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The Sweet Spot of New vs. Existing Players: Q&A with Optimove's Shauli Rozen
Q&A with Shauli Rozen, Head of Strategic Services at Optimove.
OnlineCasinoReports sits down with Optimove’s Head of Strategic Services, Shauli Rozen, for a chat about about the balance between acquisition and retention, the sweet spot of new vs. existing players, rockets, healthy grown-ups and old cash cows.
Q: Acquisition and retention are two different growth engines. What’s the importance of optimizing the balance between the two strategies?
A: Online operators must focus on growing their player base through new user acquisition while simultaneously keeping their existing players happy and engaged. Investment, however, is a zero-sum game, and the reality of most businesses is that investment in acquiring new players comes at the expense of nurturing relationships with existing ones, and vice versa. Herein lies the great importance of optimizing the company’s new-to-existing player revenue ratio, what we call the “player revenue mix.”
Q: What is the significance of player revenue mix for gaming operators?
A: There are several typical new:existing player revenue ratios that operators should be aware of as they grow their business. These ratios are often a good signal for the overall health of their business, and can also be very telling regarding the growth stage the company's in. New companies often rely heavily on acquisition. A new, growing company must remember to nurture its new players, but bear in mind that driving 90% of revenue from new players could be a red flag. On the other hand, older companies should avoid the mirror situation, where revenue is based overwhelmingly on existing players. Mature, solid companies should constantly refresh their player base and keep in mind that an “old player base” that is responsible for more than 90% of revenues may predict a business slowdown.
Q: Can you share with us your research methodology?
A: Optimove is a customer marketing cloud, serving an excess of 200 brands. This is a huge database of customer information. So we based our research on Optimove’s player database, covering brands in different growth stages. Our aim was to examine the possible correlation between a company’s growth and success rates, and its new:existing player ratio. We eliminated companies less than five years old and / or with an annual revenue of less than $10M.
To assess each company’s state of affairs, we used a combination of top-line factors that included year-over-year growth during the past three years and five-year CAGR (Compounded Annual Growth Rate). We then grouped clusters of companies with a similar player revenue mix, which also share core attributes such as longevity, growth stage, conversion rates, retention rates, churn rates and changes in Customer Lifetime Value over time.
Q: What types of companies did you uncover, and what do they mean for gaming operators?
A: Our research revealed four types of companies. For reasons I will expound upon, we named them Running-in-Place, Rockets, Healthy Grown-Ups and Old Cash Cows. The following chart depicts their new:existing player ratios:
Q: Which player revenue mix type from among these four groups should gaming operators aim for?
A: "Running in Place" are companies with great marketing that continually acquire new players, which means you would expect them to be able to grow quite quickly. However, our data shows that when 90% of a company’s revenue comes from new players, it is a signal that the company is experiencing difficulty in turning those players into active, valuable players. The companies in this group experience churn rates 100% higher than the sample average. Therefore, while constantly striving to acquire new players, these companies stand still in terms of growth and do not ramp up. In today's ultra-competitive gaming scene, this is especially problematic for operators.
Q: How should operators remedy the situation?
A: Companies who are "Running in Place" are either the not acquiring the right kind of new players, or not doing an adequate job of converting those new recruits into active, loyal users. In many cases it is both. By investing in retaining even a small portion of new players, Running-in-Place companies will build a stronger core player base that can skew the new:existing player ratio towards more existing clients, and turn them into Rockets.
Q: Of the company segments you've identified, where should operators aim to be?
A: Aim to be a Rocket or a Healthy Grown-Up!
Rockets are companies with annual growth of more than 50% for the last five years and a five-year CAGR of over 100%. These companies are usually relatively early in their growth cycle and have been around for less than seven years. While Rockets have a player revenue mix that tilts towards new players, all the Rockets in our sample derive at least 30% of their annual revenues from existing players, and 80% of them derive about 50% of their revenues from existing players. Rockets in our sample managed to retain their acquired players and experience churn rates 50% lower than the sample average.
Healthy Grown-Ups are companies with a five-year CAGR between 20% and 60%, which have been around for over 7 years. These companies usually possess significant market share in their respective industries and have managed to continually acquire new players while keeping retention rates high. In our sample, the typical Healthy Grown-Ups derive 60% to 80% of their revenue from existing players, and 70% of them had over 70% of revenue coming from existing players.
The success of these companies is attributed to their low churn rates and high “new-to-active” player conversion rates. The average churn rate in this segment was 60% lower than the sample churn rate average. When companies reach a significant volume of active users, the churn rate becomes a critical factor in maintaining growth, because player churn rates can easily overtake new player acquisition rates. These companies have also optimized their player acquisition process and are bringing in the right kinds of players, keeping “new-to-active” conversions well above their industry averages.
Q: Is reaching this favorable player revenue mix a tangible goal for startups?
A: The reality is that startups that don’t shift their mix towards existing players and improve churn rates don’t manage to become Rockets, and they remain at the Running-in-Place stage, experiencing low or negative growth after a short ramp-up period.
In the end, it’s up to each online gaming operator to decide for itself how much investment to pour into new user acquisition versus nurturing player relationships. But using the data above, operators can tell whether their business has a healthy mix of new versus existing players - or whether they need to focus more on one area over the other.
Thank you Shauli for taking the time ad sharing your insights. Those who are interested can read more about this subject at http://www.optimove.com/blog/balancing-your-new-existing-customer-revenue-mix