A guest blog post by Vasily Malyshev (Messapps)
Perhaps the best way to run a business is to run it mathematically. Knowing all your business metrics will allow you to not only better predict your revenue but also understand what you can do and how much you can invest to further multiply your revenue. In my role as CEO of an app development company, Messapps, I have worked on over 50 different applications and found that knowing the following metrics is absolutely essential if you want to be a successful “appreneur”.
What it is: Number of downloads represents the number of unique app store accounts that have downloaded your app. That means that if the same person downloads the app 10 times it will still be displayed as 1 download. The exact number of downloads is always shown in your app store analytics.
Why it is important: Ok, that’s a no-brainer. How many people download your app is the most basic and the most important metric. If downloads are at 0 then all other metrics simply don’t exist. You need to get those users first in order for your app to start earning money. No matter which monetization method you’ll choose.
That being said, it is important to note that number of downloads can also become completely meaningless if nobody is using the app after the initial download.
2. Retention rate
What it is: Retention rate helps you understand what portion of users continues to use the app. It can be measured in different time intervals but I find that monthly retention rate is the most important.
Why it is important: First of all, retention rate helps you evaluate your business proposition. Are people actually interested in your app? If they are then they should be using it regularly and at the very least open it once a month.
Second, retention rate can flag potential problems with functionality. For example, if you have a large number of downloads, but a low number of registered users, even though registration is required to use the app, then low retention rate can signal that people just don’t want to register right away. If they don’t register and they can’t use any of the app functions of course they won’t be interested in using it.
Finally, retention rate will have a direct influence on your revenue. Unless your app has a price tag associated with downloading it, in order for user to pay, you must engage them with your app and make them use it long enough to spend money. If your retention rate is low expect your paycheck to be the same.
3. Average session length
What it is: Average session length is the average time users spend in the app from the moment they open it till the moment they close it.
Why it is important: How much time users spend in the app answers two very important questions:
- Can they find what they are looking for quickly?
- Are they interested in the features & content your app provides?
If your app is Domino’s pizza delivery then your session length might be as small as 30 seconds. And that would be a great thing because with pizza delivery you want to open the app and in 2-3 clicks place the order. The goal of this app is to make you complete the order as fast as possible. In fact if users spend 2-3 minutes in this app it might mean that the app is confusing and that the users can’t find how to actually place an order.
On the other hand, if your app is Instagram then you want to have your sessions be as long as possible. Average session length of 3-5 minutes would be absolutely fine because that shows that users are interested in the content they see.
4. Conversion funnels
What it is: At the end of the day every app that earns money has at least one goal. For e-commerce apps it is to complete an order. For many social networking apps it could be engaging with the content long enough to see ads. Social networking apps can also have a goal of making users create new content for others to engage with. Whatever the goals are there is a certain number of screens user needs to visit in order to achieve it. This screen order is called a “funnel” and the achievement of the goal is called “conversion”.
Why it is important: You must understand how your goal conversion is performing. If not enough users are converting you need to look at the funnel and identify problem screens and buttons. For example, let’s say your funnel consists of the following 5 screens that lead to the goal of registering a user:
- 100% – “Sign in or Sign up” screen
- 70% – “Sign up” screen that asks for email and password
- 60% – “Enter your phone number” screen
- 30% – “Phone verification code” screen
- 1% – “Registration success” popup
The percentage values show your conversion rate for this stage. Meaning we have 100% of users on the first screen, then 70% choose to sign up, then 60% proceed further after entering email and password and only 30% an 1% get to the last two screens.
What could this tell us?
First, this might mean that users don’t want to give you their phone number. Half of the users decided not to proceed with registration after they got to the screen asking to enter the phone number. So unless it is absolutely necessary you might want to drop phone number requirement at registration.
Second, there is an obvious problem with the verification code. Maybe users just don’t receive the verification code and because of that only 1% actually gets to complete registration. Hence, you should test the app yourself and fix the bug that prevents most users from getting the verification code.
5. User lifetime value.
What it is: User lifetime value refers to how much you can earn from an average user. The easiest (though not always precise) way to calculate this metric is to divide your total revenue from users by the total number of users.
Why it is important: your users determine how much revenue you can earn. Knowing user lifetime value helps you answer two important questions:
- How much money can I make in future?
- How much can I spend to acquire a single user?
If the first question helps you predict the revenue, the second helps you understand how you can multiply it. Let’s follow this simple example:
It’s been 6 months since you’ve launched your app. You have made $100,000 in revenue and profit (all downloads were organic) and you have 25,000 users. That means that your rough user lifetime value is $4. Let’s say you want to double your profit in the next 6 months. Assuming average price of cost per install ads to be $2 per install this means that you will need to invest $100,000 in order to make a total profit of $200,000 in the next 6 months. Here is a more detailed breakdown:
First 6 months:
Profit from organic downloads: $100,000
Second 6 months:
Profit from organic downloads: $100,000
Paying for 50,000 new users via $2 per install ads: -$100,000
Revenue brought from 50,000 users assuming LTV of $4: $200,000
Subtracting our $100,000 investment from our $200,000 revenue we get an additional profit of $100,000. Hence in the second 6 months we earn a total of $200,000.
Running your business mathematically will make your life much easier. Whether it’s knowing your expenses or predicting your income the 5 metrics above are essential to running a profitable app business. In addition to them make sure you constantly keep an eye on your app performance and crashes and remember to read reviews. This will help you uncover many problems that could negatively influence your metrics.