-publishing

Some developers may decide to work with a third party publisher due to their inability to fund user acquisition. Of course UA costs will be deducted before revenue sharing agreements kick in. If the developer is receiving a 50% revenue share net of UA, this could be deemed to be a decent deal for the developer.

However, the publisher is likely to have investment criteria that requires they make a minimum target return on their UA investment. If there is a revenue share to pay out, then this hurdle just gets higher. In some cases we have seen recently, these hurdles cannot be met and the game has been returned to the original developer as the economics just don’t work out.

But that does not mean the game can’t make money. It just means there’s not enough pie to go around when there is a publisher at the table too. If the developer has decent UA skills of their own, and uses their AR to finance sustained ad campaigns, they can achieve great results and keep control of their own destiny.

Time is money

Time literally is money in hyper casual gaming. It’s important to think through your financial planning as part of your soft launch process and figure out if your game has the potential to truly scale.  Determine how you can achieve maximum bang for your advertising bucks, and how you’re going to finance your growth, so that you can maximize the opportunity to scale and be successful.

Pollen VC provides flexible credit lines to drive mobile growth. Our financing model was created for mobile apps and game publishers. We help businesses unlock their unpaid revenues and eliminate payout delays of up to 60+ days by connecting to their app store and ad network platforms.

We offer credit lines that are secured by your app store revenues, so you can access your cash when you need it most . As your business grows your credit line grows with it. Check out how it works!