There are in general 2 types of games:
A premium game simply means that the players have to buy the game before playing it. There are lots of examples of them, especially in the console market. Skyrim, Fallout, GTA. Or even Rocket League. Or some of my beloved Visual Novels such as Umineko or Muv Luv.
So, let's say a mobile game is sold at $10? That means the 'Commission Value' of the game is $10 (not including the Steam/Apple/Android cuts, but let's simplify for the moment). And of course you can include IAP in a purchased game, but let's not talk about that for now either.
So, at $10, assuming a Return on Investment of 100%, we only have $5 to spend on ads to net a sale.
So, the next question will be, what is the Conversion Rate of the game?
Now, with a targeted audience, you should be targeting at 1%. However, determining conversion rate is pretty hard and you can only really know the real conversion rate when you genuinely make sales selling the actual product.
HOWEVER, let's take a leaf from the real world. We call this Market Validation.
In the real world, you don't just spend years and $$$ making a product and then release it without checking its 'sale-ability' early on in the cycle. Actually, there are lots of people who do this without doing any prior research or market validation and spend hundreds of thousands or even millions without validating their product. Predictably, they crash and burn, unless they're really, really lucky.
What you need to do is:
1. You need to research what the market wants
This is, in my opinion, a mixture of science and art. You can make a whole post about this and there are probably lots other people that can expand better than whatever I say. But you can either 'follow the numbers' (Spy at whatever is trending up, and follow that way). Or determine by yourself where the market would go, based on the current information you have, for example, a change of government policy, and strengthen your reasonings by tapping the market directly (read forums, talk with people on the ground, surveys, etc).
One of my favourite way is to make a website that sells a product. But rather than selling, it will just present the user with a form to collect email and some fields that make it a bit long (also to collect more information about what the user wants). Maybe with a message "We'll contact you when the product is available!" If the user takes the time and trouble to fill in the form, chances are they are receptive to buying the product we'll be pitching then.
2. Validate whatever your research is 'correct' by making a Minimum Viable Product (MVP)
No matter how meticulous your research is, it is still just that: a research. A hypothesis. You may be right, but you may still be wrong as well. Maybe your research isn't accurate. Maybe there's an underlying assumption that you didn't realize during your research. Maybe there are other hidden factors that you didn't realize. Your research will help point you to the correct direction, but it may not be 100% correct.
So, to validate your research, what we need to make is a Minimum Viable Product (MVP). What this means is that we make a product with the least effort, that directly solves the problem minimally and viably (if that makes sense). Rather than spending millions of dollars and years, only spend a bit of time and finish a product as quickly and as minimally as possible that directly solve that problem. It needs to be usable only. It doesn't need to be cantik, pretty, clean or all the bells and whistle.
3. Sell the MVP
And once you have the MVP, market it. Yep. Market that ugly thing. Buy ads. Do talks. Whatever. Spend your money here. At this stage, this is where we place our bet. How much are we willing to spend to validate our product? Don't spend too much, but you need to spend enough that you will be confident when you are actually building and spending for a full-fledged product for that market.
Does it satisfy the market? And if it does, it'll make a sale no matter how ugly it is. Or you can even give it away for free, though the result wouldn't be as accurate. And from there, determine your Conversion Rate. Remember, the whole reason we do this is to determine the Conversion Rate of the product. (If it's a Premium game btw, a F2P have other clever plays to make). That's it.
Alright, so how about in the game world?
That's why, at least in Steam, you can start promoting your game as Early Access. Make a MVP and put it as an Early Access and see how the market reacts. Or if you don't want to go that way, you can also go with the Kickstarter route. Do some kickass trailers, screenshots and arts and see how the market reacts.
Which is why you see games promoting on Kickstarter and other funding platforms. Yes, they're looking for funding to start making the game, but more importantly, they are gauging on how well the market reacts to a game AND is the market willing to put the money in its mouth to back the game. And if they don't (after a well marketing campaign), then chances are the full game ain't going to be received well too. See? Waste of collossal amount of money averted.
And, from there, determine your Conversion Rate. Compare that to your selling price, which is your Commission Value, and you can get your Earnings/Click. The marketing you did for your Kickstarter? That's your Cost/Click.
Congratulations, you now have a very good indicator on how well your game will be.
If you manage to get your Cost/Click lower than your Earnings/Click at a good ROI, then you're golden and the game gets greenlighted (not a pun on Steam by the way). If not, your game will end up with lots of digital dust, unless you somehow get free advertising.
So now, how about Free to Play?
Marketing is heavily about numbers. But the next thing about marketing, after numbers, is all about being devilishly clever. And Free-to-Play mechanism opens a whole new world towards how you can manipulate and control your Commission Value and Conversion Rate to your advantage.
Free-to-Play means people are free to play the game. So that's one less wall (a big wall, in fact) to getting people to actually play your game.
HOWEVER, if everything is free, that means no revenue. And if you have no revenue, that means your Earnings/Click is $0. And if your Earnings/Click is $0, that means you can only get paid ads at $0/click, which means zilch marketing. Which in turn means nobody is going to play your game.
But of course, here comes the devilishly clever part. There are plenty of ways, but here are the 2 main ways on make money / monetize your F2P games:
1. In-app Purchases
Yep, In-App Purchases. People play your game. And inside your game they buy stuffs. Like hats.
Good old ads. You have banner ads and also video ads in mobile gaming world.
3. Oh did I say 2 just now? The third is a Mixture of both.
This depends on the game, but you can mix them both to achieve a good result as well.
Now, talking about all the methods of monetizing a F2P game deserve a whole book about it on its own (In fact, I recommend 1 book, I forgot its name, I'll update the post when I remember them). However, I'll touch a bit on the most effective ways to make those players click 'Buy Now' on the Google Wallets.
Is your game an RPG? Then, the best IAP you can do is an item that doubles the experience gain by the players. And make it as cheap as possible, like $1. You just want the player to open their wallet, so they'll be open to spending for other IAP items.
How about Ads? If you game is an RPG, what you can do is after each fight, the player will lose health. They can either wait to restore their health, or watch a Video Ad (We call this Interstitial Ad) and immediately recover all of their health.
Of course, you can mix both so that you maximize the monetization of your game.
Alright, with your clever game design, you should be able to come up with the Average Revenue per User. We can drill further into the stats (like how many percent of players end up buying an IAP, how many video ads an average user sees, etc) but getting the Average Revenue per User is the most important. In Affiliate Marketing terms, this is your Commission Value.
Remember the Market Validation part? You need to validate this part too. Get some test users to play. See how much they buy or earns you $$$. Validate your Average Revenue per User numbers. This is very important. You need to be confident with your numbers, else everything will fall apart.
And your Conversion Rate will be from your Marketing Campaign. How many clicks required to get people to download your game?
And from here, this is straightforward like any other Affiliate Marketing campaign. Calculate your Earnings/Click, get your Cost/Click. And if you can somehow lower your Cost/Click or increase your Earnings/Click through game design, you've got yourself a winner. Yay!
If you read around about games that have millions of downloads, you'll see that they have spent millions of dollars on advertising. Example, Empires and Puzzles spent $8 million on marketing. That's a lot!
BUT, with your knowledge now, you should understand how and why they can spend that much.
They didn't just drop $8 million buying ads and hope they make back their money. Nooooooooo.
They've calculated their Earnings/Click. And increased and maximized them through game design. And manage to minimize their Cost/Click to be lower than their Earnings/Click. Once you know every $1 you spend gains you $2, you'll be stupid not to spend every $1 you have now. And that's what they did.
...And this brings me to my next point.