INside Performance Marketing
Got a tip? Let us know...
Why It’s Time to Reassess the ROI of In-App Ad Spend
USA & Canada

Why It’s Time to Reassess the ROI of In-App Ad Spend

Verto Analytics' CEO Hannu Verkasalo on building a better system to measure mobile advertising

Compared to print and TV, mobile advertising is still in its infancy, but it’s growing at an astounding clip. According to a recent study by eMarketer, mobile advertising in the US will account for an incredible 72% of digital ad spend by 2019, far surpassing search advertising on desktop PC as the biggest revenue driver of online advertising.

For brands, mobile ads represent a major improvement over the features of social media and PC-based search advertising, offering enhanced targeting features and reach, as ads appear where users spend the most time—in apps on smartphones.

Mobile app install advertising – ads that encourage users to download an app – is on the rise. Even back in 2015, BI Intelligence estimated 25% of total US mobile ad revenue was generated by app-install ads and revenue is forecast to grow to over $7 billion by year-end 2020. Further, in a recent report from Ovum, total app revenue across in-app user purchases and in-app ads will grow to $180 billion by 2021.

New approach

Whatever the source of revenue, brands and marketers who are hoping to promote to and monetise app users grapple with ROI and high rates of user churn. Verto Analytics data shows that mobile apps only retain between 2%-25% of their user base 30 days after download, while fewer than 2% of all mobile downloads lead to long-term users who can be monetised through in-app purchasing or mobile advertising. In other words, there is an inherent limit in terms of the time people can spend on new apps. The average American consumer has an average of 89 apps installed on their smartphone, but they only use 25 of them each week and only eight apps daily.

Consequently, while downloads can be an initial measure of app success, the high rate of initial user churn makes it much more important to measure long-term retention and value.

Marketers should be using a new approach towards measuring the value of a mobile app user by connecting audience acquisition costs to long-term user value. Simply put, it’s about understanding the value of mobile app advertising, over the long term, and calculating the true cost of user acquisition in the mobile ecosystem.

The premise is simple: one has to connect investments to the return on that investment. If you have better insight into your costs and how that links to any revenue that partially or fully results from your investment, you can assess what is profitable in the long-term.

This framework relies on two key principles.

Moving beyond CPI

As mentioned earlier, churn is the greatest challenge to mobile app install ROI. For example, assume you spend $50,000 on an app install ad campaign to generate 10,000 app downloads. Thus, your cost per install is $5. Not bad.

However, the reality is that after 30 days, only 5-10% of those downloaders (500-1,000 people) will still use the app. Thus, in effect, you’ve paid between $50-$100 for every person who installed the app and used it beyond 30 days. Suddenly, the cost per install for any form of valuable user looks a whole lot worse. It’s this figure that is effectively the true cost of acquiring mobile users.

This level of churn and the fact that the remaining loyal users drive between 75-100% of app revenue is why marketers need to move beyond the basic cost-per-install metric to a better understanding of the lifetime value of an app user. It’s about using retention to measure the true value of a mobile app user.

Finding high lifetime value users

If you can understand how you found high-value lifetime users, it means you can focus more accurately on identifying the strongest potential new users and avoiding the 90-95% of fleeting users. This leads to a much more effective mobile marketing strategy.

Whether you’re a marketer, mobile app developer or digital publisher here are a few key metrics you can use to get an accurate picture of your app retention and how it compares to your competitors:

  • Number of downloads and timing (hour, day of the week)
  • Number of active users during and after the first 30 days
  • Time spent in the app and the number of sessions users allocate to a single app versus other on-device activities
  • Whether a complementary or competing app was installed and used during the first 30 days
  • Device type, e.g. iPhone, Android
  • App discovery source, e.g. App Store, Google Play, referrals, advertising, search
  • User demographics, like device ownership, gender, geographical location, age

These metrics provide a framework for understanding churn and retention patterns and a more accurate measure of the value of a mobile app user, the value of mobile app advertising over the long term, and the true cost of user acquisition in the mobile ecosystem.

Continue the conversation

Got a question or comment – post on Twitter, Facebook or LinkedIN.

Hannu Verkasalo

Hannu Verkasalo

Hannu is CEO and founder at Verto Analytics Inc.

Read more from Hannu

You may also like…