Why would my clients want to spend money on a mobile app? What is the return on investment (ROI) for a business mobile app? This blog post draws upon a white paper we wrote a little while back helping Value Added Resellers and end businesses understand why gaining a mobile presence with an app has a positive impact all the way to the bottom line.
As with any new product or service a business is considering, mobile app ROI is important. Let’s estimate the ROI for a representative small businesses to give you a more concrete idea of what it might be for your clients.
For this example we’ll look at a hypothetical day spa. Let’s set up some assumptions first. Our assumptions are:
- – Day Spa paid $300 upfront and $29.99/month fee for their app.
- – Average spa treatment is priced at $100
- – Average Profit Margin for a spa treatment is 50%
- – Day Spa has 500 customers who have downloaded app
- – Day Spa sends one push Deal per week, or 4 per month
- – Each Deal is for 25% off regular price
- – Open Rate for “Deal” push notifications sent by Day Spa to customers is 30%
- – Conversion or redemption rate for a Deal sent by Day Spa is 2.5%
So, taking all of these numbers into consideration let’s calculate the ROI of Day Spa’s mobile app in the first year.
- – First, based on the numbers above, we’re saying that 4 push Deals were sent in the month and that 150 customers opened the Deal each time for a total of 600 Deal opens.
- – Based on a Deal conversion rate of 5% that means we sell 15 incremental treatments during the month with the push of Deals.
- – Based on assumption laid out, the normal profit margin of a $100 treatment is 50%, or $50.
- – In this instance the Deal is for 25% off, so average treatment is priced at $75. This means profit margin in dollar terms is $25 per treatment sold from the push of the Deals.
- – 15 incremental treatments sold X $25 profit per treatment equals $325, multiplied by 12 months equals $3,900.
So we calculate Return on Investment with the following formula:
((Return-Investment)/Investment ) x 100
In our case then, ROI would be:
(($3900-($300+(12*$29.99))/($300+(12*$29.99)) x 100 = 491% Return on Investment
Obviously a 491% return on investment is a nice result for any business. When taking into account the fact that it will be so much easier for customers to interact with a business from their smartphones for calling, booking appointments and sharing with friends, and that they’re likely to see your brand multiple times per day if your app icon is on their smartphone screen then it’s easy to imagine actual ROI is much, much higher.
Having a mobile app and mobile optimized presence is becoming table stakes for businesses as web sites were in the late 90’s and 2000 era. Combined with their high ROI potential, getting a mobile app makes sense for almost all small and medium sized businesses, organizations and non-profits.