Return on Investment is one of the most common means of determining the efficacy of a particular investment. This key metric is expressed as a ratio or percentage for ranking the attractiveness of a particular investment when compared to its peers. Return on Investment is generally calculated by the formula mentioned below:
Thus, if a business is spending 2000 USD per month on advertising campaign and is generating 4000 USD out of the same, then ROI will be computed as follows:
(4000/2000) = 2
This signifies that the business is earning two dollars for each dollar spent on related expenses. Business houses conduct ROI calculation for gaining a clear understanding of the investments which are either accentuating, obstructing or simply not affecting the end results. Gaining knowledge over the same helps with investment and introspection in areas which have greater potential.
Importance of ROI In App Development
The growing complexities of modern life is making us realise the importance of mobile applications in availing goods or services and even paying for utility bills. Such convenience has hiked up the lucrativeness of mobile commerce. Research studies have indicated that the mobile commerce industry will attain the valuation of 250 billion USD within 2020.
But the main problem arises while trying to determine the factor of ROI for calculating the efficacy of mobile apps. Ascertaining the financial success of mobile apps in the modern world of competition and complexity is anything but easy. The apps also bear a hefty production expense making it difficult to come up with a universal ROI measure. Keeping such things in mind, we are going to discuss about the ROI calculation in various app types and steps involved in measuring the same.
Business houses can easily obtain an immediate ROI through the pay-per-download model. However, users might not be very pleased with this method as they are likely to develop second thoughts about paying for an app which they have not yet tested. These types of apps often leave the customers unsatisfied and that is why the potential clients proceed with second best options.
Every single app plying the market has not been designed for directly making money from the very first instance. These two business models however have gained rapid recognition amongst the paid versions:
- Well-known brands can set high prices as they are guaranteed about the positive sale graph of their products. This is possible only when the business has a guaranteed ROI as it might backfire otherwise.
- New comers in the field of app development usually set low prices to obtain a decent ROI in the long run.
Hybrid apps on the other hand have maximum earning potential and are found plying the app store of both Android and iOS platforms. The ROI of these apps are obtained through in-app purchases, advertising and subscription payments.
Steps Of ROI Measurement
- One of the very first tips for app success is to define your end objectives in a proper fashion. This is necessary because all the following steps cannot be verified in its absence. Thus, you need to have a clear understanding of the same prior to writing the code or even designing the screen. Mobile campaigns can either evaluate the consumer interaction by focussing on retention rate, user acquisition and mobile influence or evaluate the workplace efficiency by focussing on marketing and sales, field service and asset management.
- Having a clear notion on app development costs help in confining to a pre-determined budget. This also assists in refraining from excess consumption of limited and valuable resources. It is necessary to keep a tab on the developmental costs as that is required for being measuredagainst the key performance indicators. The development costs usually comprise of hardware, implementation and support & integration expenses. A customer support team might also be required to suffice the requirements of customers which might arise once the app has been developed.
- The factors which are imperative for organizational success are evaluated by various key performance indicators. These metrics might vary from one organization to another between revenue, retention rate, customer loyalty etc. If your end goal is customer interaction, then you will have to compare your mobile effort expenses with that of other channels.
- Once each application has been earmarked against a measurable KPI, you can estimate its overall value with utmost precision. The KPI measurements can be compared with development costs for understanding whether they outweigh it or not. ROI of your app can be calculated by dividing NPV (advantages) by NPV (costs).
Various methods of achieving desired ROI are present in the world of application development. Some companies generate revenue by selling off user information. Other conduct a thorough analysis of patterns and user behaviours of a particular industry. However, an application is bound to benefit out of high ROI as long as it provides valuable service to its users.