- “The limitation of ROAS lies in its failure to consider the time value of money and the necessity of financing LTV cycles.”
- “Utilizing IRR allows for a more detailed analysis that takes into consideration the actual financial performance over a period of time.”
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Targeting users in the mobile games market has become a significant challenge. Games are competing in an oversaturated market while also struggling for visibility on storefronts to attract user attention.
In a guest post, Martin Macmillan, the founder of the Mobile Finance Collective and CEO of Pollen VC, explains how adopting lifetime IRR can enhance marketing strategies by providing a more insightful analysis compared to traditional ROAS metrics.
With increasing competition in mobile user acquisition, UA and finance professionals are continuously seeking more sophisticated methods to evaluate the financial performance of their marketing initiatives.
Transitioning from ROAS to an IRR-based approach offers a more financially relevant metric for tracking UA spend at scale.
Utilizing IRR allows for a more detailed analysis that takes into account real financial performance over time.
The issue with ROAS is its oversight of the time value of money and the financing requirements of LTV cycles, particularly significant in higher interest rate scenarios.
IRR provides a more nuanced analysis that considers the actual financial performance over time, providing a comprehensive view beyond static ROAS figures.
Understanding Internal Rate of Return (IRR)
“A financial metric used to evaluate the profitability of investments.”
Investors utilize IRR to assess and rank potential investment opportunities. It represents the discount rate applied to the cash flows of an opportunity to achieve a net present value (NPV) of zero.
An IRR-based approach delves into the financial impact of UA efforts over time, enabling a more precise evaluation of the true financial performance of marketing endeavors.
Comparing Lifetime UA Spend vs. Lifetime UA Return
A lifetime IRR calculation may yield interesting results for games or apps that have been spending time on UA.
By analyzing the lifetime spend versus return since the launch of a game or app, a comprehensive perspective on overall financial performance, represented by the running yield, can be derived.
