In the next few minutes I'm going to show you how you can look beyond those vanity metrics that only look good on paper and how you can focus in on real, core KPIs that can move the needle on your revenue machine. So let's get our growth on.
.@PulsateHQ MOBILE METRICS [WATCH] Revenue Generation For Apps: 5 Key Metrics of Success
VIDEO TRANSCRIPTION | MOBILE METRICS SERIES
You've launched your app. You've invested heavily in product in marketing in your channels. Your app might already even be generating some revenue.
But in this episode, it's all about how do we take things to the next level? How do we dial it up? How do we gear things so that the revenue machine starts to churn and all of our efforts build greater revenues and profits within the app and within the business?
First of all, I want to go over some prerequisites. What metrics you need to measure. And then we're going to get our growth on.
First of all, if you're watching this video I'm going to assume that you've got all this stuff down. You've got your acquisition nailed. Your activation, your retention and your referral.
You see there's no point in fast forwarding to the revenue video if you haven't looked at these and simply putting some pricing in front of customers if you're not acquiring users in from the most profitable and sustainable sources. You're not activating them and waking them up and welcoming them into your experience properly we're not really going to be able to do much at this revenue stage.
We need to make sure this is all flowing we're retaining customers you're already able to get some referrals and this final episode of the Pulsate Mobile Metric series builds on everything that you have learned.
If you haven't done this please go back. Go through this content and then skip forward to today where we're going to go and learn how to build this together.
Again you know just to reiterate on some of these metrics and what you need to measure we have LTV or lifetime value, and LTV is a total worth of a customer. How much they spend with your company multiplied by the amount of time that they're actually going to stay with you over their lifetime and hence lifetime value.
The goal here is to try and maximize this. We want users to spend as much with us as is possible and we want them to stay with us as is long as we can actually get them to stick around in our mobile application.
We have companies like Amazon and Uber and other utility other e-commerce apps that focus on providing a great experience, great utility value backed by a great service.
To create addictive user behavior is getting people to flow back in and repeat the purchase knowing that they're going to get a great experience deepening the relationship and extending as much as possible this LTV.
You want to pump this as high as you can. As high as the sky. LTV you can never have enough.
CAC, or customer acquisition cost. This is what you pay to get a user into your funnel from one of your paid acquisition channels or sources.
It's the cost that you pay Facebook or the actual click on the ad that it cost to bring that user in.
It's important to know what this is versus the lifetime value and how long people stick around.
Now it's our job as app marketers to get the LTV flowing open, shooting for the stars. We want to get CAC down as much as we possibly can.
Now with customer acquisition cost it's important to know that our LTV should be a multiple of our acquisition costs but I'm going to cover that a little bit later on in the episode.
ATV or average transaction value is on average how much do customers actually spend within the mobile app?
And it could be different apps will have different functions do they book a flight? Is it an e-commerce application? And what is that sweet spot average transaction?
So maybe that's the maximum transaction that you know you can get out of a customer. So that can refine your marketing and your messaging and how you actually reach out to customers that you're going to seek out this particular transaction value.
And then we have ARPU or the annual revenue per customer. Now this can be very interesting and very important to help predict and calculate things toward the LTV and to do revenue calculations and now how much is that customer going to spend with us not just only over their lifetime but within that particular year.
Now it's going to depend on you. Is ARPU enough for you to calculate? A lot of companies a lot of our clients do break this down into monthly revenue per customer.
It does depend on your own unique app and your business of course. You need to make that call.
And then we've got V for viral coefficient. And this is the measure of how viral your app is and how easily it spreads. So this is a way that we use to measure out of the app users that you get which ones actually go and share this app and then those users they share your app again and again and what happens after that. So that's a formula that we use to go and measure that.
So with the prerequisites taken care of and a little bit of a primer on the metrics next let's get into getting our growth on.
Okay so next up getting our growth on so let's jump in.
How do we increase our chances of scaling how do we amplify the revenue within our app? How do we grow?
What you need to be thinking of is LTV in terms of multiples. I did mention before that you know customer acquisition cost needs to be lower than lifetime value. Well that's kind of obvious but by how much? Should LTV be increased over CAC? So a general rule of thumb is that you need to be aiming for at least 3X. So you want your customer's lifetime value to be worth three times more than the cost of acquiring them. So why is that important?
