How to price items in free-to-play games

Javier Barnes takes us through his 4-step methodology for creating a pricing model that works for your game economy

If you search for in-game pricing online, most of the information you’ll find is about offers and discounts. However, offers and discounts work on top of an existing price model, usually to optimize it. But understanding how to create a price model from scratch is somewhat of a black box.

In this article, which expands the contents of my exclusive LevelUp 2021 session, I’ll attempt to fill in this information gap and show you how to find the right pricing model for your game.

Different purposes of in-game prices

A common misconception regarding item pricing models in F2P games is that they’re entirely related to monetization. Actually, in most cases, just a small fraction of all items in a game have the objective of actually generating revenue.

The actual purpose of most game prices is to determine the pace at which content is acquired and therefore control the length of the content in terms of gameplay time. For example, creating a milestone that requires two hours of grinding.

In other words, the purpose of an in-game price can be to monetize or to generate engagement. And those two big purposes can even be further segmented.

For example, when it comes to monetization, a price can:

• Aim to monetize directly by being both difficult to grind (priced in premium currency) and priced at the optimal point to generate the most revenue.
• Aim to generate conversion by being paid in premium currency but priced low to make players make their first transaction in the hopes that they’ll spend more in the future.
• Attempt to make another price feel less expensive (anchor price) or force a comparison to make another item look like a better investment (decoy price).

And prices that aim to generate engagement can have multiple purposes too:

• Some may be intended as long-term objectives that require soft currency grinding, guaranteeing that accessing the game content will require a certain amount of time investment from the player.
• Or maybe they aim to push the player to specific activities by being priced in a currency granted only on specific game modes.
• Or perhaps they can be easy-to-access prices to generate a significant player inventory early in the game and foster early retention.

So the process of setting prices in a F2P game is much more challenging than it seems at first glance. It’s not only about finding the optimal point between demand and supply to maximize revenue.

It’s also making sure that the distribution in terms of currency types and amounts required generates objectives for the player to keep on playing, grants a constant sense of progression, pushes players to the game activities that will generate engagement, creates incentives for a first purchase, and many more side-objectives.

Creating a pricing model is a complex task, but hopefully, the process I’m about to describe will make it easier for you.

4-step methodology for pricing

The best way to solve a complex problem is to break it down into simpler problems, and then put the pieces of the puzzle together later on. With that in mind, here are four steps that will help you put together your pricing model.

1. Research competitors’ prices and the spending habits of your audience

If you want to open a coffee shop, the first action that you should take is to check out the range of products and prices of nearby coffee shops. After all, you’ll get fewer customers if you sell the most expensive coffee in the neighborhood (unless you add some extra value to it, like a better flavor or a comfy place for meetings…).

In F2P games, that approach is helpful too. Not because players will compare prices between the games (they most certainly won’t, unless they’re very hardcore players), but because it will give insight into your competitors’ key learnings.

The main things to research about your competitors’ pricing are:

• How they distribute items over different price points and currencies. For example, the balance between hard and soft currencies. This will give you a clue as to the amount of content they dedicate to actual monetization, first-time conversion, and what’s grindable (i.e. what can be unlocked for free through playing the game for a certain amount of time).
• It’s particularly interesting to check the most common price points used on the game’s most valuable items, especially newly released ones.
  Because this is likely the indicator of which prices they’ve found to be the most effective in terms of revenue generation.
• The amount and speed at which resources are obtained in the game and the pace at which players acquire items without spending real money.
  This will give you a hint of how often in the progression must content be delivered to players to keep their interest alive.

For example, by examining the hard currency prices of cars, in Asphalt 8: Airborne and Real Racing 3, we detect that most of them are located at two specific price points. Likely, two are key for their monetization.

Of course, your ultimate objective is not just to copy your competitors. You want the best pricing model for your game. And the best model is the one that’s best adapted to the specific characteristics of your actual players.

After all, if your coffee shop is located in a dark alley near the docks of Gotham, your customers are going to want cheap coffee very early in the morning before going to work.
While if it’s on a fancy street, they’ll probably come in on the afternoon and be willing to pay a bit more for a chance to chill there and maybe spot Bruce Wayne’s latest supercar.

This requires you to research the purchasing habits of your audience. For example, by interviewing players that belong to your target audience or fans of similar games.
My advice is that you focus on discovering…

• Their purchase ratio and volume: How often do they buy, and how much do they spend regularly? This will be key to later set prices that match those expectations.
• The weight of each spending profile over the game revenue. Which will help you determine which players your monetization should be focused on.
• Which game elements they find valuable and would be willing to pay for, and which ones they don’t value as much. This is a good insight on which items should be designated to generate revenue or become long-term objectives and which ones you can afford to give away to players to boost loyalty.
• It is also important to identify which elements they find valuable but would hate paying for. For example, MOBA players love competition and, therefore, would value greatly anything that would grant them a competitive advantage, but they’d hate it if it was monetized.

