Once you start thinking of developing a mobile app for your business, one of the first questions that will come up – immediately after “what will it cost?” – is “what will the return on investment be?”. And it is a valid question; every time you invest in your business it is with an aim of generating a return. When the investment has a noticeable impact on revenue, calculating the return is quite easy, but sometimes the impact of the investment is more subtle, and more difficult to define and measure.
This is especially true when it comes to mobile apps, since a mobile app can serve many purposes, from direct revenue generation in the case of e-commerce apps, to apps that drive brand recognition and loyalty, and possibly streamline customer service. Not forgetting private business apps meant to streamline or improve internal processes. If your mobile app doesn’t generate revenue directly, how do you prove ROI? And the simple truth is that it is possible, but not entirely simple.
Establish app costs
An important step is to calculate the actual costs of the app, the size of your investment. Costs related to your app aren’t always obvious, and it would be easy to overlook some of them. You need to consider the following:
- Development costs – the pure development costs generally account for the largest portion of your investment. Most apps – given the specialisation required – are outsourced for development to an agency or developer, thus this would be the sum of all their invoices and/or retainers.
- New infrastructure – this would include any new infrastructure you had to invest in for the app, and could include any cloud processes your app requires – a new database, Amazon Web Services, or any paid third party services – through to app store fees.
- App marketing – if your app is aimed at customers and users outside your business, you will need to invest in marketing to create awareness of the app, and general promotion. This helps you establish your cost-per-install (CPI), which is essentially the total cost of each ad campaign you run for the app divided by the number of new installs that can be attributed to the campaign.
- User retention – somewhat related to marketing, but this focuses specifically on processes you have in place to reduce app user churn: what costs do you incur in trying to keep users returning to and engaging with your app?
- Maintenance costs – your app will need regular, ongoing maintenance. Android and iOS both receive one major update a year, along with several smaller updates. Any one of these could affect your app’s functionality, as could changes to any APIs your app relies on. Over and above this would be additional development costs to continually improve the app, or add new features.
Apps aimed at customers and the general public need to include all of the above, while B2B and internal apps don’t usually require marketing and user retention campaigns.
Determine what success means
Determining success for apps that directly generate revenue is easy; you would actively measure KPIs such as:
- Number of installs
- App open rate
- Active users
- Retention rate
- Lifetime value
- Average revenue per user
but your main focus would be on customer lifetime value (LTV) and average revenue per user (ARPU). As long as your LTV exceeds your CPI, and the number of installs doesn’t drop below uninstalls, you should be seeing a healthy ROI.
But if your app doesn’t directly generate revenue, you need to establish either what percentage of your overall revenue can be attributed to the app, or consider what cost savings the app is responsible for. Cumberland Farms, a US retailer with more than 6,000 employees in 500+ locations, implemented an internal app to replace paper based data reporting. Doing so saw a 28 percent boost to employee productivity, which alone proved an ROI of millions.
What this means is that when it comes to internal or B2B apps, you need to calculate a monetary value for the elements you are improving, and of the efficiencies being created, ie:
- Time saved, or productivity gains.
- New conversions generated by the app.
- Savings on printing costs.
- Any media exposure generated.
- Any competitive advantage over your immediate competitors.
- Queries generated through the app.
An app for events wouldn’t necessarily generate revenue – delegates would be attending regardless of whether or not the app existed – but it could save considerable costs in the form of printing materials, and some marketing related costs such as the development of a mini-site for each event. And any app that replaces paper documents with digital form completion and submission can lead to gains in time (and ultimately productivity), savings in printing costs, and reduce any expenses that follow from missing or incomplete paperwork.
Success is measured differently for each app, and within each industry, but once you have determined what success means – and assigned a monetary value to it – you are in a better position to calculate and understand the ROI for your app.
Just because the returns generated by your app aren’t immediately visible or obvious doesn’t mean there aren’t any. When deciding to develop an app it is always important to establish what the purpose of the app will be: is it to make purchasing more accessible for customers; to streamline your delivery or ordering process; or to simplify event management. The purpose of the app points to what success will mean, and once you are able to calculate the financial benefit of success in relation to the cost of the app, you are able to confidently express the app’s ROI.