How to Measure ROI of your Mobile Applications
By Vikram Salwan
Measuring ROI can be very beneficial in determining the financial success of a business. But, not every mobile app developer is aware of the factors required to determine the ROI of an app. ROI determines how much your business earns on every single dollar you spend. It will also help you understand what is working for your business and what is going against it.
How Mobile App Helps in Generating Revenue
Compared to paid apps, free apps have always outnumbered them in terms of downloads and profits. The main source of income of these free apps is advertising. Advertising is done via a third-party network and is easiest to implement. There are four types of advertisement namely Interstitial ads, Banner ads, In-app Video ads, and Native ads that can be displayed in the app for monetization. An Android app development company can help integrate these ads in your android app.
There are other ways as well to generate revenue through an app like Paid subscriptions and In-App purchases. Businesses can offer free content for a limited period of time and then ask users for subscribing in order to access full content without any restrictions. In-App purchases can provide access to special contents like weekly synopsis or any other additional feature.
How to Calculate ROI
Return on Investment is used to rank different investment methods and determine the best investment method for your business. It is expressed in percentage or ratio.
Return on Investment of an app is the ratio of Net return on Investment and Cost of Investment multiplied by 100. It is also calculated by dividing the difference between the Final Value of Investment and Initial Value of Investment with Cost of Investment and then multiplied by 100.
Suppose, you spend ₹ 100 on an advertising campaign which generates ₹ 150 in return. Applying the formulae of ROI, you get ₹1.5 on every rupee you spent on the campaign.
Steps Involved in Measuring the ROI of a Mobile App
1. Specify your Objectives:
Specifying what you want to achieve from an app can help app developers implement the analytics into the app. Usually, it should be planned before starting to code. If you’re not sure about where to start, ask your iPhone App Development Company as they have knowledge and experience about the same. In the case of e-commerce apps, focusing on successful checkouts can help in measuring ROI in a better way. Similarly, in the case of hospital or clinics, appointments made through the app can help measure ROI successfully.
2. Cost of an App:
Keeping the budget of app development in check is also very important so that it does not consume extra resources. Development cost can be compared to those channels to get an idea of how beneficial your app is. App budget takes a lot of factors into account such as the initial cost of developing the app, maintaining it, and updating it.
3. KPI of an App:
Factors used to evaluate the success of a business are referred to as KPI (Key Performance Indicators). No organization has the same KPI as the meaning of success differs from company to company. Define the factors you consider while defining the success of your business. You can evaluate the earnings through the app and other channels to get a better idea of which is working for your business and which is not.
4. Calculate Customer Lifetime Value:
Customer Lifetime Value (CLV or LTV) gives you an estimate of how much you can earn from each user till the time they are using your app. In general, it is a function of how long you can retain a given customer and how much money you can expect to earn from them. There are various ways to calculate CLV but the easiest way to calculate it is by using historical data from other segments. Let’s see how to calculate it.
Step 1: Wait for a minimum of 90 days of ARPDAU data
Step 2: Build a master chart of revenue accumulation using the ARPDAU data by day for the average user.
Step 3: Measure the churn ratio and apply the same to get the 180-day CLV
Step 4: Evaluate new cohorts by comparing the first 7-day revenue of the new cohort to the master chart. Tracking CLV can be beneficial in the long run as it helps in improving the efficiency of a business by letting them re-plan the business model to get more value from each user. It will help you understand the value your customers offer to your business.
Apart from maximizing the results, understanding and using effective measures to calculate the ROI can also help your organization grow at a faster rate. ROI of an app can help you seize the best of returns. An Android app development company or an iPhone development company can help you to develop a strategy for effectively implementing and increasing the ROI for your Android/iPhone app.