Well you might consider that not every app can actually hold on to all of its customers. So out of the ones that you acquire remember our funnel you're not going to be able to on board or activate everyone you're not going to be able to retain everyone. People won't refer and a lot of people won't ever get to the revenue stage. So you need to account for that and consider that. If your LTV is 1.5X your CAC you're probably going to have problems as you scale up your revenue machine and scale up your model. So aim for around 3X LTV based on your CAC.
You also need to know your break-even point. So okay well I know my LTV and I know my CAC. So break-even point. We're getting into a lot of detail here. So why is it important to know your break-even point?
If you don't know at which point you break-even, you actually have the possibly of running out of money. You might be acquiring users your lifetime value might actually be higher several times higher than your customer acquisition costs but you still might actually run out of money as a company. Maybe you have massive funding I don't know but you run the risk even with a higher much higher LTV 3X than CAC, of actually running out of funds if you don't know your break-even point.
Let me give you a quick example. So let's say in the first example that we have it costs us $10 to acquire a customer with a Facebook ad or something as an example. And that customer is worth $50 to us in terms of lifetime value so they pay us $50 we only paid $50 to acquire them in the first place so that's like a 5X increase from CAC to LTV so we're golden right? Not so. Let's say that that payback the $50 comes in over 5 years so they're actually only spending $10 per year. So now my break-even point is actually only at month 12 and then I very slowly creep into profitability after that point.
In the next example, I'm paying $10 to acquire a customer but they spend $50 and they do so within a couple of months of activating within our mobile application. So we hit profitability very, very quickly. Meaning that we can take those profits and we can invest them we can reinvest them back in our acquisition strategy to fuel further growth and to acquire new customers. If we're delaying that profitability not only do we impair our ability to pump those funds back into our acquisition strategy but we may actually even have liquidity problems. We may run out of money and we don't want your tank running dry.
Reinvest those profits in your mobile app take the money that you're creating to very quick payback to reinvest and fuel further growth. We want to keep our costs down as much as possible and one of the things to consider here is if you're not really figuring out how to get a much lower CAC than LTV or maybe there's a problem with the multiple or maybe you're finding that the payback you're not hitting profitability fast enough and you're worried about the viability, your sustainable the sustainability of your model. What we would say here is actually tune your acquisition costs right down to zero and focus on virality and building viral features in your app that essentially help you acquire users for free.
And then figure out what's going on with your app. Figure out why the multiple and the profitability problems but use virality to spur initial user growth rather than paying for customers if the funnel metrics don't stack them.
Another great thing building on my last point is you're going to do this anyway is to spike virality to build this into the core of your application. So the features you develop and I did talk about this at length in my last episode is to build these features in that incentivise people to refer their friends, their colleagues and their family.
Building a great app to start with guys really helps if they love it if they get that utility value. They're going to want to share it anyway, but do provide sharing links abilities for them to share it with a colleague make sure those links are uniquely trackable and then don't forget to incentivise at both sides of the equation so its value for the person who refers and the friend that gets that as well and that's going to be a win for you.
You're going to increase your virality by incentivising at both ends. Virality is going to help reduce your costs you're not going to have to spend as much in your acquisition channels because some of these users you'll be getting for free. And if you do manage to do this right you're going to help to build up momentum and spin the flywheel which gets off to a very slow start but all of these things as part of your strategy when we account for everything. Everything gets this speed up and eventually your revenue machine when you tune us should be humming along and with a viral coefficient, this is a way of basically measuring what the virality is within your mobile app.
So it's very simple. V equals X by Y by Z and so X is the percentage of users that are actually sharing your mobile application with friends. Y are the number of customers that actually avail of that. And Z is that number that will actually go and download your mobile application as well.
So the idea is being viral can help to get you out there can increase your momentum in a way that mobile advertising might not. Building those viral features in help you scale from one to many and build a revenue machine that hums along and can build a great business for the months and years ahead.
That's it my friends for the Mobile Metric series. This was our last episode on revenue and my last video for 2015. I hope that you have found this very valuable in terms of how to bring users in to your experience into the funnel acquire them how to get them in and activate them onboard them retain them refer them and get them to build revenue within your mobile app and within your business.
That's it and I hope you've enjoyed. Please don't forget to leave a comment below the video. It's your community help us to build it. Send us a tweet as always @pulsatehq if you have any questions at all. And I'd like to take this opportunity as well to wish you all a very happy holidays and I look forward to seeing you guys in the new year.