Calculating ROI on Mobile

Marketing Spend

Why Your Mobile App Strategy

is Killing Your Business
&
How to Calculate The ROI on Fixing It

Introduction
If youre a consumer-facing business of any size, youve probably
got a mobile app. You may well take a close interest in how well it
functions, and even how many new or existing customers
download it every day.
But if thats as far as your interest goes, your mobile app strategy
- or, rather, your lack of one - is almost certainly killing your
business. That may sound like an extreme proposition. But the
numbers bear it out. In this short document, well take a look at
those numbers and suggest some ways to quantify and change
them.
By doing so, we hope to bring home the importance of developing
a true mobile app strategy, and establish a method for delivering
and measuring ROI on the back of it. We talk to leading app
organizations every day who deal with just this challenge, so were
delighted to present a document that helps answer the question
How do I justify spend on mobile marketing automation?

Thinking About ROI

The economics of the mobile app are in fact relatively simple.
They can be expressed in equation form as follows:
Profit per user = lifetime value per user - acquisition cost per user

Now, we all know it isnt quite that simple.

To state just one obvious caveat, it might not always be possible to
clearly estimate the additional revenue that an app user generates,
particularly in an app whose primary benefit is increased brand loyalty
and awareness.
But regardless of those issues, the simple truth is that for many, many
businesses, this equation cannot be made to stack up.
On the acquisition side of the balance, its more expensive than ever to
get people to download your app, whether you are spending that money
in direct pay-per-click advertising (on other mobile apps or social sites)
or above-the-line in TV or print advertising or in-store promotions.
Meanwhile on the revenue per user side, there are certain numbers that
illustrate just how tough it can be to generate long-term revenue from
app users.
Try these stats for size:

19% of app installs are used precisely once

Of those users who install on Day 0, as few as 10% are active on Day 7
Although the average smartphone user has around 85 apps installed
on their phone, research suggests they only use around 26 in a
month (and spend 90% of their time on fewer yet.)

So while theres obviously a huge loyalty and revenue benefit in securing

- and keeping - a place on the consumers home screen, actually making
that happen in a world containing millions of apps is hard.
But thats where youll have to focus your effort. Sure, we can and should
make every effort to make our acquisition spend as efficient as
possible. But ultimately theres no silver bullet that will make a significant
and material difference to those costs.

Besides - enough has been written about determining ROI on acquisition

spend over the years. The single biggest failing in mobile app strategy
over the years has been the belief that success comes to those who
build a great app (in their own subjective judgement) and then pay for
people to start using it.
Fortunately we have the opportunity to change that. Once the app is
downloaded, we are able to dramatically change the alarming numbers
quoted earlier. Thats what mobile marketing automation makes
possible.

What is Mobile Marketing Automation?

Mobile marketing automation is the process of building perfect
conversations with your mobile users. That means making every
mobile interaction meaningful, relevant and effective - both for
the user and your business.
To make that happen, you need two things:
Firstly, you need a deep understanding of what your users do on mobile,
at the individual level: How they behave, what they like, what they
purchase and how they navigate around the app. You need to target
users as individuals rather than segments: and that requires real-time
data.
Secondly, you need the ability to talk to those users. Whether thats by
personalizing the app experience itself, sending push campaigns, or
delivering messages in the app: engaging in an ongoing conversation is
the key to long lasting engagement.
A mobile marketing automation solution combines both of these
abilities, and by doing so enables app businesses to control the
customer conversation from a single platform, without reliance on
engineering or the dreaded app store upgrade process. That means
new possibilities in driving the metrics that matter to a mobile business:
engagement, retention and monetization.
It also represents a move away from the focus on acquisition that so
many app businesses have adopted to date. The belief that success
depends on simply building a great app and paying for users to discover
it has proved false. Mobile marketing automation moves the
conversation and considers how we keep those new users engaged which is what really delivers ROI on our development and acquisition
spend.

