Mobile applications have grown in importance in the modern day as a means for companies to interact with their consumers, improve efficiency, and increase sales. The App market worldwide is projected to grow by 8.83% (2022-2027) resulting in a market volume of US$673.80bn in 2027 (statista).
However, the time and money needed to create a mobile app are substantial. Businesses must assess the ROI of their mobile app development initiatives to guarantee that this expenditure produces profitable outcomes.
Here we’ll take a look at some of the most important metrics that companies can use to measure the return on investment (ROI) of their mobile app development projects. Businesses can get the most out of their app development strategy and return on investment (ROI) by learning about these indicators and how they affect mobile app success.
What is ROI in The Context of Mobile Apps?
The Return On Investment (ROI) measures the profitability of a product, service, or marketing effort relative to the money spent on it over a given time frame. Your efforts in developing features for the app, advertising it, and offering other services will be reflected in the return on investment (ROI).
Return on investment (ROI) analysis often reveals shortcomings or mistakes in marketing campaigns or efforts to develop applications. The return on investment (ROI) is evaluated using several criteria in the context of mobile app initiatives before the app idea enters the execution phase.
The return on investment (ROI) is evaluated by the app’s key performance indicators (KPIs) once it has been released and starts to gain popularity among users. Mobile app development services allow organizations to create creative solutions for their target audience, but they must be evaluated for ROI to meet corporate goals.
According to Techjury, Users globally spend $380 Billion on in-app purchases. Return on investment (ROI) for mobile apps is critical since it guarantees the app’s profitability, financial feasibility, and potential. Released as either a storefront or a business solution, every app has one primary goal: to continually monetize itself through its user base.
One definition of a negative return on investment (ROI) is when the expense of promoting the app surpasses its revenue. On the flip side, a positive return on investment (ROI) is possible when app earnings exceed acquisition costs and advertising.
The 3 Key Metrics and Formula of ROI Measurement and Estimation
In this article, we’ll go over the key performance indicators and the formula for determining the ROI of the mobile app. We need to take a quick look at these measures before we can describe the many ways and crucial technical skills for determining and evaluating ROI.
#1. CPI (Cost Per Install)
A widely used and highly regarded metric in digital advertising campaigns for mobile apps is the cost per install (CPI). It makes an effort to show the user the cost of downloading and installing the application. To get it, divide the overall campaign budget by the total number of new installations.
#2. LTV (Lifetime Value)
The most important measure for determining the worth of an app product is its Lifetime Value or LTV. If you want to know how useful an app is in the long run, this metric is more important than the number of downloads or installations.
If you are only concerned with installs, this metric will provide you with a gauge depending on user retention, revenue, and vitality. A greater LTV is likely to be achieved when users stick with the app for a long time when the app consistently generates revenue from a portion of its users, and when the app manages to attract more users.
One simple way to calculate LTV is by multiplying ARPU by (1 + K). An app’s “ARPU” is its average revenue per user, and “1” is the number of users that are attracted to the app.
#3. ARPU (Average Revenue Per User)
Aside from total revenue, the average revenue per user (ARPU) can be calculated by dividing the total revenue by the number of installations.
Identify The Benefits Associated with Mobile
To begin, you must determine the reasons for investing in a mobile application and the functions it will serve. A company’s business and strategy objectives will govern, to a certain degree, the return on investment (ROI) objectives of its mobile app. It can seem like a no-brainer.
Benefits such as increased direct and indirect revenue, new customers, customer relationship management databases, positive brand perception, larger average basket size, faster order processing, better customer experience, opportunities for cross-channel sales, more point-of-sale traffic, lower costs, and simplified internal processes are just a few examples.
#1. Quantifying These Benefits
Following the outlining of objectives, the following stage is to prioritize them and put a numerical value on them using information gleaned from market research and consumer surveys. This allows the business to see exactly what has to be done to reach the demographic it is aiming for and convince people to act in a certain way.
Estimating the percentage benefits that will arise from achieving these goals will be a substantial undertaking. According to Statista, consumers globally are predicted to spend $185 Billion on App stores by 2025.
For instance, if reducing expenses is the primary objective of the app, it might offer all-encompassing services to eliminate the need for users to contact a call center. Not only does this save time for the business, but it also helps them save money.
#2. Evaluate The Total Cost of The App
For a precise assessment of the investment expenses, it is essential to take into account all of the fees linked with the application launch. Involvement of project stakeholders, product design and technical development, creation, maintenance, deployment, integration, marketing, advertising, and the full project lifecycle are all important factors to consider.
#3. Build a Business Model
After the total cost has been calculated, a model of the actual costs and benefits can be built and adjusted. This can only be achieved with a long-term plan that can define the business model and tailor it to the specific needs of the company. Since a lot of these factors are up for debate, the best course of action may be to prove their viability by quickly implementing the plan and seeing how much money you make or lose.
#4. Using Analytics
Collecting relevant data is the last and most crucial stage of this procedure. Even though this is a very debated subject online, it does provide an opportunity for businesses to shape their apps and business models. You can learn a lot about app usage (downloads, time spent, interactions, etc.) via analytics tools.
With their help, you can break down your market by geography and consumer behavior, identify problems, and find solutions (such as graphic overhaul or ergonomic design).
A lot of businesses don’t put in the effort to figure out what they want out of a mobile app or don’t have the data necessary to calculate the app’s return on investment (ROI).
What is The Actual Worth of a Newly Acquired User?
To calculate the ROI, you are familiar with the many metrics and measuring available techniques. Now we can go even further into another important part. Is knowing the value of the newly acquired user truly necessary? To do this, one must make an educated guess as to the user’s potential for further value creation.
The following phase, after getting a good idea of the cost to acquire each new user, is to close in on the actual value of each newly gained person. This alludes to the various ways in which each user brings in money every single month. Consideration of the duration of each user’s application usage is also crucial in determining the genuine value. At this point, the Lifetime Value (LTV) statistic becomes relevant.
Conclusion
Companies must monitor and assess numerous critical parameters to calculate the return on investment (ROI) of mobile app development. These include user acquisition cost, customer lifetime value, retention rate, conversion rate, average revenue per user, cost per install, time to market, and cost per install. To improve app development strategies, maximize ROI, and achieve long-term profitability in the competitive mobile landscape, organizations must understand these indicators and how they impact a mobile app’s success. Businesses also need to hire mobile app developers to start or improve app development. An experienced developer can realize a concept, overcome technological hurdles, and meet user needs.
I am a Tech geek and blogger, a seasoned freelancer, and my hobby is to enlighten my views and skills that will helpful for new inductions of the industry.