Rethinking forecasting for finance teams in mobile gaming

September 22, 2023
Hong Nguyen
5
min read

Creating hit games in the mobile gaming industry may not be an exact science, but it is undeniably data-driven. However, there's a significant gap in how finance professionals have adapted to this data-centric environment — especially when it comes to forecasting. Based on my experience as CFO at Space Ape Games, coupled with over two decades in general finance, I'm sharing why I believe there's a need to rethink forecasting for finance teams in the mobile gaming industry.

Understanding the high stakes

When forecasting errors occur in our line of work, it's not a matter of someone's bonus being reduced or an individual being fired. It’s about studios shutting down. So, when we task a finance newcomer with predicting a game's revenue while simultaneously monitoring the game development cycles as well as other business expenses, it's not just a tall order; it's akin to scaling a mountain.

"There’s a ton of experience, and also nuance, that is required to do a good job of forecasting at mobile gaming companies. Moreover, it’s about defining what ‘good forecasting’ looks like and understanding what finance professionals need to do to achieve it."


Traditional forecasting vs. modern forecasting

Many finance teams still rely on the traditional KPI-based model, utilising metrics like new users, retention rates, and daily active users (DAU) to assess a game's performance. The resulting profit and loss (PNL) statements provide a clear but limited snapshot of past successes and failures, often in isolation from the broader business context.

In contrast to traditional forecasting methods, a modern cohort-based approach involves the meticulous tracking of various user cohorts over time, leveraging data to estimate their lifetime value (LTV).

"A modern approach doesn't stop at static estimations; it also constantly refines these figures."


For instance, our product team incorporates real-time engagement and retention data into the equation to project active user counts for each cohort. We also take into account the potential impact of upcoming game releases on these metrics. This not only assists in product development but also helps our finance team in budgeting and financial planning.

Simultaneously, our marketing team actively conducts tests and analyses campaign outcomes to optimise performance based on insights derived from cohort-based data. This approach not only enhances marketing strategies but also informs financial decisions by aligning budget allocation with data-driven insights.

"This ensures that our finance insights actively shape product, marketing, and overall business strategy, transcending the role of finance as mere support and turning it into a value creator."


Technology’s role in modern forecasting

As forecasting models evolve, technology plays a pivotal role in enabling this transformation. Traditionally, finance teams rely on spreadsheets to do this, which is a manual and time-consuming method that emphasises data compilation over analysis. Modern forecasting tools, on the other hand, offer automation and rapid insights, allowing us to shift our focus from report generation to actionable analytics. By saving time on administrative tasks, we can invest more in strategic decision-making, ensuring that every choice is value-driven.

“The true value of a finance team lies in its ability to create value through insights and data. These insights, however, must be grounded in confidence, which forecasting technology can provide.”


Validating modern forecasting = confidence

At Space Ape Games, we looked to innovation by comparing our internal forecasting models with tools like Kohort — it wasn’t just about the tool but also the mathematical model. This process allowed us to validate both our internal forecasting methods and the accuracy of the tool itself. As a result, we also realised that we can trust the outputs generated by such a forecasting tool, freeing up resources to make a more significant impact elsewhere.

I need to add that we undoubtedly have talented individuals on our team, and while they are capable of refining their own models if necessary, the question arises: Is this the best use of their time?

"Teams can be more effective in their core roles, driving strategy and innovation instead."

The Chrome Valley Customs example

Chrome Valley Customs, our third-generation game at Space Ape, exemplifies our data-driven approach right from its inception. Launching a game is a significant decision, but equally important is knowing when to "kill" a game.

Kohort provided us with the confidence to make well-informed decisions regarding Chrome Valley Customs. From the very start, we implemented forecasting, which gave us early insights into the game's potential. This wasn't solely about gauging the game's likelihood of success; it was also a critical evaluation of whether it met our criteria for being a "hit game." If it had failed to align with our benchmarks, it would have served as a clear signal for us to consider reallocating resources. These resources, which include both talent and finances, could have been redirected to more promising projects.

This strategic decision-making process exemplifies where the true value of modern forecasting lies. It's not merely about saving time or reducing costs; it's about optimising our most valuable resource: our teams. By making informed decisions early on, we ensure that our talented individuals are always engaged in projects with the highest potential for success, projects that align with our company's mission of creating hit games.

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At the end of the day, I know that Finance remains a cost centre for many studios, and investing in technology may not always be the top priority. However, from my experience, the value provided by such tools far outweighs the cost. These tools empower finance teams to excel in their roles, and there's no better reason than that to prioritise them in our financial strategy. After all, as finance professionals, we understand the importance of a cost-benefit analysis, and in this case, the benefits are abundantly clear.

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