In the first part of this series on advertising for mobile developers, we took a look at some of the basics of advertising. Next, we are going to look at how you can determine the value of a user.
Understanding the true value that your users represent is key to ensuring that you are calculating effective media buys and spending money wisely. Keep in mind that Users are more than simply eyeballs – they are the most valuable component of your business.
Intangible value of users
Certainly app users are valuable financially, but they also have the potential to offer incredible support toward your app’s reputation and popularity, and their insights can even help shape your product. Take a look at the many ways satisfied users can bring significant value:
- Word of Mouth – Your users can become your best ambassadors. Word of mouth is one of the most powerful forms of influence, as users trust recommendations from friends, family and others in their circle.
- Feedback – Stay relevant with your users by continuously taking in their feedback to improve your product. Too many businesses have failed thinking that they know what is best for their user-base. Rather than assume, try asking your users to share their likes and dislikes. This kind of authentic, first-hand feedback is golden.
- User-Generated Content (UGC) – A fantastic way of having up to date content, UGC takes the burden of continual content generation away from the app developer and places it in the hands of the community. Services such as Vine and Instagram are great examples of UGC apps.
- Marketing Synergy – Your users can help you with promoting your app via their social networks.
- App Store Rank – The more users that download your app, the higher your app will rise in the store rankings.
While the above benefits are good for your business, it can be hard to tie a specific dollar amount to them (not to say it’s impossible, just a little difficult). This is why it’s better to start out by looking at numbers you can easily quantify. Some of the most important ones are the number of active users (DAU), your retention rate (or churn rate depending on how you look at it), and the lifetime value of each user.
…your active users
While getting a lot of installs may be great, your bread and butter should be the amount of users who actively use your app on a daily basis. You realistically cannot make any money when your active users are low. Luckily, most stores will show you these stats under the reporting or analytics sections.
…user retention rate
To calculate your churn rate, you want to divide the number of active users by the total number of installs. If your retention rate is low, you may want to look at changing your application and improving it so that users stay active longer. This will help you increase the lifetime value of each user.
100 Active Users / 1,000 Total Downloads = 10% Retention Rate
…lifetime value of a user
Another key piece of information is the average amount of money you will make from each person who downloads and installs your mobile application. This number may vary quite a bit depending on what type of app you have. Still, when you know the lifetime value of your users, you will be able to make better decisions on where to spend money on advertising for your mobile app.
To figure out your lifetime value of a user (LTV), you just need to take the total revenue you’ve earned and divide it by the amount of users you have. That would give you an overall LTV of a user.
…ad revenue over time
Using eCPM and the average number of ad impressions, you can come up with the estimated revenue earned over a period of time.
- (eCPM/1000) x Average number of ads
For example, if you know over a period of a month you get around 100,000 visits to a section where you want to place your ad, you can just plug the numbers in.
- $5 eCPM / 1000 = .005 x 100,000 = $500
- $2 eCPM / 1000 = .002 x 100,000 = $200
To figure out the ad impressions number, you could use mobile app analytics platforms to see how many sessions/visits you get over a certain period of time.
Calculating other revenue
Ideally, you should also figure out other channels outside of advertising. If your app is a paid download or has in app purchases, you want to tie that revenue down to a user to see how effective those channels are. The more accurate the number, the better judgement you can make.
Tracking the value of users
Once you establish a baseline with your LTV, you can continue tracking that as times goes on. The value of a user is likely to change over time, and hopefully you will be able to increase their value by using the data to make more informed decisions and actions towards monetizing your apps. Additionally, it’s always best to get granular once you have baselines. If your app is on multiple platforms, you’ll want to establish LTVs for the users by each individual platform. That way you know what each user is worth by platform.
Advertising as a mobile developer
We will be taking a look at calculating the cost it takes to acquire a user in part three of this series. When used in addition to the data you have about the value of your users, you will be able to come up with a solid advertising plan. This will help you get the most bang for your buck – and make a profit – when you advertise your mobile app. Here is a complete look at this series on advertising as a mobile developer.