Determining ROI on Marketing

Automation Spend
If we agree that mobile marketing automation (MMA) will primarily affect
the revenue per user side of the equation, we can create a further
simple equation for determining the ROI of investment in MMA:
change in revenue per user x number of users
ROI of MMA
=
x 100
investment
cost of MMA

Lets take a look at the bottom half of that equation first - because thats
the easy bit! To find that number youll simply need to sum the costs of
your MMA efforts. Just make sure to include:

Any software licensing costs incurred

Your own time spent building, delivering and measuring campaigns
Any value offered to users as part of these campaigns
(vouchers, etc.)

Well go over some practical examples of what these numbers might

look like below, but, for the moment, lets assume that summing them is
relatively straightforward.
However, you do have to remember that if you are looking to determine
ROI on just a software spend - because you are automating already
existing programs - your time invested is probably a negative. By
adopting an off-the-shelf platform, you are saving time spent on
campaigns rather than using more.
That leaves the top half, which is where things get interesting. If we take
number of users to be static, that leaves change in revenue per user as
the variable here, and one that in most cases isnt as easy to determine
as we might like.

It first helps to break down revenue per user into the following:
Revenue per user = revenue per user per day x average lifetime of user in days

This equation reminds us of the essential truth that there are two ways
to increase the revenue accruing from any given user: extend their
activity levels (most obviously by getting them to spend more) or extend
their lifetime (which includes reducing the number of one-time-only
users but also reactivating of lapsed users).
By looking at the numbers at this level - and filling in our equation all the
way up to costs, we can then have a reasonable approximation for the
ROI on our MMA spend.

Aspects Of ROI To Consider

Before we look in detail at three examples of ROI calculation in action,
its worth remembering a couple of key points. First, there is no single
bullet-proof way to calculate ROI. The discussion above is intended to
give you a framework for understanding the effects of campaigns - but
there may be other implications that need to be considered.

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Similarly, it is important to understand that we can determine ROI on

multiple levels. Perhaps the easiest way is to simply look at revenue per
user numbers before and after the implementation of an MMA solution.
This, in theory, will capture every effect of the multiple campaigns you
run.
But on the other hand, it may also capture effects that are in fact
unrelated to your MMA efforts. If, for example, the nature of your
acquired users has changed during the same period, will it be possible to
isolate this variable from your evaluation of mobile marketing
campaigns?
The alternative is to look more closely, and specifically, at the individual
campaign level. This will allow you to be revasonably confident that the
changes you are observing are relevant (particularly if you are using A/B
testing or comparing with well established benchmarks). However, you
may miss other effects. An improved app experience, for example, can
lead to improved acquisition via word-of-mouth.
Ultimately, a balance has to be struck. Perhaps the single smartest piece
of advice, and one that is followed in the examples below, is to identify
the metrics you wish to influence, and the effect you wish to see before
you build out your campaigns. And then limit your analysis afterwards
to these metrics. This is the best way to ensure that youre analyzing the
effects you set out to analyze, the fire rather than the smoke.
In the remainder of this document were going to look at three typical
app examples, from three different verticals, and demonstrate how that
process might work.
In each case both the costs and benefits are very much examples.
However, the numbers quoted are always similar to those we have
helped Swrve clients to achieve when working on projects of this nature.
If anything, weve taken a conservative view on the potential benefits of
the mobile marketing automation approach.

Example 1: A Mobile Retailer

For those app businesses that sell on mobile, and own the financial
relationship with the customer (as opposed to using Apple, Google, etc.
for payment processing), it is relatively straightforward to determine
mobile ROI. In fact, in most cases these organizations will already have
a fair idea of long-term customer value and costs of acquisition (or they
should!)
On that basis we will assume that a clear understanding of current LTV
and baseline numbers exist for comparison.
Lets look at some sample figures to establish how determining ROI
would work, based on two campaigns that a retailer of this type might be
expected to run. Of course the actual number of campaigns that can be
run is infinite, so negative ROI at this stage would not necessarily mean
the project should be abandoned, but rather expanded!
1

Campaign 1:
Improvements to registration process via native content changes,
interactive help and A/B testing.
2

Campaign 2:
In-app messaging to 7 day browsers - users who have been with the
app at least 7 days, spent at least 30 minutes browsing, but never
made a purchase. Message provides 10% discount on first purchase.
Our first campaign is designed to move our revenue per user per day
number. Specifically, non-registered users have an LTV of 0, whereas
registered users provide all income at a particular LTV rate.

