How To Calculate The ROI Of Mobile App
August 27, 2019
If you’re planning to build an app for your business or you have already launched your app, then your first concern would be how much revenue you have generated using the app and calculating your return on investment. Calculating ROI of mobile app is a mandatory process to determine the profitability of your efforts of launching an app.
Apart from checking the mathematical steps of calculating ROI of mobile app, we will also see different methods of revenue generation using your app. Let’s have a look at the simple ROI calculator formula of revenue on investment.
Let’s take an example:
If you are an e-commerce store and you have spent $2000 on building your mobile app. If you manage to generate revenue of $4000 then your ROI would be 200%. This simple calculation helps you how you are progressing. You’ll be able to decide where you should invest in generating more revenue. We aren’t stopping here! Let us dive much deeper!
How You Can Generate Revenue Using Mobile App
If your company isn’t selling products or services directly then you can integrate advertising networks such as AdMob. Other ways of generating revenue via app by selling products through an e-commerce store, or offering in-app purchases inside applications and games. According to Ovum, industry is expected generate more than $75 billion in revenue via mobile apps.
As we can see, Most people are now going mobile-only and prefer having an app for every task.
Global Average Revenue Of Mobile Apps Per User
Last year, AppsFlyer and Facebook analyzed for calculating average ROI on apps. They analyzed 3800 apps, which generated total revenue of $2.4 billion.
Mobile game ROI per was the lowest at $1.70 per user compared to shopping app revenue of $13.88 average per user. Average revenue may seem high for shopping apps, but most of the popular games are free to play and generate revenue using in-app-purchase model. In these games, most user doesn’t pay anything and keep playing for free. On the other hand, some user may spend up to $100 for exclusive in-game items.
Average ROI of mobile app in travel domain was $29.42 per user which may seem much higher, but we have to consider the 180 days. If we convert into 90-day period then the average comes down to $14.71, which is still higher than shopping and gaming apps. Let us have a look at detailed steps and holistic process of calculating ROI for mobile app.
Step 1 – Define Your Objectives
The most crucial step is to know what business goal you want to achieve from an app. You should define the measurable short team and long terms goals even before you opt for designing and development phase.
After you set strategy and goals, you need to convert it into actionable steps and communicate with design and development teams. The mobile app developers must be informed and very clear about business goals and key performance metrics at all stages of development. This is essential for efficient utilization of funds.
Step 2 – Calculate The Total Cost Of App Development
You need to stay within the limitations of your budget and don’t use excessive resources in the development process.
The costs should include:
- UX/UI development costs
- App development costs
- Support and integration
- Testing and performance improvement costs
- Cost of deployment of the final launch
- Long-term costs
After the app has been developed, there will be small regular maintenance cost and overall app improvement costs, which you can add to long-term costs.
Step 3 – Define A Measurable KPI
Key Performance Indicators (KPI) differ from one organization to another. Some may see customer loyalty, customer retention rate as KPI. While some may consider customer interaction, the average revenue per user as a KPI.
If customer interaction is your aim then, you should focus more on acquiring new customers, keep them engaged in your app. Hence, you compare development costs with efforts of getting customer acquisition.
Step 4 – Weigh Your KPI Against Costs
Measuring KPI against the cost is the last but most crucial step of calculating revenue of mobile app. Once you have measurable KPIs with results, you can measure the overall value of your app. Measure results of KPI against the development costs and know whether you are outperforming or underperforming.
While comparing costs against KPI, it is recommended to estimate lifespan of the app. You can also consider how long you want to keep spending on app maintenance. You can calculate the ROI of mobile app development by dividing Net Present Value NPV advantages over NPV costs. The formula is given below:
Calculating The ROI Of Mobile App Requires A Holistic View
As the world is going mobile-first, many businesses have invested money in mobile app development. Calculating the ROI of mobile app isn’t as simple as solving a mathematical formula. The correct way to calculate ROI requires a holistic view so that you can understand the impact of every development step on your business.
Understanding the nuances and then calculating the ROI of mobile app maximizes your outcomes and helps your business grow in the direction you want.
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