# What is return on investment (ROI)?

What is return on investment (ROI)?

## The definition of ROI

ROI stands for return on investment. For app developers, calculating the ROI is an essential step to understanding the overall success of their efforts. Let’s dive into what  ROI is, the different ROI formulas for ROI calculation, and how you can ensure accuracy when measuring your app’s return on investment.

## Three methods of ROI calculation

There are two main methods to determine the return on investment. 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%.

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%.

Bonus app ROI method: We’ve included this ROI definition for app developers who’ve yet to launch their app and wish to determine their app’s return on investment.

1. 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.
2. 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.
3. Divide NPV advantages by costs: Finally, to calculate the ROI for your app, divide
the NPV advantages by the NPV costs.

## 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.

Key performance indicators 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 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.

• 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 stops fraud at the source, so your attribution data is 100% accurate. For further information, read Why do you need fraud prevention? to learn what mobile app fraud is and how you can best protect your app from it.