As Peter Drucker, “the founder of modern management”, once famously said, “what gets measured gets improved”. It’s very easy for startups creating, marketing, and selling digital apps to confuse essential metrics—i.e., those that are evidence-based and actionable—from erroneous stats—i.e., “vanity metrics” that do little other than boost ego. Why does this matter? Because measuring the right mobile app metrics is crucial to understanding not only what your company is doing well but also what you need to change; collecting the wrong data (or the right data in the wrong way) can mean the death of your startup. In this article I’ll discuss 5 app marketing metrics that all startups operating in the mobile space should track.
Before we begin discussing mobile-specific metrics, it’s important to note that there are a number of financial metrics that all startups should measure, regardless of whether they create apps or not.
These core mobile metrics include:
- Fixed vs. variable costs;
- Cash balance;
- Burn rate;
- Breakeven analysis and breakeven point;
- Profit; and
- Cash flow and cash flow forecasting.
We recently published a full article explaining these metrics—see here.
1. ARPU and LTV
Building on Steve Blank’s definition of a startup, when organizations implement “repeatable and scalable business model[s]” they gain the capacity to market and sell with efficiency, which promotes growth.
The Lifetime Value of a Customer (LTV) is one of the key metrics according to which this efficiency is measured.
In a very broad way, the LTV represents the financial value of your app insofar as it signifies how much each app user (i.e., customer) is worth to your company across the span of his or her lifetime usage.
My partner at Appster, Josiah Humphrey, recently provided a more specific description of LTV:
“[LTV is the] projected revenue that a customer is expected to generate during his/her lifetime. In the simplest of cases, [it’s] calculated by multiplying the yearly cost of your service by the number of years for which a person is expected to remain a customer of your company. Example: if your service costs $100 per year and your average customer stays 5 years then your LTV is $500”.
Early-Stage startups might have difficulty trying to estimate their LTVs if they lack concrete data.
In that case, one way to roughly gauge LTV would be to locate similar companies in your industry for an idea of what a comparable LTV might look like.
The Average Revenue Per User (ARPU) is a slightly different metric, one that correlates to the purchases and overall spending habits of your customers.
Investopedia defines ARPU as:
“[A] measure of the revenue generated per user or unit. Average revenue per unit allows for the analysis of a company’s revenue generation and growth at the per-unit level, which can help investors to identify which products are high or low revenue-generators. … Companies may also use this information to determine which product lines are lagging”.
In general, you want to drive both LTV and ARPU as high as possible whilst growing your user base.
2. CPI and CPLU
Cost Per Install (CPI), as the name suggests, is a measure of the amount of money your company spends in order to acquire one user who installs your app.
Tubemogul.com describes CPI from the perspective of digital ads:
“CPI (Cost Per Install) campaigns are specific to mobile applications. In a cost-per-install campaign, publishers place digital ads across a range of media in an effort to drive installation of the advertised application. The brand is charged a fixed or bid rate only when the application is installed”.
CPI, thus, tracks paid installs rather than “organic” installs (source ).
As Alberto Furlan points out, CPI is calculated according to the following formula:
Expenditure on ads ÷ total installs = cost per install
Example: $5,000 (ads) ÷ 1500 (installs) = $3 CPI
Arguably, CPLU is the more meaningful of the two metrics because it reflects how much money your startup must spend in order to acquire a customer who actually uses your app versus one who merely installs your app.
When analyzed in conjunction with your ARPU, your CPLU can help you to calculate:
- The return on investment (ROI) for your marketing efforts; and
- Your breakeven point, i.e., is the point at which your revenues (the amount of money you’re bringing in from sales) exactly match your expenses (the amounts of your fixed and variable costs). This is important because the point beyond your breakeven point is where you begin to accumulate profits (see here).
The most recent data from Fiksu DSP, a mobile marketing technology company, show that:
- The global CPLU average in the mobile space is $2.51 (April 2016);
- The global CPI average for iOS is $1.88 (January 2016)
- The global CPI average for Android is $2.42 (January 2016)
3. User Retention
Today, 5 million apps are available for download on Google’s Play Store and Apple’s App Store.
In other words, most people use only a few apps consistently and abandon all other apps for good.
User retention, therefore, is clearly a significant problem with which all app-centred startups must deal.
Some estimates, like those discussed by Apptentive, suggest that only 4% of iOS and Android users continue using an app 12 months after first downloading it:
As my partner at Appster, Josiah Humphrey, recently noted, “the moment you successfully acquire a new customer you must start doing everything you can to retain that customer for as long into the future as possible”.
“Customer retention refers to the percentage of customer relationships that, once established, a business is able to maintain on a long-term basis”.
“The goal of customer retention programs is to help companies retain as many customers as possible … begin[ning] with the first contact a customer has with a company and continu[ing] throughout the entire lifetime of th[at] relationship”.
Why is measuring retention important when it comes to your mobile app metrics?
Because, as Alex Walz points out:
“Knowing your retention gives you a much better indication of your app’s success and current customer-base [than do certain other metrics]. Your app might have 100,000 downloads, but how many of these people are actually active? [Retention data make it possible to answer this important question]”.
Retention, thus, allows you to refine and more specifically target your marketing efforts due to its ability to reveal your best (i.e., most engaged and long-lasting) customers.
Improving your user retention rates is one of the greatest ways to effectively boost you LTV numbers and increase your overall revenue.
Engagement as such is not a singular, specific metric. Rather, it can be measured by tracking and compiling the data from various other metrics, including session length and interval, app interactions, user opt-ins, and app screens per session (source).
Engagement is important because it gives a sense of the quality of the use of your app over and above a purely quantitative assessment.
Unsurprisingly, the biggest mobile apps generate the most impressive engagement data.
The following graph, which compares 90-day retention rates with frequency of use per week for a variety of app categories, gives some insight into how it’s possible for massive high growth startups like Facebook to receive a $200 billion valuation.
A highly engaged customer base not only drives retention and LTV numbers but also promotes positive network effects built on virality and social shares.
Engagement, thus, is crucial for startups to assess.
One of the top metrics of customer satisfaction and app virality is known as the Net Promoter Score (NPS).
It’s measured by asking your users the following key question: “On a scale of zero to ten, how likely are you to recommend our app to a friend, family member, or colleague?”
Netpromoter.com outlines the differences between the various kinds of respondents:
- “Promoters (score 9-10) are loyal enthusiasts who will keep buying and refer others, fueling growth.
- Passives (score 7-8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
- Detractors (score 0-6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth”.
The total NPS is calculated by subtracting the total number of detractors from the total number of promoters.
It’s important to follow-up the main NPS question with “Why?” questions as to figure out the reasons behind your users’ answers.
Regardless of whether your NPS is very high, very low, or somewhere in between, you still need to determine your users feel as they do.
This mobile marketing metric is extremely useful because:
- It helps give an indication of whether your company is on track in terms of finding product/market fit;
- It measures the value and viral potential of your app; and
- It signals the extent to which your users are likely to share your app with others and inadvertently create new customers for you (i.e., a high score suggests that your users are likely to favourably rate and spread the word about your product).