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What UA Managers Need to Know About Cash Flow and P&L

Steve Hovagimyan is the former CFO at Penn Interactive and Jump Ramp Games and now is advising Armory Square Ventures.

He is a seasoned CFO with experience in both private and public companies. In our interview, he shares how to calculate ROAS and what a CFO wants to see, how to finance an effective UA campaign and finally what metrics you should hit before hiring a CFO.

What are some practical tips for UA managers about working with a CFO?

The biggest thing is to be a good partner and a good teammate.

A lot of UA managers will try to brush aside some of the bad news, but don't do that. 

It's better to let a CFO know upfront and then we can do something about it together. Finance folks do not like surprises, we'd rather take the bad news upfront.

I or someone on my team will look at the reports every day and watch the trends.

However, even if the data looks normal, the UA manager should communicate any news or trends that they have heard on the streets.

For example, a huge Nike campaign is coming up and it's probably going to increase our CPIs in the coming weeks. Be proactive in the good and bad news.

What are concerns that a CFO faces that a UA manager may overlook?

I'm actually surprised at how many UA managers don't necessarily pay attention to ROAS.

The hardest thing about being the CFO is that if things do go wrong, then the blame game starts. User acquisition or marketing may point at a product and say that the app is missing critical features.

And the product team will say that marketing is buying bad traffic. As the CFO, it’s pretty hard to unwind the truth and really figure out what’s going wrong.

Therefore, I have to sift through industry sources and see what’s going on in the market.

One thing I would like UA managers to do is talk to the vendor partners and research the industry trends and not rely just on the data.

Are there big campaigns coming up from big brands that are going to drive prices up? Are there things in the market that can overwhelm typical seasonality effects?

That's the biggest thing. I wish UA teams would go out and get the information, communicate it to your CFO and your data team and then be prepared.

What key metrics does a CFO look at?

Simply ROAS, LTV and CPI. I think you have to look at them separately.

For example, despite getting a 4X ROAS on a UA campaign, you may not be able to spend $100 CPI, because you also need to hit your number of users as well.

How do you calculate return on ad spend (ROAS)?

I like to calculate it in a lot of different ways. Almost as many ways as you could calculate lifetime value (LTV).

I tend to look at ROAS just on paid traffic. A lot of people will try to blend in the organic traffic because the numbers look better and there's value in looking at that number over time, but let's look at both.

The most important thing to me is to know when we are going to break even and if we’re going to break even.

Those in the social casino space or other industries that take longer to break even will report six, fifteen and thirty-day LTVs and ROAS, and while it’s nice to compare these numbers with other cohorts of the same time, I want to know when UA is projecting to break even.

I recommend that you look at your LTVs and ROAS over three, six, nine and twelve months to find the break-even point, so that I know when are we going to get 100% ROAS.

How do you manage cash flow when there are payment delays from ad networks and the app stores?

The delays from the ad networks and app stores slow down the growth of the business.

Steve Hovagimyan

Everyone says they'll pay you back in 30 days on the revenue side, but on average, you will collect your money from the revenue side within 60 to 90 days. If you're lucky and good and stay on top of things, the average is 60 days.

That means the $100,000 I gave the UA manager, won't come back to the company for 60 to 90 days. And that's if you're getting a hundred percent ROAS right off the bat. Therefore, I might not be able to get that $100,000 to give for next month's UA budget.

I would say to UA teams to be a partner again. When your vendor partners come knocking at the door and say, “why aren’t we getting paid?”, it's typically because I'm waiting for the other side to pay us.

The delays from the ad networks and app stores really slow down the growth of the business. 

How do you deal with campaigns that are working well, but you have not budgeted for it?

If you get an opportunity like that. You gotta jump on it.

You either go back to your equity investors or find some kind of creative debt financing source.

There's a lot of people that do AR financing whether it's venture lenders or companies like Pollen VC.

What do you think about ad network credit lines for user acquisition?

I don't use them. We get 30 days to pay our vendors. I just get our financing sources or through a company like Pollen VC or a bank.

How do you like to efficiently fund user acquisition campaigns?

Because of my current role, I'm biased to the VC funding, but that will be among the most expensive.

And then Pollen VC will be the next.

Traditional bank lines are great if you can get them. However, that's the biggest problem, they can be relatively inexpensive compared to other sources, but you have to be pretty large. You have to be a $20-30 million dollar company with venture backers before a bank will give you a good credit line.

As for credit cards, I just think that’s risky and pretty expensive.

When gaming companies should look to hire a CFO

I think people wait too long to hire a CFO.

A lot of people think you have to have a full-time CFO, but I think more and more you'll see these part-time CFO folks around. I've seen them at a couple of other game companies. I would say you probably don't have to hire a part-time person until you've got some consistent revenues coming in because it's at that point where you have to start managing the revenue and expenses.

Start out with the sort of accountant/bookkeeper type, then when you get up to the $60,000 a month level, you can bring in a part-time CFO.

Then when you generate $5-10 million a year, you might want to start looking at a full-time CFO. Also, if you’re going to start interacting with venture funds and corporate people then you may want to hire a CFO a little earlier than later.

But if you can run on your own, then you probably don’t need a CFO until about 10 million.

Author: Steve P. Young is an app marketing expert and founder of App Masters where they have helped clients 10X downloads and revenue. App Masters is known for its ASO and growth hacking strategies and have helped 29 different clients get featured by Apple.

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.

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