Fulfilling the dream of being a successful app developer is not a miracle: It is hard work, dedication and making the right decisions. But after having programmed and designed your app you must think of your app marketing costs and how to spend your budget most effectively, too. We have mentioned the different ways to calculate your budget many times before on this blog. But in order to give you a complete overview of this topic, we have listed the most important calculations in this article and we will seperate them in two categories: *Calculations involving capital, whether spent on or received by your customers *Calculations on how frequently a user interacts with your app First, you should select your key performance indicators (KPI) upon what you would like to achieve with your app. Which KPI’s are important totally depends on you and your company..
This kind of calculations only works retrospectively, means that you need data from user acquisitions campaigns you did before or analyze your running campaigns. This is a very interesting aspect because you get numbers to calculate the app marketing costs and get a relation to the other parts of the development process. Lets say: You can spend 10,000$ for your marketing campaign. How will the outcome be?
The Cost per Install (CPI) measures the app marketing costs that you will have for ads that trigger an installation of your app. CPI varies much by ad formats you use. If you are using non-incent banner ads you will most likely pay much more for each install than buying downloads via an incentivized offerwall. If you use an incentivized offerwall you can calculate very exact how many installs you will get for what amount of money. So if you use a professional advertiser and agree on a price i.e. of 0.20$ per install, you can generate 50.000 installs with your marketing budget of 10,000$ – a very clear result when calculating the app marketing costs.
It is often called Cost Per Action, too. This simple but very interesting formular help you calculating app marketing costs because you can measure very clearly how effective your marketing efforts are. It is not limited on a specific model like CPI or CPAU. For the mobile advertising industry this pricing type is more commonly used for setting actions like completing a tutorial, reaching a certain level, registering an account or subscribing for a newsletter. The defined action can be as specific as needed.
The Cost per Active User measures the app marketing costs that you need to spend in order to reach users that will use your app actively. CPAU is always higher than CPI, since not every install you are buying will convert into an active user. If you spent 10,000$ for your marketing and generated i.e. 50,000 installs and 10 percent of these users turn into active users, you spent 2$ per active user – if this was the KPI you have been looking for. Active users are more likely to generate higher revenue for your busines. And this makes your user acquisition efforts valuable.
The Average Revenue per User is the amount of revenue each of your active customers (on average) contributes in a specific period of time. This is a very good indicator in two ways: *You can see how much money you get from a special group of your users that are very engaged with your app. *When calculating ARPU including normal users, you get hints on what point you convert normal users into active users – a good side effect when calculating app marketing costs.
The Customer Lifetime Value (CLTV) makes you predict how long your customer will use and generate revenue within your app and therefore, how much the user is worth for your app. It should be your goal to always improve app features that will most likely increase the Customer Lifetime Value of your users. Most of the time this translates into improving retention rate, session duration and total usage time per user for your app. If you operate a shopping app though, the opposite might also be the case. That means reducing session duration by for example optimizing the check out process once a user added an item to his basket. The faster check out process might result in shorter session durations but higher CLTV in the long run. So be aware of what KPI’s you have to measure and improve exactly. With the CLTV in mind you are now able to calculate how much you can spend for every user in order to still make profit – this is what the calculation of your app marketing costs is about.
Return on Investment signifies the profit you make with your app compared to your investment. You take a look at this at the end of your user acquisitions campaign because is summarizes your efforts in making money through acquiring new users for your app. In our case, we calculated 10,000$ for app marketing costs. Lets say the total revenue was 12,000$, so your ROI for user acquisition was 20. A high ROI means that your profit is way higher than your investment. As long as your ROI is above 0 you are not making loss. But be aware that you might not only want to measure CLTV against Ad Spending for your ROI but also all other costs of the business you operate, like rent, HR, infrastructure and soon.
There are many different ways to calculate your conversion rate. It all depends on your goals and what is important for you. You might want to measure more than just one conversion within your conversion funnel from user acquisition to revenue generated to calculate the app marketing costs. That way, you would be able to improve your app on a more sophisticated basis.
You can get very useful information to calculate your app marketing costs the right way without looking at financial aspects. Important factors for your budget calculation are for example: *How often users interact with your app *At which point you loose their attention and many more
In summary we can state that calculating your app marketing costs (or the use of them) is not only limited to the factor of profit or revenue. Retention rate, daily sessions per active users or session length are significant factors for the success of your app – and so for the success of your business. Try to aim for the KPI which is most usefull for your app marketing campaign and in this light, plan how to use your budget. We at SKWAR are an experienced team and can help you calculating the costs of your app marketing and lever your user acquisition.