If you’ve been reading up on social gaming, you’re probably familiar with terms like “microtransaction,” “core gamer,” “casual gamer” and “viral.” Maybe even “Freemium.” But buried in all the talk of Farms and Fish is a new lexicon that combines old school statistics with the latest in search engine analytics.

So, for those of you who are neither stat geeks nor analytics jockeys, here’s a crash course in basic terminology for social games metrics.

ARPU
A term carried over from Telecom companies, Average Revenue Per User (ARPU) is measured as total revenue divided by the number of subscribers. This includes revenue from subscriber fees, virtual goods, affiliate marketing and ad impressions. Because social games are so metrics-heavy, ARPU can be broken down by day, by country, by demographic, or by pretty much any other metric.

Churn
The turnover rate (or “attrition rate“) of a social game’s active players. The noise level in casual gaming is extremely high, which means social games have a user base that is constantly changing as gamers abandon the game or delete the Facebook app. Churn refers to this constant loss and gain of members.

Cohort
A common term in statistics, a cohort is “a group of subjects who have shared a particular experience during a particular time span.” In social gaming metrics, cohorts are used for analyzing retention. By organizing users in groups such as “everyone that visited on June 10th” and analyzing the percentage that revisit, you can pinpoint what promotions are having the greatest effect.

DAU
Daily Active Users (DAU) is just what it sounds like: the number of active users over the course of a single day.

DAU/MAU
The DAU/MAU ratio is one of the hot metrics in social games. Comparing Daily Active Users to Monthly Active Users shows roughly how many days per month your average user engages with your game. If you have 500,000 daily users and 1 million monthly users, the DAU/MAU is .5, translating to the average user logging in ~15 days per month. The DAU/MAU ratio is strongly correlated with social gaming success.

According to Lisa Marino from RockYou, the minimum threshold for DAU/MAU is .2. This is necessary for a game to hit critical mass virality and engagement.

Engagement
Facebook players typically have dozens of “active” games at a time. Engagement measures how long they spend playing your game. How many features do they access? Are they spending hours or seconds? How many pages does the average user view? What percentage are returning visitors?

Entry Event
An entry event is the first action a user performs when they enter the game. Online social games can track every action you perform, and the Entry Event Distribution is one of the more important metrics to follow. What do your users do first? Which entry events are the most effective at bringing people back?

For example, you might find that a majority of your users log in when they receive a gift, and the first thing they do is check that gift. By determining the more popular entry events, you can push more resources towards them, thus increasing retention, engagement and re-engagement.

Exit Event
The opposite of entry events. Exit events are the last actions a user performs before exiting the game. Tracking the Exit Event Distribution helps show why users are disengaging with the game.

K Factor
K Factor measures the virality of your product. K Factor = (Infection Rate) * (Conversion Rate). An Infection Rate is how much a given user exposes the game to other players, such as through status updates or email invites. A conversion rate, as marketers know, is when that “infection” results in a new sign up (or “install”.)

Put more simply, a K Factor of 1 means every member is bringing you one additional member. A high K Factor is treasured by social game publishers, because it becomes a very effective vehicle for bringing in new players.

Lifetime Network Value
The value a user provides to your network over the course of their entire “lifetime” on the network. For instance, is the user contributing to viral effects? Evangelizing the game? Contributing positively to ARPU? This is compared to the User Acquisition Cost, or how much it costs (via marketing and viral efforts) to bring in new members.

According to Facebook app analytics provider Kontagent, a (very basic) equation is 1/(1-k) * Monthly ARPU * User Lifetime.

MAU
Like DAU, Monthly Active Users (MAU) tracks the total number of users in a given month.

Re-Engagement
Gamers stop playing eventually. Re-engagement is how you get them back. It includes re-engaging gamers who have been signed off for an hour, a day, a month, or more. There’s a lot of competition out there, so implementing and tracking re-engagement practices is a must.

Retention
Think of it as the opposite of churn. Retention is how well you maintain your userbase.

Viral Rate/Virality
Viral growth is the name of the social media game. Measured by K Factor, the Viral Rate/Virality shows how much your users are promoting, evangelizing and spreading your game. Because of this, social games are increasingly built around cooperation, competition and the constant addition of new features, which increase virality. Every feature is a source for growth, whether it’s “liking,” Facebook notifications or tweets. Not often confused with “virility.”

Photo credit: Nathanmac87

There’s a lot of talk going on about virtual goods economics in games. The developers hail it as the monetization strategy of the future. Economists love it because they can see results in real time. This ain’t your grandpa’s ultimatum game.

But as usual, it’s The Onion who reduces the new business model to its core essence.

Virtual goods are the golden egg laid by the social gaming goose. Social games are built around inviting your friends, and virtual goods are about looking awesome in front of your friends.

The successful social games developers know what’s up. In an interview with FreshNetworks at SXSW, Playfish cofounder Sebastien de Halleux said:

In-game micro-transactions are key. The game is free and we create emotional incentives that make people want more of the game. Audiences are ready to pay for good games, but in small chunks. Just don’t get fooled into believing that you need large ticket transactions. Try not to think in terms of a business plan based on: Price x Quantity. Instead, think about Distribution x Engagement x Lifetime User Value.

To which Eric Todd from Playdom added:

we’ve found that there are two things that can have a disproportionate impact on profitability:
• Creativity / self-expression – allowing people to be creators makes them care more and increases their life time value.
• Competition – player vs. player conflict drives a willingness to pay for competitive advantage.

Remember: the happiest man in the world is the one who makes $1 more than his neighbor. Only now, that neighbor is in Farmville.

Games industry consultant Nicholas Lovell gives his clients this simple question: “when you are at home, with no one watching you, do you dress up in your best trendy clothes, or hang out in an old T-shirt and tracksuit?”

Admit it: you answered the latter. Everyone else does, too.

Lovell goes on to point out the difference between a “reward” (as you get in a single player experience) and a “purchase” (usually as a microtransaction.) Purchases of virtual goods must give you “a feeling, an experience or a social benefit.” They must allow you:

to feel more powerful (i.e. have better weapons, level up faster)

to fit in (like the one million people who bought a Santa Hat in Kart Rider in the run up to Christmas 2007)

to stand out (like anyone buying a unique set of clothes for their avatar)

or a combination (like a guild all kitting themselves out in purple clothes so everyone recognises them).

Game developers are catching on. And they’d better do it fast, because virtual goods were worth over $1 billion in 2009. That number is expected to grow to $1.6 billion in 2010 in the US alone.

That’s a lot of fake farming.

Image credit: p e e p e r