Measuring ROI is significant because not all apps earn equally. Until the end of last year, the revenue from Android and iOS apps reached a whopping $133 billion resulting in a 19% yearly increase. Only a portion of the entire app market gets the bigger pie of this growth.
Most apps primarily focus on acquiring new users and improving traction for the app among its target audience. That's pretty much justified. But while doing it, they often spend havoc through the user acquisition campaigns without receiving expected outcomes in terms of revenue. Measuring Return on Investment (ROI) is important for any mobile app project, irrespective of the niche.
The question is, what are the key parameters for estimating and measuring the ROI of a mobile app? Before that, we need to have a clear idea of what ROI means in mobile app development. Throughout this blog post, we will explain estimating and measuring the ROI for your mobile app projects.
ROI or Return On Investment is about comparing your expenses against the revenue earned for a certain campaign or product, or service within a specific time frame. ROI serves as the mirror to showcase the results of all your efforts in developing app features, marketing and other services. This mirror, called ROI, often shows your fault lines or shortcomings in marketing campaigns or app development projects.
In the context of mobile app projects, before the app idea is taken through the implementation phase, the ROI is estimated by taking into consideration several different factors. After the app product is launched and starts having traction with the users, the ROI is measured against the key parameters or metrics.
Mobile app ROI is crucial because it guarantees the app idea's success and financial solvency and potential. Every app is launched as a storefront or a business solution and naturally, it is expected to make consistent earnings through its user audience.
Now when the entire cost of acquiring users and running the marketing campaigns is more significant than the earnings made by the app, the ROI can be said to have a negative figure. In contrast, when the acquisition cost and campaigns are lower than the app's earnings, the ROI can be expressed to have a positive figure.
Here in this blog post, we will explain the key metrics and formula corresponding to the mobile app ROI. Before we explain the various methods and key technical skills for measuring and estimating ROI, we must briefly look at these metrics.
Cost Per Install (CPI) is a well-acclaimed metric mostly used in digital advertising campaigns for mobile apps. It tries to bring out the cost you spend in making a user download and install the app. It is calculated by dividing the total campaign spending by the number of new installs.
Lifetime Value or LTV is the ultimate metric representing the financial worth of an app product. This metric is essential for measuring the value created by an app in the long run despite the number of app downloads or installs. In case you are only focusing on the number of installs, this metric will provide you with a measurement based on user retention, monetization, and virality.
When a user continues to use the app for a long time and when the app converts business consistently from certain users and brings more users, the app is likely to experience a higher LTV. The LTV is calculated by using the simple formula as LTV = (1 + K) X ARPU. Here "1" represents the number of users brought by the user to the app and ARPU represents the Average Revenue Per User.
Another crucial metric is ARPU or Average Revenue Per User which is calculated simply by dividing the total revenue earned by the app by the number of app installs.
Now that we have a comprehensive idea about the key metrics for measuring and estimating the app ROI from different angles let us explain the steps in utilizing these metrics or parameters.
The first and foremost step is to have a detailed and meticulous measurement plan for utilizing these metrics. When you figure out the app development cost, you should simultaneously develop an ROI measurement plan as well. To measure app ROI and utilize the key measurement metrics, you need to use the below-mentioned steps.
Some businesses that target their customers across different touchpoints or digital interfaces such as the business website, social media storefront and the app often experience the grey area of intangible KPI results. A customer buying a product from the physical store may have installed the app just a day before and may have also visited the web store on the same day. How can you figure out the source of influence for this business conversion?
The lifetime value of customers represents the financial revenue earned from that particular app user until the same user stops using the app. The total revenues generated from a single user during his engagement with the app is Lifetime Value or LTV.
The LTV is calculated using a variety of business models and the expected accuracy of the assessment. But generally, the total earnings from an app user during the entire time of his engagement is defined as LTV. If your app depends on a subscription model, the LTV metric can be used for forecasting in the long run.
This is instead a simple metric that focuses on the total spending by the app for acquiring a new user. This metric is helpful for many business organizations to decide whether they should make more investments for new acquisitions or develop an altogether different app.
To reduce cost per acquisition and to boost the acquisition results, a great strategy embraced by many app marketers is to allow free trials or provide lucrative discounts and offers to encourage new acquisitions.
Cost per Acquisition (CPA) is also calculated against separate user acquisition or app marketing campaigns. In the case of such campaigns, the CPA is calculated by dividing the total cost of the campaign by the number of users acquired by the same campaign.
This measurement is also used widely to have a rough idea of how much you have spent for gett8ng onboard every user. After determining this, you can figure out ways and methods to reduce this cost so that your app makes a positive gain in terms of revenue. Many apps to boost the app ROI often reduce this user acquisition cost.
You have understood various metrics and measurement methods for evaluating the Return on Investment (ROI). Now it is time to go deeper into another crucial aspect. Do you need to ask what the worth of the newly acquired user is? This is about estimating the further value-creating potential of the particular user.
As soon as you have a good idea of how much each user acquisition costs, the very n3xt step is to close down on the real worth of the newly acquired user. This refers to the revenue streams generated by every single user on a month on a monthly basis. The actual worth will also be calculated by considering how long each of these users will remain engaged with the app. This is where the Lifetime Value (LTV) metric features.
It is already well known that there are a few million apps across both iOS App Store and Android Play Store and a considerable portion of these apps do not make enough money to sustain and survive as a business. This is why continuously focusing on revenue earning and parameters and metrics related to ROI are so important.
While the mobile app development industry will continue to thrive in the years to come, there will be more significant competition for app market visibility, audience engagement, business conversion and revenue earning. These time-tested metrics will help many app projects stay above the challenges of financial solvency.
Raza is a tech entrepreneur with an experience of working with 500+ clients. His key expertise is around tech consultation, where he guides people on how to successfully build digital softwares for their businesses.TALK TO RAZA!
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