When it comes to finance, games studios have different requirements than most other startups.
The chief financial officer (CFO) role is not just about making payroll on time, but a much more strategic role which is very hands-on in nature, getting deep into the mechanics of user acquisition and monetisation as well as the headline company financials and fundraising.
Mobile games studios are pretty unique in the way they typically don’t hire a CFO or finance lead role until much later in the lifecycle of the company than most technology companies. But when they do, it's important to hire someone who has the right knowledge so they can hit the ground running. Having the right CFO on the team is an essential part of the management mix of a successful studio.
What makes a good CFO?
A good CFO of a mobile games studio has a unique set of superpowers that are not necessarily found in your typical tech CFO. The underlying metrics that drive player engagement and user acquisition/monetisation need to be understood not only in a product or marketing context but also through a financial lens, so an understanding of how to make sense of these swathes of data is critical.
Financing modelling in this context goes way beyond a basic profit and loss (P&L) and cash flow. There is a complex web of factors that go into the cycle of how players are acquired, retained and monetised that all have a financial impact. It’s really important to understand all of these concepts and see how small changes in metrics can open up big opportunities as a company is looking to scale.
A good CFO of a mobile games studio has a unique set of superpowers that are not necessarily found in your typical tech CFOMartin Macmillan
In particular, understanding the unit economics of cohorts of players and being able to model these over time is essential. Building lifetime value (LTV) models and overlaying ad spend metrics as well as cash flow is a critical part of a CFO's role as so much of a studio’s success and ability to scale is down to paid user acquisition.
When should you hire a CFO?
There are a few different schools of thought here, but generally speaking the earlier the better. Yes, it’s good for founders to be running the financials in the early days, but as soon as it makes sense then it’s good to think about external help.
The CFO role can be either part-time or full-time, depending on the company stage, and the experience of the hire. A good rule of thumb is that seed-funded companies should have some external financial help, maybe just a few days a month to help with high-level models and projections, and ensure the company has good financial hygiene as it prepares to raise more capital and scale up.
Once a studio goes on to raise more capital at Series A, it's more common to see a full-time appointee, but not always. Sometimes studios will appoint a Head of Finance, where the role includes a lot of the operational aspects, and often some other functions such as HR get rolled into the position.
Often a more seasoned CFO remains part-time, and moves into a more strategic role, overseeing the day-to-day financial operations being carried out by a more junior team member. This approach can be both good for the studio and the CFO as each is enriched by the benefit of the variety of scenarios a CFO will encounter if working for multiple companies in the sector.
Finance and marketing
Having built relationships with hundreds of growing studios, one thing we consistently see in successful studios is the finance and marketing functions being joined at the hip. The importance of this relationship cannot be underestimated as user acquisition (UA) is normally the largest item in the P&L, ahead of people costs, offices etc. Having a deep understanding of UA metrics can make the difference between phenomenal success or outright failure when a studio is looking to scale up.
...one thing we consistently see in successful studios is the finance and marketing functions being joined at the hipMartin Macmillan
Having an understanding of each other's roles is important for both teams, as essentially what the studio is trying to achieve is being able to build a scalable user acquisition machine, which requires a tight feedback loop with finance (how to fund it), and also product (how to keep it running).
It’s important for a good CFO to be very data-driven in their thinking around holding the purse strings on UA budgets, getting the right blend of caution and optimism, best articulated in multi-scenario financial models. This is especially true for longer LTV games where it can be easy to overshoot estimates for the expected return on ad spend (ROAS) breakeven periods which can be one year or longer.
In order to continue to invest in UA with confidence, CFOs need to work with UA teams to get comfortable with the signals from the cohorts that the UA spend will be profitable.
Here is a checklist of skills/attributes of CFOs which we’ve seen work well in successful gaming studios. Of course, this is neither prescriptive nor exhaustive but a collection of ideas to feed into your own hiring process:
- Experience in the mobile gaming landscape and ecosystem
- Good understanding of marketing metrics - ROAS, LTV modelling at cohort level
- Strong financial modelling skills and ability to also model non-financial performance key performance indicators (KPIs)
- Appetite to use existing business intelligence (BI) systems to enhance and bring financial models to life
- Knowledge of mobile advertising mechanics and payment cycles
- Ability to tell stories through numbers, both internally for the team as well as externally for investor reporting
- Good understanding of capital efficiency - optimise mix of equity and debt depending on what’s being funded
- Curiosity about building tools to automate processes
- Be a good sounding board for founders and give them room to focus on execution