Why Games/Apps Start Losing Money When Scaling User Acquisition (UA)

Scaling user acquisition (UA) is a critical phase for mobile games and apps, but it often leads to financial losses if not executed strategically. As developers ramp up their UA efforts to attract more users, they encounter challenges that erode profitability. This article explores the reasons why games and apps lose money during UA scaling, key factors contributing to these losses, essential KPIs to monitor, and strategies to mitigate risks. We’ll also provide a practical example and a table summarizing the factors.

Why Losses Happen During UA Scaling

When scaling UA, developers aim to acquire more users to boost revenue through in-app purchases (IAP), ads, or subscriptions. However, rapid scaling can amplify inefficiencies, leading to higher costs than returns. Below are the primary factors contributing to these losses:

1. Rising Cost Per Install (CPI)

As UA budgets increase, competition for ad placements intensifies, driving up the Cost Per Install (CPI). High-demand ad networks like Google Ads or Meta Ads often charge more when targeting competitive markets or audiences. If the CPI exceeds the revenue generated per user, the app starts losing money.

Example: A hyper-casual game targeting the US market may have a CPI of $1.50 during initial campaigns. When scaling to broader audiences, the CPI might rise to $3.00 due to increased competition, but the revenue per user remains at $2.00, leading to a loss.

2. Poor Retention Rates

Scaling UA often brings in lower-quality users who churn quickly. If retention rates (e.g., Day 1, Day 7, Day 30) drop, the lifetime value (LTV) of users decreases, making it harder to recover acquisition costs.

Example: A puzzle game scales UA and acquires 10,000 users, but only 20% return on Day 1 compared to 40% during smaller campaigns. Low retention reduces opportunities for monetization through ads or IAP.

3. Ineffective Monetization Strategy

A poorly optimized monetization strategy can cripple profitability. Common issues include:

• Low eCPM (Effective Cost Per Mille): Ad revenue per thousand impressions drops if ad placements are not optimized or if users are from low-value markets.
• Weak In-App Purchases (IAP): If IAP offerings (e.g., skins, boosters) are unattractive or overpriced, conversion rates suffer.
• Unbalanced Monetization Mix: Relying heavily on ads in a premium game or vice versa can alienate users.

Example: A game with an eCPM of $10 in Tier-1 countries might see it drop to $3 when targeting Tier-2/3 countries during UA scaling, reducing overall revenue.

4. Low Lifetime Value (LTV)

LTV represents the total revenue a user generates over their lifetime. Scaling UA often attracts users with lower engagement or spending potential, reducing LTV. If LTV is lower than CPI, the campaign becomes unprofitable.

Example: A strategy game has an LTV of $5 in its core audience but drops to $2 when scaling to broader demographics, while CPI remains $3, leading to a negative return.

5. Inadequate Creatives and Playables

Ad creatives and playable ads are critical for attracting high-quality users. Scaling with generic or low-quality creatives leads to lower conversion rates and higher CPIs. Playables that misrepresent the game can attract users who churn quickly.

Example: A role-playing game (RPG) uses a generic ad creative that doesn’t showcase its unique mechanics. As a result, acquired users expect a different experience and uninstall after one session.

6. Game-to-Game Variation

Different game genres have varying monetization and retention patterns. For example, hyper-casual games rely heavily on ad revenue, while mid-core games depend on IAP. Scaling UA without tailoring strategies to the game’s genre can lead to inefficiencies.

Example: A hyper-casual game scales UA with the same strategy as a mid-core game, focusing on high-CPI channels that don’t align with its ad-driven monetization model, resulting in losses.

7. Analytics Gaps

Without robust analytics, developers can’t identify which UA channels, creatives, or audiences are underperforming. Scaling amplifies these gaps, wasting budgets on ineffective campaigns.

Example: A game developer scales UA without tracking cohort-based LTV, missing that users from a specific ad network have a 50% lower retention rate, leading to unprofitable campaigns.

8. Neglecting App Store Optimization (ASO) and Organic Growth

Focusing solely on paid UA while ignoring ASO reduces organic installs, which are typically cheaper and higher quality. Poor ASO (e.g., weak keywords, unappealing visuals) limits visibility and increases reliance on costly paid channels.

Example: A game neglects ASO, resulting in only 10% organic installs compared to 30% for competitors, forcing higher UA spending to meet growth targets.

9. Scaling Too Quickly

Rapid UA scaling without testing and optimization can overwhelm resources. Developers may target unprofitable markets or overspend on untested ad networks, leading to losses.