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Thus we simply follow the logic shown below, with figures in grey
reflecting the existing reality of the app:
Registration success rate pre-project

3%

Registration success rate

post-project

20%

23%
Which Means...

20.000
Pre-project app installs per month

3%

20,600
Incremental Purchasers Per Month

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Translates To...

45
Average LTV
of registered
user

+27K
600
Incremental
Users

Additional
Net gain per
month

For our second campaign, we are looking at a way of increasing the

number of paying users, and thus again increasing the average LTV for
the product. Our benefit equation might look like this:
% 7 Day Browser segment
converting to customers pre-campaign

2%

% 7 Day Browser segment converting

to customers post-campaign

4%

6%
Which Means...

4,000
Number entrants to 7 Day Browser
Segment per month

2%

80
Incremental Purchasers Per Month

Translates To...

65
Average LTV
of users at first
purchase

5,200
80
Incremental
Purchase
Per Month

Additional
Net gain per
month

When we sum these campaigns we see a monthly benefit to the

business of $33,700. Great! But is it worth it? Lets look at the cost:
One-time campaign design / strategy cost (including
A/B testing, and to be amortized over 6 months)

monthly

Ongoing campaign management and reporting

$1,000

Monthly software licensing

$8,000

10% discount cost

$240

Total cost per month

$11,240

$2,000

If we then compare this number to our total benefit, we arrive at an ROI

of 190%. And thats just on the back of two campaigns!

Example 2: Dating Company with

In-App Purchases
In this example, we look at two campaigns run for a dating app business.
Crucially, this business does not control the financial relationship, with
users instead buying credits as in-app purchases through the relevant
app store.
This has a couple of consequences for the calculation of ROI. Firstly,
it may be the case that a business in this situation does not have a
clear understanding of the LTV of various user types.
If that is the case, a business of this type needs to ensure that revenue
events are accurately recorded (including filtering out the fraudulent
activity which is a common feature of the in-app purchase ecosystem)
and can be associated with individual users. Once that is done - we can
move on - and the logic will be similar to that for mobile retailers above

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Lets look at another calculation based on these two campaigns:

1

Campaign 1: In order to encourage users to return after an absence of

7 days, a recurring push campaign is created notifying users of
relevant content (new profiles etc) specific to them.
2

Campaign 2: A/B testing of the onboarding process is undertaken in

order to assist users new to the app and improve Day 1 Retention rates

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Our first campaign is designed to increase the lifetime of the user in days
by bringing back those who have potentially lapsed. Remember when
considering campaigns of this nature that users whove lapsed for 7
days (or indeed any amount of time) are not necessarily gone forever; it
is important to have an understanding of organic return rate, which can
be determined either by analysis of historical data or, alternatively, by
simply withholding a small group from the campaign and observing their
behavior.
Once comfortable with that concept, we can construct a benefit table
as follows:

Organic return rate for 7-day

lapsed users

1%

Post-promotion return
rate for 7-day lapsed users

2%

3%
Which Means...

8,000
Users falling lapsed 7 days in month

1%

80
Incremental registered users per
month

Translates To...

15
Average LTV
of reactivated
user

1,200
80
Incremental
Users

Net gain per

month

Our second campaign has the same objective - increasing the lifecycle
of the user in days, and in this case doing so by reducing a large user
fall-off on day 1. The logic might look something like this:

Day 1 retention pre-campaign

Day 1 retention post-campaign

4%

27%

31%
Which Means...

8,000
Number entrants to 7 Day Browser
Segment per month

4%

320
Incremental users per month

Translates To...

25
Average LTV of
Day 1 Retained
Users

8,000
320
Incremental
Users

Net gain per

month

When we sum these campaigns we see a monthly benefit to the

business of $9,200.
Costs of course will be slightly different. For one thing, as you may have
noticed, with fewer MAU, the software licensing is likely to be reduced.
Similarly a recurring push campaign is set and forget, so it has less
ongoing cost.
One-time campaign design / strategy cost (Including
A/B testing, and to be amortized over 6 months)

monthly

Ongoing campaign management and reporting

$500

Monthly software licensing

$6,000

Total cost per month

$7,500

In this instance we arrive at an ROI of 107%.

