Mobile App Development ROI: What You Need To Know
Is your app generating the revenues you want or is it burning through cash reserves faster than you believe? A mobile app development agency in Chicago helps answer the question quantitatively, including measuring your project’s returns.
This article covers the basics of returns on investment (ROI):
- ROI definition
- Its differences from return on ad spend (ROAS) and other financial formulas
- How to calculate ROI
- Key performance indicators (KPIs) that can affect ROI
- Best strategies to improve your returns
Do not second-guess your financial returns. Learn more about mobile app development ROI below. Let’s go!
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What Is ROI?
ROI stands for return on investment. It is a measure of how much money you earn relative to the amount of money you spend. In the context of mobile app development, it is the net profit earned from your app compared to the total development cost.
The ROI formula looks like this:
ROI = (Gain from Investment - Cost of Investment) / Cost of Investment
- The gain from investment also refers to net income or net profit. You get that by subtracting your total expenses from your revenues.
- The investment cost includes all the expenses incurred in developing, launching, and maintaining the mobile app, such as marketing and maintenance.
Calculating the ROI
Let us say a business invests $50,000 in developing and launching a mobile app. It generates $100,000 in revenue over a year, and the business spends an additional $20,000 on maintenance and updates.
- Development and launch: $50,000
- Maintenance and updates: $20,000
To calculate the net profit, we need to subtract the total expenses from the revenue.
Net Profit = Revenue - Expenses
Net Profit = $100,000 - ($50,000 + $20,000)
Net Profit = $30,000
Next, we can calculate the ROI using the formula:
ROI = (Net Profit / Cost of Investment) x 100
ROI = ($30,000 / $50,000) x 100
ROI = 60%
The ROI for the mobile app is 60%. So for every dollar invested in the mobile app, the business generated 60 cents in profit. In this case, the return is positive, indicating that the investment in the mobile app was profitable.
Why Does ROI Matter?
Mobile app development ROI is a critical metric for several reasons. When you know your figures, you can:
- Evaluate the financial viability, including the pros and cons of a mobile app development project.
- Assess the profitability of an existing mobile app.
- Identify areas for optimization and cost reduction.
- Measure the effectiveness of marketing and advertising campaigns.
- Justify investments in mobile app development to stakeholders and investors.
- Track progress and measure success over time.
In other words, it helps you make informed business decisions regarding mobile app development and other investments.
Some marketers think they do not need to calculate ROI when they have other metrics. But knowing your returns gives you a clearer and more complete picture of your financial health. ROAS, for example, only assesses your return on ad spend, not the whole investment.
KPIs and ROIs
KPIs mean key performance indicators, and they have slight differences from ROI. For example, KPIs can include non-financial factors, such as organizational culture, processes, and innovation.
However, these two terms correlate, and many businesses consider returns as a financial KPI. Usually, when your KPIs are good, the returns are also likely to be higher.
A mobile app development agency in Chicago uses the following KPIs to help evaluate returns:
- App downloads
- Active users
- Retention rate (percentage of users who continue to access the app over a certain period)
- Session length (average duration users spend on the app per session)
- Conversion rate (the percentage of users who perform a desired action, such as buying in-app purchases)
- Customer lifetime value (CLV), total revenues a customer could generate for the business over their lifetime app use
- Customer acquisition cost (CAC)
Even better, you and your team can measure returns at different stages of mobile app development. It helps manage your burn rate (or how fast you use cash reserves) and optimize the production and testing processes.
- The testing stage usually costs between $5,000 and $20,000. It covers quality assurance, bug fixing, and user testing. The possible KPIs can include the retention rate.
- The launch phase can cost as much as 5% of the total app budget, which goes to marketing, PR, and app store fees. By calculating the conversion rate, you will know if these efforts are worth it.
- In the maintenance phase, expect to spend at least $10,000 a year on security updates and feature enhancements. To understand the ROI, look into your CLV.
3 Tips To Increase Mobile App ROI
What is the ideal ROI for mobile apps? We do not have a standard answer because it depends on many factors, including your industry and business objectives.
However, the tech sector can hit a 7.8% return, so you might want to aim for a 5% or more ROI for every mobile app project.
A mobile app development company in Chicago can help you increase your app return with these ideas:
1. Focus on User Retention
Many studies have revealed that marketing to existing customers is less expensive than getting new leads. Old users are likelier to make in-app purchases, share the applications with friends, and promote your product on social media.
- Personalize the user experience (e.g., allowing users to save their progress or customize their search results).
- Provide regular updates and improvements to the app by fixing bugs and adding new features.
- Implement push notifications to remind users of new features, promotions, or relevant updates.
- Offer rewards for active users, especially when they buy or share the app.
- Encourage user feedback.
- Provide excellent customer support to quickly address any issues or concerns.
- Gamify the experience with challenges and leaderboards.
2. Optimize the Store Listing
Make it easier for your target market to find you by optimizing your mobile app for SEO ranking and user experience (UX) design. These include:
- Use high-quality visuals, from screenshots to videos highlighting the app’s features and benefits.
- Create an engaging but accurate app description.
- Add relevant keywords throughout the app listing, including the title, description, and app tags, to improve search visibility.
- Encourage users to leave positive reviews and ratings by providing excellent customer service, offering incentives, or simply asking for feedback.
- Regularly update the app listing with new screenshots, videos, and descriptions to keep it fresh.
- Localize the app listing to appeal to users in different regions and countries by translating the description and keywords.
- Perform A/B testing to see which listing version performs better and improve overall visibility and downloads.
3. Remember the Basics of App Marketing and Promotions
The biggest reasons for app failure have less to do with budget or user interface. Instead, they relate to getting so obsessed with unique promotional ideas that they forget about the basics of marketing, such as:
- Know your target market well. Who are they? Where do they live, and how do they use your app? How much are they spending, and what are they buying? Are they the audience you want?
- Offer a solution, not a feature. Does the app solve a problem? How does it address issues your target market is facing? Do your features align with the solution you have in mind?
- Prioritize marketing campaigns. Which promotions are bringing targeted leads? How much time do you have to launch the app?
The mobile app development ROI is one of the many ways to measure the financial success of your project, but it is no less important. Its result impacts every aspect of production, from design to marketing. Most of all, it influences your investment decision.
As a mobile app development agency in Chicago, Digital Authority Partners (DAP) values numbers such as returns. We do not just build apps — we understand your needs so that you can achieve your desired results. Contact us today, to learn how we can help you.
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