Why the cost of getting new client for mobile app exceeds revenue that it generates
Having hooked a client, it's too soon for app developers to sit back in satisfaction. The majority of mobile app development companies game away their welfare while winning over new app users. When going to excessive expenses, the fact that app users don't spend enough is dropped out of their view.
CPI (cost per install) is a factor that indicates economic insecurity for app developers and owners. CPI seems to be relatively low. However, when it comes to comparing it to the revenue users generate, it gives cause to reflection and some serious turnover. Especially since CPI never stops growing. The more this cost increases, the more time users should use the application. Moreover, mobile app development companies should apply more efforts to boost users' interest and to make them keep spending money on their apps.
Figure 1: Cost to acquire a customer
iOS and Android mobile app development requires a lot of skills and expertise. In order not to strain every effort in vain, one should assume appropriate measures to consolidate their business. To this effect experts have come up with several tactics that can help render one's business less vulnerable and more stable. They are: average net profit per customer, customer acquisition cost, clients' turnover, and clients' lifetime value.
1. Average net profit per customer.
This characteristic is one of the major characteristics for a business with inconstant clientele. In a perfect situation this indicator never surpasses costs allocated to provide the best user experience. If average net revenue is steadily analyzed, business owners can have an insight into their customers' activity. Thus, they can as well be aware of their cash flow every month. In the final analysis this action proves useful in understanding each client's value and their positive influence on your business.
A useful piece of advice would be to trace customers' activity over different periods of time. Hereby, you can denote alterations in average net profit brought in by users throughout their experience.
2. Customer acquisition cost.
This indicator is responsible for the actual money you spend to make your app attractive and appealing for your target audience. Here we talk about expenses on advertising, app store optimization (ASO), employees' salaries, marketing campaigns, etc. It is of crucial important to be a wise spender at this stage. As the money you spend to win over customers has a direct impact on cost recovery. Consequently, the more cash resources are spent, the more time it takes to recoup them. And if your expenses exceed your revenue, this means you come off worst.
There is a way to find out your customer acquisition cost. To do this, it is necessary to divide acquisition cost by new customers throughout a certain period. No doubts appear when stating that customer acquisition rate should be kept low. To do this, one is to take into consideration the following paramount tips:
- Facilitating conversion rates. Conversion rates are responsible for the amount of traffic you get, as this traffic can be converted into paying users. Email marketing as well as retargeting are two helpful solutions to make your conversion rates go up.
- Boosting on boarding and providing support. Statistics has it, that the overwhelming majority of downloaded apps get abandoned and removed. Consequently, the number of stable and willing to pay customers is extremely small. By making users comfortable and using online tools, a business owner can be sure to have new clients on board.
- Marketing automation software. It is aimed at efficiently promoting apps and businesses. It enhances a circle of your potential clients. Apart from that, it is capable of evaluating and reporting.
3. Clients' turnover.
Businesses specializing in app development all have had taste of this toil. One has to demonstrate savvy in order to turn recurring clients into regular ones. When client turnover rate is higher than growth rate, it is an alarm bell for a business owner. It is highly recommended to find out all possible reasons. Reasons can be plenty: strong business competition, drawbacks in customer service, unfriendly interface, unreasonable price setting, etc. All these shortcomings need to be cleared up and settled.
Clients' turnover should be kept a close watch on. This characteristic is estimated by dividing the number of missed clients within a certain period of time by total amount of clients over this period. We can as well put it in the following way: clients' turnover results from dividing the profit got over a month by the profit lost over the same time.
4. Clients' lifetime value.
Lifetime value is the revenue generated by customers over the whole period of your cooperation. That is the total profit or loss incurred by certain customers. Basically, clients' lifetime value is the value indicated in money equivalent. It concerns money supply and the amount of time clients stick to your app. It goes without saying that the most prosperous business is the one that has low clients' turnover rate and high net profit per customer. Clients' lifetime value provides you with an invaluable competitive advantage, as you can figure out who your most profitable customers are. And with this information you are able to concentrate your efforts on them.
At this stage it is extremely important to realize that once your client acquisition cost is higher than your clients' lifetime value, you are simply losing money. In that case it is advisable to cut down your expenses on client acquisition cost or try to increase your profits.
Mobile app launch and mobile app promotion present quite a number of difficulties. App developers should take a lot of aspects into consideration. Starting with analyzing average net profit per customer and controlling customer acquisition cost, and ending with restraining clients' turnover and increasing clients' lifetime value. It is of paramount importance to bear in mind that eventually all the efforts will be repaid. So it is always worth it to monitor your numbers and to use every meansat your disposal.
Figure 2: Cost to acquire a customer
Moreover, however difficult the situation is, every cloud has a silver lining. Even though this may not be immediately apparent. If Gartner statistics is to be trusted, downloads will amount to 268 billion annually by 2017, increasing profits up to $77 billion. So the statistics shows great promise. In other words, it is not going to be long before revenue generated by app users surpasses app downloads. Be 100% sure to guarantee ultimate product and service. There is no doubt that customers who have positive experience using your app, will not be scared away by eventual expenses in the future.
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Technology Areas: software development, mobile application development, iOS, Android
Elinext is a custom software development and consulting company focusing on web, mobile, desktop and embedded software development, QA and testing. Since 1997, we have been bringing digital transformation to mid-sized and large enterprises in Banking and Finance, Insurance, Telecommunications, Healthcare and Retail. Our key domains include enterprise software, e-commerce, BI and Big Data, e-learning and IoT.