At this point, it’s also important to take into consideration the specific characteristics of your game design that can affect pricing.

For example, because CSR Racing 2 has a much greater upgrade depth compared to other racing games, they are able to price valuable cars cheaper and grant them to players for less game effort. At the end of the day, they will generate as much or even more revenue from them as the player gradually upgrades the cars.

This makes CSR Racing 2 better at generating engagement than other games because racing game fans value cars highly. So if they get fancy cars often, they’re incentivized to keep on playing.

2. Establish an equivalence between game resources, fiat money, and acquisition time (economy foundation)

Now we know which items are valuable, how often players are used to obtaining something without paying, and the amount that our users tend to pay per month.
Let’s say that players should be able to buy a gacha chest every 15 minutes of grinding resources, and most of them would pay ~20$ per month on the latest game character.

At this point, we run into some questions:

• How many resources are 15 minutes of grinding?
• If I can buy missing resources with hard currency, what is the equivalence in hard currency of 15 minutes worth of resources?
• What if different game modes generate resources at a different speed?
• What if the number of resources grinded increases with progression?
• If bigger IAP packs give me more hard currency per dollar, how much is 20$ in hard currency?

To solve these questions, it’s very useful to establish a master formula that establishes the equivalence between the different resources, especially how they translate to time and to real money. For example 1 gem = 1 dollar = 15 minutes = 15.000 coins

Of course, this doesn’t mean that the resources can be freely transformed from one another. Players will not be able to buy gems with coins, and if there are no gem rewards, then potentially spending 15 minutes grinding may generate no gems at all. Otherwise, you risk greatly devaluating gems.
But this will allow you to regulate the situations where those exchanges happen (how often the game gives a gem, how many coins buy 1 gem or 1 dollar…).

Alas, some of the questions raised above are still pending an answer.
Let’s tackle them:

• What if different game modes generate resources at a different speed?

My advice is that you put the equivalence of grinding the best mode for that particular resource, meaning “how much of resource X a player can get if focusing exclusively on grinding resource X?”.

Nevertheless, I advise you not to grant the same resources at different speeds in different modes, as it will likely push players to the most efficient mode and not necessarily the most fun.

It’s much better to grant different resources in different modes, therefore making sure that players play them all.

• What if the number of resources grinded increases with the progression?

This happens especially with soft currency: most games increase the amount of resources users can collect as they progress through the game.
For instance, completing a two-minute battle early on in the game may grant 100 coins for the user, while a two-minute battle at a more advanced stage might give 20,000 coins instead.

This creates inflation, decreasing the value of the game’s soft currency and making it harder to manage the in-game economy. That’s because you need to take into account increasing prices as well, in order to avoid game prices getting progressively cheaper.

In short — my advice is that you be wary about causing inflation when designing your economy and instead scale elements like experience points or character stats or other progression metrics rather than resource acquisition.

You can also split your game economy into different stages (early game, mid-game, and late-game) and create different resource equivalence for each. It will be more complex than having just one game economy, but it will at least help you manage inflation.

• If bigger IAP packs give me more hard currency per dollar, how much is 20$ in hard currency?

In most F2P games, the more expensive your pack, the lower the price of each in-game currency unit will be.

For instance, spending $1 might unlock 1,000 gems for the user, while paying $80 might unlock 110,000 gems — making each gem around 33% cheaper when purchasing the expensive pack.

The volume of the pack discount can vary a lot between different games, depending on which IAP pricepoints do they aim to promote among their audience. For example, notice how CSR2 scales up the discount mostly on its latest pack, aiming to generate purchases of high volume (that pack costs +100$). This points out that the game monetization is (likely) very whale-oriented.

So then, how can you establish an equivalence between dollars and gems? Two options:

• 1) Average all unitary prices. Which won’t be 100% accurate but will do the trick, especially if the maximum discount is not huge (~30% cheaper).
• 2) You can also just use the most representative in terms of your revenue goals or target audience spending benchmarks. For example, if most of your game revenue is generated by players buying the biggest IAP pack, you can use the average unitary price of the biggest pack to calculate all prices.

Ultimately, the objective of this equivalence formula is to help you quickly evaluate the costs (in either grinding time or money) of any price presented on the game.

This will help you establish and maintain coherence on the value of the different resources, which is useful when determining the size of the game rewards.