$1,000

Example 3: Brand App for Airline

Our last example represents a significant challenge. In this situation,
we are considering a travel companion app that aims to make flying
as straightforward as possible - providing guidance at the airport, flight
information notifications, luggage tracking and so on. The app also
supports the purchase of flights for the future.

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One might think that in the latter case, measuring ROI is easy, and in a
sense it is. But this example raises the issue of cross-channel reporting.
To state the obvious, there is more than one way to book a flight. To the
greatest degree possible, we would like to integrate multiple channels to
give us a 360 degree view of the customer. How that happens is outside
the scope of this document (and in most cases an airline will already
have addressed this problem), but if youd like more information drop us
a line at sales@swrve.com.
Similarly, in the former case it will be necessary not just to understand
the effect of improved loyalty on app purchases, but on all purchases
made in any channel. Again, with a single system of record we can do this
as in the example worked out below. It is worth remembering, however,
that it will be necessary to mark all app users rather than necessarily
those making purchases via the app. To do this may require the sharing
of non-purchase information from a mobile marketing automation
platform with the system of record.
In this case lets perform our ROI calculation based on the following two
campaigns:
The addition of a push notification feature alerting passengers of
imminent check-in - hoped to improve customer loyalty.
In-app messaging campaigns intended to advertise hotel options to
travellers who did not reserve one at the time of their booking - with
the intention of increasing affiliate revenue.
In the case of user loyalty campaigns such as our first item, it is
necessary to determine a realistic measure or definition of user
loyalty. In this example, well compare app retention rates rather than
overall business loyalty. Although the latter could be used, it is preferred
to get as close to the effect as possible - the effect on app users
themselves.

Day 30 retention rate pre-campaign

Day 30 retention rate post-campaign

1%

11%

12%
Which Means...

4,000
New app users per month

1%

40
Incremental 30 day retained
users per month

Translates To...

120
Average LTV of
day 30 retained
user

4,800
40
Incremental
Users

Net gain per

month

Our second campaign is easier to measure. Weve added a new,

hopefully revenue driving feature:

% hotel bookings per flight booking

pre-campaign

1%

% hotel bookings per flight booking

post-campaign

6%

9%
Which Means...

17,000
Flight bookings per month

1%

510
Incremental hotel bookings per month

Translates To...

10
Average revenue
(to airline) from
hotel booking

5,100
510
New Bookings

Net gain per

month

This time the sum of these campaigns sees a monthly benefit to the
business of $9,900.

The costs are again calculated in the same way, with perhaps a reduced
cost for set up due to the absence of A/B testing:

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One-time campaign design / strategy cost (Including

A/B testing, and to be amortized over 6 months)

monthly

Ongoing campaign management and reporting

$1,000

Monthly software licensing

$6,000

Total cost per month

$7,500

$500

In this instance we arrive at an ROI of 132%. Not too bad!

The three examples included are just that - examples. And in each case
weve looked quite specifically at the direct effects of specific
campaigns. However, the principles involved in each should help you get
a handle on understanding the ROI of your own mobile marketing
programs.

About Swrve
Swrve is the world leader in mobile marketing
automation. Our solutions help many of the worlds leading brands
deliver outstanding mobile app user experiences and build profitable,
long-term customer relationships on mobile.
As an open, extensible platform, Swrve integrates with the entire
marketing and tech ecosystem to make omni-channel marketing a
reality. And it does this at scale, handling over 5 billion events across 1
billion devices every day.
The Swrve Mobile Engagement Platform delivers everything businesses
need to keep their mobile app users engaged. This includes user
experience A/B testing, personalized in-app messaging campaigns,
targeted push notifications, and ultra-granular segmentation and
targeting.
Learn more about Swrve and our engagement solutions
for mobile app users.
www.swrve.com

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www.swrve.com