Return on investment (ROI) is the monetary ratio of money earned or lost to money invested initially.
Therefore, measuring it is required for your mobile app projects. Despite the fact that there are numerous technologies available to collect data on smartphone usage, the majority of publishers do not use them to obtain accurate analytics.
Yes, it is easier to evaluate the ROI of a free mobile app than a paid app because the income created by the purchase is a physical and readily available indicator. The situation around free and freemium programs is more complex (free download but in-app purchases). In this instance, it is not sufficient to count the number of downloads, installations, or starts. The organization must design a comprehensive strategy that incorporates a series of separate and complimentary activities.
For this reason, Zestminds offers a 5-point strategy (nothing more) to establish these strategic processes, beginning with the definition of objectives and ending with the coherent and quantifiable measurement of return on investment.
What Is ROI in the Context of Mobile Apps?
ROI, or Return On Investment, is the ratio of expenditures to earnings for a certain campaign, product, or service over a specific time period. ROI reflects the results of your efforts in building app features, promoting, and providing other services. ROI frequently reveals flaws or deficiencies in marketing campaigns or application development initiatives.
In the context of mobile app projects, before the app concept enters the phase of implementation, the ROI is assessed by considering a variety of parameters. After the app is released and begins to acquire traction among users, the ROI is measured against the app’s key parameters or KPIs.
Mobile app ROI is vital since it ensures the profitability, financial viability, and potential of the app concept. Every app is released as a storefront or business solution, and it is intended to generate constant revenue from its user base.
When the total cost of attracting users and running marketing efforts exceeds the app’s earnings, the return on investment (ROI) can be considered to be negative. When the acquisition cost and advertising are less than the app’s earnings, on the other hand, the ROI can be stated as a positive number.
The Key Metrics and Formula of ROI Measurement and Estimation
This blog post will describe the important KPIs and formula for calculating the mobile app’s return on investment. Before explaining the numerous approaches and critical technical abilities for calculating and estimating ROI, we must examine these metrics briefly.
CPI (Cost Per Install)
Cost Per Install (CPI) is a well-respected measure utilized mostly in mobile app digital advertising campaigns. It attempts to demonstrate how much it costs to convince a user to download and install the application. It is computed by dividing the total amount spent on the campaign by the number of new installations.
LTV (Lifetime Value)
LTV, or Lifetime Value, is the ultimate metric indicating the monetary value of an app product. Regardless of the amount of app downloads or installs, this measure is crucial for determining the long-term value provided by an app. This statistic will offer you with a measurement based on user retention, monetization, and virality if you are solely focusing on installs.
When a user continues to use the app for an extended period of time, when the app regularly converts business from a subset of users, and when the app attracts additional users, the app is likely to have a higher LTV. LTV is determined using the straightforward formula LTV = (1 + K) x ARPU. Here, “1” denotes the number of users brought to the app by the user, and “ARPU” stands for Average Revenue Per User.
ARPU (Average Revenue Per User)
In addition to the total revenue, the average income per user (ARPU) is computed by dividing the number of installations by the total revenue.
Identify the Benefits Associated with Mobile
The first thing you need to do is ask yourself why you should invest in a mobile application at all, and what the purpose (or purposes) are.
The return on investment (ROI) of a mobile app will, to some extent, be determined by the goals that the firm has established for itself in accordance with its business and strategy. This may appear to be an obvious statement.
For example, the generation of direct and indirect revenue, the acquisition of customers, the development of CRM databases, an improved brand image, an increase in average basket size, a reduction in the amount of time it takes to place an order, an enhanced customer experience, cross-channel sales opportunities, the generation of POS traffic, cost reduction, and the simplification of internal processes…
Quantifying these Benefits
After the goals have been outlined, the next step is to rank them in order of importance and quantify them with the help of data and projections from market research as well as customer surveys. Because of this, the company is able to visualize the specific steps that need to be taken in order to reach the target audience and persuade the consumers to behave in the manner that is wanted. It will be a significant endeavor to estimate the proportional advantages that will result from accomplishing these aims.
For instance, if the major goal of the application is to save costs, it is possible that the application would provide services that are comprehensive so that the user does not need to come in touch with a call Centre. This leads to a reduction in the costs incurred by the organization as well as a saving of time for the company.
Evaluate the Total Cost of the App
It is vital to consider all of the charges that are associated with launching the application in order to obtain an accurate measurement of the investment costs. In addition to the design and technical development of the product, you need to consider the engagement of the people in the project, the entire process of creation, maintenance, deployment, integration, marketing, advertising, and so on.
Build a Business Model
Following an analysis of the overall cost, a model of the true benefits and expenses is constructed and then modified. In order to accomplish this, it is essential to have an overarching vision that is capable of defining the business model and adapting it to the firm and the goals it seeks to achieve. As a result of the fact that many of these aspects are open to estimation, the answer may consist in demonstrating their practicability by rapidly putting the idea into action in order to determine the actual profit or loss.
Using Analytics
An important final step in this process is data collection. While this is quite a hot topic in the digital world, it does allow companies to develop their business model and adjust their apps accordingly. Analytic tools provide invaluable insight into how apps are being used (downloads, time spent, interactions, etc.).
By using them correctly, you can see geographic and behavioral segmentation of your market, what the obstacles are, and how to overcome them (graphic redesign, ergonomic design, etc.).
Many companies don’t take the time to develop a clear strategy, nor are they able to use analytics essential to measuring the ROI of a mobile application to their full extent.
What is the Actual Worth of a Newly Acquired User?
You have an understanding of the many different metrics and measuring methodologies that may be used to evaluate the Return on Investment (ROI). It is time to delve even farther into yet another significant component. Do you really need to know how much value the freshly acquired user possesses? This involves making an estimate of the additional value-creating potential that the specific user possesses.
As soon as you have a decent notion of how much it costs to acquire each new user, the very next step is to shut down on how much each newly gained person is actually worth. This is a reference to the revenue streams that are generated by each and every user on a monthly basis on a monthly basis. The true value will also be determined by taking into account the length of time that each of these users will continue to make use of the application. This is when the metric known as Lifetime Value (LTV) comes into play.
The Bottom Line
At the beginning of 2017, 83% of apps that were published on the App Store were considered “zombie apps.” They were not included in the rankings or the recommendations, and they had a cumulative total of fewer than 500 downloads throughout the course of their existence. This amount reflects little less than one million of the 1.20 million apps that are currently available on the Apple store.
It is fairly obvious that the strategy development, in particular the defining of your goals, becomes vital if you do not want to publish your application in this atmosphere of apathy.
This is particularly true because of the climate. Marketing will also play a significant part in promoting the app as a fully-fledged product and ensuring that it is nicely displayed, well-referenced for exposure, and thus generally utilized. This will ensure that it is widely used.
Finally, if you follow these primary stages, you will be able to offer an app that is tailored to your objectives, watch it make progress toward prospering, and eventually see a return on the investment you made in it. However, return on investment (ROI) is unique to each circumstance and can be challenging to assess depending on the type of application and the business.
At Zestminds, we follow these time-tested metrics to ensure many projects remain financially viable.