For a more accurate estimation, you should also build a control model (a simulation of incomes and outcomes for the game, with the aim of predicting player progression).

This will become more necessary the more complex your economy is (for example, if players can upgrade their resource generation capacity, or if the game has to take into account losing resources to PVP raiding…).

3. Structure items from less valuable to more valuable

The next step is to properly arrange the roster of items in your game so that you’re able to apply a pricing model.

To do this, the first thing is to group game items together based on their use or purpose in the game. For example, segment into different categories the weapons, armors, health potions, and hero skins of your game.

Afterward, you should rank each group from less to more valuable, and therefore create a progression on their acquisition and pricing.
The most obvious way to rank them is based on their gameplay power (weak weapons come before stronger weapons) or difficulty to use (easy-to-use heroes come before hard-to-use heroes).

In some cases, ranking by power won’t be possible, like with game cosmetics. In that case, you can rank them based on scarcity or difficulty to acquire (some cosmetics may arbitrarily have fewer chances to appear in loot boxes) or simply based on how cool they look.

This will allow you to generate a curve of prices/time costs for each of the different item categories.

How do you keep prices sustainable?

Of course, you shouldn’t just scale prices up for each item. Doing this would have a negative impact on your revenue: the prices will eventually move out of the optimal points for generating revenue and exclude the users that can’t keep up with the escalation.

And in terms of player engagement, the amount of time required to access an item would also become ridiculous, with each new piece of content requiring so much time investment that players would just give up.

The escalation of costs in a game follows similar rules to difficulty escalation:
If game difficulty simply keeps on increasing forever, it will eventually become unmanageable by even the most skilled players, and it would force out everybody. A sustainable difficulty curve oscillates within acceptable points.

So how can games introduce more powerful or new items without escalating the prices?

It’s not something you can solve by balancing prices, but rather by how you structure content.

Some popular solutions for this are:

• Use a strict progression system where each step is unavoidable.

For example, because the previous item is a requirement to obtain the next one in line or has multiplayer layers of upgrade, or it’s required to complete the game challenges necessary to unlock the next step.

That means that item costs can remain flat since they can’t be skipped.

• Plan for the item obsolescence, progressively lowering the price of a valuable item as its usefulness in gameplay diminishes (for example, because a stronger unit is introduced).

This will allow, over time, to sell the item at multiple price points, and therefore monetize user segments that weren’t willing or able to purchase it at the full price.

This is the pricing model that hardware companies (like Apple) use for their products: As iPhones get older and are replaced by newer models, the price of older models drops, making them accessible by a wider range of payers.

• Fragment prices into multiple, smaller steps.

For example, adding a deep upgrade system which allows keeping the cost of each single step low but generates a massive cost once all the steps are taken into account.

This is a common practice in most Squad RPGs, like Star Wars: Galaxy of Heroes. Getting a new Darth Maul is effortless, but the cost of maxing it out it’s huge.

4. Assign prices to your content

At this point, you should have:

• A set of assumptions about your players, including their budget and which elements they value. And what tends to be the distribution of free and grindable content in the games they use to play.
• A rough way to translate costs to equivalences in-game resources and time.
• A structure of game content.

So you should be able to obtain a first draft of your game prices by assigning time cost objectives for content designed to act as engagement objectives and assigning prices that are reasonable to your players for content designed to monetize directly.

Final tips to bear in mind

• Revisit your assumptions often and playtest heavily.
  Make sure to use AB testing when necessary to keep on a constant pace of improvements on the model (Would your game obtain a better ROAS by making it harder to grind resources? Or by softening prices…?)
• Don’t be afraid of optimizing the model further by adding targeted offers that effectively lower the costs for players that belong to lower spending profiles.
• Geolocalization of prices (adapting prices for different regions) it’s also a great idea to improve the performance of a pricing model because one size doesn’t fit all.
  You can do this easily by targeting the prices and amounts of currency of the IAP currency packs exclusively, which defines the equivalence between game currency and FIAT money. No need to change the prices of the items themselves.
• Even if the price ranges that will ultimately generate big chunks of the revenue are higher, don’t forget to add conversion prices in the model. This means offering microtransactions, such as in-game items for $0.99, that get users to make their first purchase.
• Keep in mind that the Lifetime Value of your payers is not built in a single purchase but rather accumulated over time. Adding some cheap prices to help them go into that journey will end up bringing more money in the end.
• Make sure that players always have meaningful objectives close enough to be worth keeping on playing for. If players complete all the game levels or obtain all of the game items, they will abandon your game.
  Sometimes this means adding big grind costs at the very end of the model.