Mobile Engagement Crash Course #9: Evaluating ROI

By: Kahuna | May 21, 2015 | Mobile Marketing
Mobile Engagement Crash Course

In the past, marketing has traditionally been seen as a cost center rather than a revenue generator. The marketing department invested in campaigns that were broadcast to the world with the goal of differentiating the product or service, attracting attention, and creating brand lust. Although an important undertaking, there was no way to precisely quantify the results of marketing efforts. While other executives brought in numbers to back up their strategies, CMOs shared anecdotal success stories. With today’s marketing technology, however, marketers are finally able to measure the return on marketing campaigns and can truly claim a seat at the board table.

As mobile marketers, it is your job not only to design marketing campaigns that engage and delight your mobile users, but also to track the tangible value you’re bringing to the business. In this post, we’ll discuss the metrics you should consider as you’re building an ROI model for your mobile messaging strategy.

Mobile App Business Models

When developing your ROI model, you must first consider the overall business model of your mobile app. These models vary from app to app, but there are generally three main types of business models for mobile:

Paid: For apps such as e-commerce or subscription-based apps, users are directly buying products from their mobile phones. The value of each mobile user can be quantified by the value of goods or services he will buy over his lifetime as a customer. Acquiring a user is worthwhile as long as his lifetime value exceeds the cost of acquisition.

Ad-based: Other mobile apps derive their value from advertisements served in the app. A social media app, for example, banks on amassing millions of users who engage frequently with the app. The more time that they spend in app, the more opportunity there is to integrate ads into the experience and earn revenue from those advertisers.

Blended: These types of mobile apps have a free and paid option. An example would be a music app that offers free streaming music served with a mix of ads and a subscription service that provides unlimited ads-free access. The free version relies on advertisements to earn revenue, which means users that start more sessions and spend more time in the app are more valuable. On the subscription side, the exact value of a user who subscribes can be calculated by the subscription cost and the length of his expected subscription. Even more interesting is the blending of these two options and understanding the general conversion rate for users who move from the free version to the paid version.

No matter the revenue model, the path to higher lifetime value is marked by certain key actions that users engage in. As a prerequisite to becoming a valuable customer who contributes to revenue, users must become accustomed to and invested in the app, and certain actions help them do just that. For a user of a music app, for example, it might be creating a playlist, which then allows him to come back to his favorite songs and receive recommendations for songs he might also like, driving more time in-app. For an e-commerce app, it might be registering his information, which makes it more convenient to check out.

In order to evaluate ROI, marketers must first understand the LTV of your average new user. Once you have this value established, you then need to pinpoint the key actions that correlate with this LTV. By analyzing aggregate data across your user base, you can determine which actions actually contribute to revenue and to what capacity. Some actions may be meaningless and provide no real revenue impact, while others are critical to producing future revenue. Ultimately, you should be able to backsolve for the average dollar value for each action that contributes to revenue.

An effective mobile messaging strategy seeks to drive the key actions that lead to revenue. Because the value of each action can be estimated and quantified, once you have these values, an ROI model follows fairly easily. Simply look at whether the returns of your mobile messaging campaigns—the increase in key actions taken and value of goods purchased—has surpassed the investment.

ROI = (((# Key Actions Taken * Value of Key Actions)  + Value of Goods Purchased) – Cost of Campaign) / Cost of Campaign

By driving more key actions through push notification campaigns, mobile marketers can increase the lifetime value of users. With successful mobile engagement campaigns, every new user acquired becomes more valuable, which means that marketers can also spend more on acquiring each new user.

What’s next?

In the past two weeks, we’ve discussed the metrics used to measure the success of your overall strategy as well as the model for evaluating your ROI. For our next lesson, we’ll talk about the day to day metrics that mobile marketers monitor to inform their tactics. ‘Til then!

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