Example: A casual game scales UA from 1,000 to 10,000 daily installs without testing new markets, only to find that 60% of users come from low-monetizing regions.

10. Poor Return on Ad Spend (ROAS)

ROAS measures the revenue generated per dollar spent on advertising. Scaling UA often dilutes ROAS if campaigns target low-value users or if monetization isn’t optimized.

Example: A game achieves a ROAS of 150% at small scale but drops to 80% when scaling due to higher CPIs and lower LTV, making campaigns unprofitable.

11. Ignoring ARPU and ARPPU

Average Revenue Per User (ARPU) and Average Revenue Per Paying User (ARPPU) are critical for understanding monetization efficiency. Scaling UA can lower these metrics if new users spend less or engage minimally.

Example: A game’s ARPPU drops from $20 to $10 when scaling to a broader audience with lower purchasing power, reducing overall revenue.

Key KPIs to Monitor

To avoid losses during UA scaling, track these KPIs closely:

KPI	Description	Why It Matters
CPI	Cost to acquire one user via paid campaigns.	Ensures acquisition costs don’t exceed revenue.
Retention Rates	Percentage of users returning on Day 1, 7, 30, etc.	Indicates user engagement and quality of acquired users.
LTV	Total revenue generated by a user over their lifetime.	Must exceed CPI for profitability.
eCPM	Revenue per thousand ad impressions.	Reflects ad monetization efficiency.
ARPU	Average revenue per user (including non-paying users).	Measures overall monetization performance.
ARPPU	Average revenue per paying user.	Gauges spending behavior of paying users.
ROAS	Revenue generated per dollar spent on ads.	Determines campaign profitability.
CTR (Creatives)	Click-through rate of ad creatives/playables.	Indicates creative effectiveness in attracting users.
Organic Installs	Installs from non-paid sources (e.g., ASO, word-of-mouth).	Reduces reliance on costly paid UA.

Practical Example: A Puzzle Game’s UA Scaling Failure

Let’s consider a puzzle game, “PuzzleStar,” with the following scenario:

• Initial Campaign: 1,000 daily installs, CPI of $1.20, LTV of $2.00, Day 1 retention of 40%, eCPM of $12, and ROAS of 160%.
• Scaled Campaign: 10,000 daily installs, CPI rises to $2.50, LTV drops to $1.50 due to lower-quality users, Day 1 retention falls to 25%, eCPM drops to $8, and ROAS falls to 60%.

Why Losses Occurred:

• High CPI: Scaling targeted broader audiences, increasing competition and costs.
• Low Retention: New users were less engaged, reducing LTV.
• Poor Creatives: Generic ads attracted users expecting a different experience.
• Weak ASO: Organic installs remained low, increasing reliance on paid UA.
• Monetization Issues: Lower eCPM and fewer IAP conversions in new markets.

Solution:

• Optimize creatives to reflect core gameplay.
• Test new markets with smaller campaigns to identify high-LTV audiences.
• Improve ASO to boost organic installs.
• Adjust monetization (e.g., offer region-specific IAP bundles).

Strategies to Mitigate Losses

1. Test Before Scaling: Run small-scale UA campaigns to identify high-performing channels, creatives, and audiences.
2. Optimize Creatives: Use A/B testing to refine ads and playables, ensuring they attract engaged users.
3. Leverage Analytics: Use tools like AppsFlyer or Adjust to track cohort performance and optimize campaigns.
4. Balance Monetization: Combine ads, IAP, and subscriptions tailored to the game’s genre and audience.
5. Prioritize ASO: Optimize app store listings with strong keywords, visuals, and reviews to boost organic growth.
6. Monitor KPIs Closely: Use real-time dashboards to track CPI, LTV, ROAS, retention, and other metrics.
7. Target High-Value Markets: Focus on Tier-1 countries or high-LTV audiences during early scaling.

Conclusion

Scaling UA is a double-edged sword: it can drive growth but also lead to significant losses if not managed carefully. By addressing factors like rising CPI, poor retention, ineffective monetization, and weak creatives, developers can scale sustainably. Monitoring KPIs like LTV, ROAS, eCPM, ARPU, and retention is crucial to ensuring profitability.

What challenges are you facing with UA scaling? Share your issues in the comments below, and let’s discuss how to tackle them! Whether it’s high CPIs, low retention, or monetization struggles, your insights can help the community learn and grow.