What is return on investment (ROI)?
The definition of ROI
ROI stands for return on investment and is a key performance indicator (KPI) that measures campaign efficiency by comparing a profit you make to the investment of money, or other resources it cost you. For app developers and marketers, calculating ROI is an essential step to understanding the overall success of their efforts.
ROI vs. ROAS
The primary difference between ROI and return on ad spend (ROAS) lies in their scope. While ROI considers all business costs and profit, providing a full picture of an investment's financial performance, ROAS focuses exclusively on the revenue generated from advertising spend. See example below of how this looks in practice.
How to calculate ROI
There are two main return on investment formulas. However, we’ve also included a bonus method to help you assess your app’s potential Return on Investment.
Method 1: Divide the net return on investment by the investment cost and multiply this number by 100%.
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Method 2: First, find the net return of investment by subtracting the initial value of investment from the final value of investment. Then, divide the answer by the cost of investment and multiply by 100%.
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Bonus app ROI method: We’ve included this ROI definition for app developers who’ve yet to launch their app and wish to estimate their app’s return on investment.
- Calculate NPV advantages: Multiply your app’s potential revenue by its projected life span, and then subtract the cost of debt and equity from this number to get your net present value (NPV) advantages.
- Calculate NPV costs: Multiply the maintenance cost by the app’s life span, and add this to your total development costs. Then subtract the cost of debt and equity to get the NPV costs.
- Divide NPV advantages by costs: Finally, to calculate the ROI for your app, divide the NPV advantages by the NPV costs.
ROI example
Imagine a mobile app marketer running a campaign to promote a fitness app. The campaign includes several elements: paid ads on social media, influencer partnerships, app store optimization (ASO), and a referral program.
The total cost of the campaign is $100,000, covering ad spend, influencer fees, content creation, and operational expenses like app updates. At the end of the campaign, the app generates $150,000 in net profit from new subscriptions and in-app purchases.
When measuring this campaign using ROI, the marketer looks at the entire investment and its return. ROI takes into account not just the ad spend but all related costs, such as influencer fees and app updates. The formula for ROI using method 1 would be:
ROI = ($150,000 - $100,000) / $100,000 × 100 = 50%
This shows that the campaign was successful overall, generating a 50% return on the marketer's entire investment.
Now, if the same campaign is measured using ROAS, the focus shifts solely to the effectiveness of the paid ad spend. Suppose $30,000 of the total campaign budget was allocated to paid ads, and these ads generated $120,000 in revenue from new app installs and in-app purchases. ROAS measures the revenue generated directly from that ad spend:
ROAS = $120,000 / $30,000 × 100 = 400%
This shows that for every dollar spent on ads, the campaign generated $4 in revenue, giving the marketer a clear view of the efficiency of their ad spend.
Considerations for measuring your app’s ROI
From the beginning, mobile app developers must be clear about their business goals and metrics. Below we’ve listed critical factors to consider when measuring your app’s return on investment.
Determine costs
This point is directly related to the ROI app method mentioned above. Before launching, calculate how much you’ll need to spend on developing and marketing your app as well as retention and customer service costs. By doing so, you’ll know how best to allocate your resources.
Set your KPIs
Key performance indicators (KPIs) show how your mobile app is performing and can be used to know where to optimize your app. Consider KPIs that reflect users’ interaction with an ad or within your app such as user acquisition or retention rate.
However, every app is different. There are many KPIs apps use, but the ones fit for your app are determined by your app vertical and individual business needs. We’ve compiled a list of the must-know mobile app KPIs for every vertical.
Calculate LTV
Determine a user’s lifetime value (LTV) by multiplying the average revenue per user (ARPU) by the customer lifetime value. LTV indicates how much a user is worth during the time they spend in your app.
LTV is a must-have metric as it enables marketers to understand how much money they can spend on user acquisition while staying profitable. Using LTV, marketers can better optimize revenue streams such as in-app advertising, subscriptions, and in-app purchases (IAPs).
Get accurate analytics
Partner with a mobile measurement platform (MMP) for a single source of truth to track user behavior, segment users, and optimize your marketing campaigns. Why? If your data inputs aren’t accurate, your marketing team won’t be able to make successful campaign decisions.
Ensure the MMP you select prevents mobile ad fraud, so your attribution data is 100% accurate.
Adjust and ROI Measurement
With Adjust’s ROI Measurement, you can seamlessly unify your app marketing strategy by accessing 360° reporting on ad spend, purchase revenue, and ad revenue. Our platform offers granular, cross-network insights, allowing you to track ad spend sources, uncover which partners deliver the most scalable value, and boost your ROAS. You’ll also gain device-level ad revenue data, providing a clear understanding of your users' true value and helping you optimize for higher LTV and conversions.
Adjust’s advanced attribution and analytics empower marketers to connect all their monetary metrics in one place, ensuring a complete, unified view of marketing spend and performance. From tracking the highest-performing creatives to pinpointing channels that bring in the most profitable users, Adjust gives you the tools to maximize your app’s ROI. Plus, with real-time mobile fraud protection, you can trust your data to remain clean and accurate.
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Ready to unlock your app’s full growth potential and drive measurable ROI? Request a demo to see how Adjust can take your app’s marketing to the next level.
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