Investing in a mobile solution is one of the strongest moves towards creating competitive advantage, but many are falling short of success. Whether a mobile solution is developed as a consumer facing app for public download, or an internal tool to improve or enable business operations, a great deal of money and effort is required. However, there is a formula for success to ensure your investment pays off.
Let’s assume that Business X has developed the perfect app. It tests as being in perfect alignment with user needs, bug free, and business permitting. This new solution is fully capable of adding incremental value and creating ROI. However, even the perfectly built app can lead to failure if inadequate or no resources are devoted to planning for what happens after development. The result is very often negative ROI and stakeholders are left with a CFO or investors anxiously asking where their return is.
View App Development Like Child Development (Metaphorically)
To avoid failure, one might view building a mobile solution similarly to focusing on the 9 months of human pregnancy. Any decent parent would never consider their job done upon the birth of a child and most good ones already plan for what happens once that baby comes home for the first time. Unlike the good parents, many companies make the mistake of investing everything into the build of their solution, being those first 9 months, and lack the parental foresight required for devising a true growth strategy.
In business, view that app “as your baby” and ensure that your company plans for and devotes resources to maintenance and optimization of the mobile solution (think Version 1, Version 1.2, et cetera) and importantly too, marketing for the product. After all, at the end of your career that baby may be caring for you in retirement, so make sure to build and nurture it the right way.
Consider Everpix as a Case Study
Everpix was a photo app that hit the App Store and Google Play at a time when photo apps were immensely popular and pretty new to the market. Consider this:
- Instagram first launched in October 2010;
- Snapchat released circa July 2011;
- Everpix first hit the ground in September-October 2011.
After placing as one of the finalists at TechCrunch Disrupt, by 2012 the company raised $2.3 million and had around 55,000 users on their “freemium” styled app. Most of the early adopters were not revenue generating and were acquired through early buzz for the product. Of the 55,000 signups, about 6,800 users were paying subscribers. However by 2013, user growth was stagnant in terms of free and paying users and the company was broke, producing a final profit and loss statement showing -$2,294,818.17.
Without getting too involved in what the app did, the problem the business faced was not the app itself. The product performed very well and enjoyed a 4.5 star user rating over 1,000+ reviews. The app was conceived by former Apple engineers and ultimately built by a team obsessed with perfection. The business shortcoming stemmed from an over-investment in product development and under-investment in revenue creation via user acquisition. Their expectation was “build it [perfectly] and they will come,” hoping for organic acquisition and thus no effective strategy for revenue growth was mapped out. In that regard, the Everpix team failed to successfully manage the needs and expectations of their shareholders through ineffective planning and capital utilization.
So where did all the money go? 80% of their $2.3 million went to “people costs” (consulting/legal, office space, operating costs, personnel cost) and only about 15% of the capital went into running and growing the business. While there was a clear monetization model in place, they missed the mark in building a marketing strategy geared towards growth and effectively ran out of time to correct the mistake.
The Not So Magical Fix-It
If you fully understand your business objectives, properly bridge the gap between stakeholder alignment and strategy, and have the right technology in place to support app development you’re on the right track but not yet finished. With all of those pieces in place, it is important to build in the required investment for your launch strategy. This means understanding how your solution will be monetized and how revenue growth will take place tactically.
Furthermore, assume that the needs of your end users will change, along with technology, over time. Your product will have to be optimized and re-released for that purpose. The first launch of an app is just that… a preliminary launch. From that, you should expect to market heavily and collect as much user and market data as is available to encourage success.
Some Key Points To Consider:
- There is a formula for achieving success in mobility
- Developing an app just to build one is not a real strategy
- The perfect app can still fall short of ROI if a growth strategy is not in place
- Your mobile solution is part of a greater, scalable business strategy
Marketing Budgets For the Perfect App
In terms of benchmarks and standards, marketing budgets have a broad range from one business to another. Budgets often depend on what the mobile solution is, who the end users are, and whether the solution is part of a customer-facing product or an internal tool for sales enablement among other purposes.
Broadly speaking, the budget may be anywhere between 1 and 30% of sales revenue depending on company size (think Walmart versus a local micro-brewery).
Variables To Consider:
- Sales Volume
- Is Your Solution New or Existing (Version 1 vs. Version 2, 3, etc.)
- Brand Awareness
- Market Competitiveness
Generally, it is said that established businesses should be spending between 1-10% of sales revenue on marketing, depending on revenue and brand awareness. If your product is new, the upfront marketing budget will need to be greater than what you would require of an existing product. In the case of a new product launch, a company could expect to spend greater than 20% of what may go into marketing an existing product. With that said, that could amount to a marketing budget that goes up to 50% of projected revenue in the first couple of years depending on competition and sales volume. As operational efficiency scales up and business growth takes place, that marketing budget as a percentage of revenue can dial down as dramatically as business needs dictate.
Developing a business mobile strategy and planning for what happens after launch is just as important as development. At 7T, we have the knowledge and experience to smoothly guide you through the entire process. Based in Dallas, 7T maintains regional offices located in Chicago and Houston. Contact us today for help with strategic planning, design, development, testing and more.