How to calculate mobile app revenue!

App developers develop and launch apps to generate revenue from either in app purchases, advertisement revenue or subscriptions.  If we take the example of a typical app, below are some of the revenue generation techniques that can be implemented:

• Freemium model, i.e. basic functionality offered for free while there will be a subscription for premium features. In this model, some of the features are provided free while advanced features come at a price. This is a model that is adopted by many app players. In this model, the fee charged is in small denominations while the focus is on driving traffic by offering the free features. One of the most successful examples of the freemium model is Spotify. Freemium helped Spotify to win big with a reported 27% conversion rate, that means out of its 75 million monthly users, 20 million of them are paying customers 
• Advertising- Advertisement is another source of revenue. The in-app advertisement can be launched only after reaching a defined scale. App developers provide targeted offers according to the usage behavior of the customer. The advertisers are generally displayed based upon the user interest. The advertisement revenue is calculated broadly as Impressions multiplied by eCPM (revenue earned per 1000 ad impressions). Those who want to explore the revenue calculation methodology in depth can refer to multiple sources that are available in Ad serving sites.

• Transaction commission can be a key source of revenue in case of e-commerce or fintech apps. Apps can charge merchants a commission for every successful transaction done through the app. If we take the examples of bigger tech players like Google and Apple store, they charge 30% commission for select app stores. If we consider video games places like Xbox or Nintendo, it hovers around 30%. However in financial apps the transaction rate may be close to 3-4%.

• Targeted offers – Apps can allow advertisers to display offers that are tailored to the customer’s specific needs (based on the users preferences, transaction history, credit rating, available balances, personal goals, etc). If you are ready to display some specific advertisements to be displayed on the app based upon the specific type of users that use the app. If you have a very targeted audience, you will attract advertisers interested in your niche. At some point, it can become more profitable to deal directly with the advertiser than using a third party ad network.

Another revenue generation model can be deriving analytics from user data and getting subscribers pay for such data. Based upon the data collected, apps can derive analytics from the user data and share that with subscribers who are ready to pay for such information. Since, apps are going to have access to the user usage data, using data mining techniques they can holistically assess the usage patterns of any customer.

Some of the key considerations while deriving the forecasts for any app is the “engagement factor”.  Typically we can assume that 40% of the users will download the app, play with it and never use it thereafter.

Once you have the revenue model ready, the next important step is to measure the metrics for the different revenue streams. To do this, the important step is to ensure measurement of the metrics. Here is how to do it.

1.      Create actionable metrics – You should identify the exact metrics that correlate to your specific goal and design tactics to positively influence those metrics.  Actively measure and monitor primary metrics to quickly respond to potential market changes.

 2.      Analyze Customer Lifetime Value – The customer lifetime value (CLV) indicates your expected revenue from each user throughout his or her engagement with the app.

 3.      Determine your cost – Quantify your overall costs that go into maintaining, building, updating, and promoting the app.

 4.      Know that not all users are the same – Different users create different consumptions patterns. Segment your acquisition channels using accurate buyer personas to reach more reliable ROI numbers.

Finally, we cannot less emphasize the importance of promoting the apps once they are launched. To promote the apps, developers need to promote them on social media and send out contextual messages via in-app messages, SMS or email newsletters to inform users about new product features or any upcoming events.

Developing and maturing an app idea can be a challenge. We can help you to develop a complete app revenue forecasting model within a price range of US $ 350 (for a single revenue model) to $ 750 (3 different revenue models) depending upon the complexity of the revenue model. The business models that we create are dynamic and it will help you to change the data as you move along in your journey of building the app.

Connect with us at info@intelligentq.co.in to create your revenue model for investor presentation or in-house analysis!