Breaking Even with your Marketing and Advertising Budget

This follows on the breakeven discussion continuing from last Friday and Monday. The interest today is to provide some rough examples to help mobile app developers better gauge their breakeven points not only on the product development side, but the marketing and advertising side, too.

The examples aren’t necessarily drawn out of thin air, but are greatly simplified for easy math. Either way, you will need to research and plug in your own numbers to get a better reading on your requirements.   For ease of reference, we will use the figures from Monday – basically that the physical production of your mobile app comes to $10,000, and involving 3 months of development time.

Your breakeven point on your mobile app development is the easiest part of the equation to define. Marketing and advertising are not free, so you need to budget for the promotion of your app on top of everything else.   Running with the $10,000 breakeven point for developing an app over 3 months of development does not typically include a marketing or advertising budget.

Also, as previously addressed, whether you factor your time and labor in your calculations is likely to have a major impact. That applies not only to the time you spent developing your app, but in marketing it, too.   Even if you are not making par value for your labor, it is worthwhile to keep track of.   Track your actual expenses, your time on development, your time on the marketing and advertising for future reference and comparison.

How much should you budget for marketing your mobile app?

As you probably guessed, “that depends” – on a lot of things, including:

  • size and freshness of your current mailing list
  • size and quality of your social network
  • how readily you are able to connect with media (blogs, ezines, podcasts, radio, television, print, etc.)
  • your pay cycle/s
  • your revenue model

Other components may apply, too – whether you are very much in bootstrapper mode (working with a near $0 operating budget), or you have a job, plenty of savings, whether your app development is done under your name or under the aegis of a business. You need to look at your total financial situation.

Example 1. Free App with CPM based advertising. Using “easy numbers”:

  • You have an arrangement for $5 per CPM on ads you deliver to end users.
  • You estimate your average user will use your app an average of 8.5 hours at 2 ads per minute (1:1 ratio)
  • Your average cost of advertising to get end users runs $2.50 each
  • You end up with a $2.50 gross profit per customer.

Important: The downside to this revenue model is that the full $5 per end user is spread over the lifetime of their use of your app and is further adjusted by the pay cycle of your advertising agent. You can probably expect the bulk of end user time to occur in the first month, tapering off substantially in the second and trickling in the third – maybe a 65%/25%/10% – but the projections and research are on you to perform.  

Knowing your breakeven point, in our example, $10,000 – you divide that by $2.50 to determine that you will need at least 4,000 end users to break even.   Depending upon how cautious or optimistic you are, it is good to provide a cushion as 85% of projects do go over budget. That is a separate topic though.

Using the Free App with CPM based revenue model, in this example, you would ultimately need to invest another $10,000 into advertising – but you won’t need to do it all at once. Provided your numbers stand up to reality,

Cycle 1: Start with $1000 for a theoretical return of $2000 (-$9k from breakeven)

Cycle 2: Apply that $2000 for a theoretical return of $4000 (-$7k from breakeven)

Cycle 3: Apply that $4000 for a theoretical return of $8000 (-$3k from breakeven)

Cycle 4: Apply that $8000 for a theoretical return of $16,000 (+$5k)

 By the end of your fourth cycle, you will have theoretically achieved your breakeven point on physical production, get your initial $1,000 advertising seed money returned, and have an extra $5,000 profit to show for it.

Nothing is ever that simple, nor are the returns always that reliable, suffice that you have to continuously track your app’s metrics and performance – and engage to improve performance wherever possible.  The basic idea is that as long as you are getting back more than you are spending on advertising, you are getting closer to breaking even and closer to making a profit.

To improve your campaign’s performance, you would be looking at possibilities to increase your download/install rate; increase the average time users spend with your app; look at possibilities to increase your advertising CPM revenue; look at possibilities to decrease your advertising costs while retaining the same or better performance.

The most important factor under this model is likely to be shorten your cycle time. If you get paid monthly, you will be looking at this campaign running 4 – 6 months before you can pocket any money as actual profit.

 

Example 2. Straight Premium Mobile App Sales

We’ll use the same numbers as used in the first example. Your breakeven point for your app’s physical development amounts to $10,000. On the vast majority of mobile app stores, the store takes a 30% cut on premium app sales. That’s industry standard and comparable to brick-n-mortar retail, too.

If you are looking to make $5 per app, then you would need to price it on the store at roughly $7.00 (for revenues of $4.90).

In this example, we will consider the advertising rate at $2.00 CPD (cost per download), so you would be looking at roughly $2.90 gross profit. Your breakeven point of $10,000 divided by your gross profit, would require reaching 3,448 end users, or close to $7,0000 in advertising for this example.

Again though, that $7,000 in advertising is not needed all at once. Starting with just $1,000 and reinvesting everything you generate into more advertising would theoretically allow you to breakeven roughly by the end of your third pay cycle.

The main advantage of this revenue model is that you are not dependent upon customer’s usage over time, sales revenues are received faster.

All revenue models can benefit by having multiple components, adding in-app purchases and upgrades, commissions on referrals, and otherwise.

All apps can benefit through continued efforts to improve on conversion rates.

Third-party Premium Subscription Plans can dramatically help you to develop marketing campaigns on a more targeted, heavily localized basis (on a per language, per country, per mobile carrier basis) which is excellent for developing social networking.

It’s a rare product that can be put on a store shelf and sell itself.

The majority of mobile app developers are not breaking even.  That can be attributed to many different things.  Nevertheless, there are strong indications that most developers who are not breaking even are also spending little to no time or money on marketing/advertising.

What this article functionally asserts is that you do not need a lot of money to start with when it comes to advertising, only to do so consistently.


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If you are needing to bootstrap your mobile apps, the following articles can provide you additional tips and perspectives to help you maximize your efforts:

 

Project Manager at the Opera Mobile Store providing Sales-Marketing support. Content development and research.

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