$0.51 – This Changes Everything

“In the very beginning, I had this foolish idea in my head that this flood of people would automatically rush to my website, buy my product, and Iโ€™d be a millionaire within months. Reality struck when I had a whopping 5 visitors to my site in the first month. At the time, I didnโ€™t understand that you actually have to DRIVE traffic to your site, as people wonโ€™t just magically find you.” – Mike Geary, founder of “The Truth about Six-Pack Abs” from his interview with Tim Ferriss

I had what they call a “holy sh*t” moment the other day.
If you’ve been following Bluecloud, you know that I launched Coconut Craze last week. I’ll be writing up the full breakdown of what happened with that shortly, but it’s way too big to begin yet.
The launch of that app had many discoveries – the truth about paid vs free apps, why Lite -> Paid is a dying framework, and why advertising has quickly become the biggest opportunity I’ve ever laid my eyes on.
I’m talking hundreds of millions of dollars in profit. Eight zeroes.The kind of money that puts you into a league of people that has since been reserved for a few.
I’m here to show you how you can make that sort of money.

App Marketing 256 – Revenue Modeling

Before I get into it, I need to define a few things so that we’re all on the same page.
CPC (Cost Per Click) – This is one of those great terms that’s been floating around since Google AdWords and other web marketing advertising channels gained popularity. It’s exactly what it sounds like – you pay every time someone clicks on your ad. You’re buying traffic, as each click translates to one visitor.
CPI (Cost Per Install) – This is a term that is fairly recent since it deals directly with apps and is the modern version of the CPA (cost per acquisition) often used in lead generation type marketing. CPI means that you only pay when someone downloads and installs your app.
Chartboost – The advertising platform that I began using with Coconut Craze and have installed on most of my other apps. Instead of being the traditional banners like iAds or Admob, their preferred platform is a popup that appears when a user boots up the device (or every 24 hours, etc). They offer a full analytics platform to track everything you can imagine. It’s awesome.
eCPM – Probably the most important metric in app revenue modeling, along with all advertising in general. eCPM stands for Earnings Per Thousand (impressions). For every thousand people that see an ad, you can expect this dollar amount. It shows how effective your platforms are.
Revenue/Download – This is just a simple metric that I use to calculate what your average download will bring you over the lifetime. When you aggregate all your revenue streams (in-app, ads, playhaven, chartboost, etc) and divide it by the number of downloads you received that day, you will have this number. For example, if you have 5,000 downloads and made $500, you would have a R/D of $0.10. For every person who downloads your app, you can expect to make, on average, $0.10 from them.
 
Yumm. Don’t those acronyms make your mouth water?? Or is that just me?
On to the good stuff.

Buy Me a Sliver (of your traffic)

When I first opened up my apps to Chartboost, I wanted to test everything as fast as I could. I’m the kind of person who learns from experience, so the more I could see, the faster I would be able to see the trends and create conclusions that would lead to a strategy.
The apps went out and started performing well, at least from my perspective. Alpha Combat, for example, was pulling in a 35% CTR and a 18-20% Install Rate, leaving me with an eCPM of about $75. I chalked that up to being a new update and having all the users interface with the ads for the first time.
I started thinking about being proactive though. With metrics like this, why don’t I just buy downloads to run through this funnel? I do this by simply reversing the traffic flow – instead of advertising other people’s apps, they advertise mine.
I dropped $200 into my account and set up a quick campaign.

There Are Rules, Jerry!

A few hours later I receive an email from Chartboost’s customer service (which TOTALLY kicks ass, btw!), letting me know that I can’t actually do a CPI campaign on a paid app. The reason is because it’s not fair to the market if they’re bidding against free apps (at least not in the framework that CB has up right now). Thus, I have to do a CPC campaign for paid or a market a free app for CPI.
So I switched it over to CPI and locked down Alpha Combat.
My minimum bid was $0.50, which is the minimum for the network as a whole. For every installation that publishers in the network gave me, I would shell out $0.50.
I watched this unfold at lightning speed, as my $200 spend is nothing more than a blink in the world of digital media buying. In a matter of minutes I had 10 purchased installations.
Awesome, right!? That means in the next few hours, hopefully, I’ll see a similar uptick in my revenue for Alpha Combat.
Get real.
Such an amateur move.
It took me a night’s sleep to realize how blind I had been to something so obvious – I never calculated my Revenue/Download metric on the app I was advertising. Yes, the metrics were awesome. Yes, the app makes a lot of money.
No, I had no idea how many people WEREN’T making me money (people who downloaded the app, that is).

Calculations, Permutations, Summations, and Sexy Equations

I paused my campaign and pulled up a month’s worth of historical revenue data for Alpha Combat. I kept things pretty straightforward – add all the revenue (I did this by day, you can do it by week or month if you have enough data) and then divide by the number of downloads for that same time period.
I thought I was so smart. I couldn’t wait until that beautiful $1.02 metric appeared.
Yeah right. More like $0.08.
Every time that’s what it came back with – $0.08. For every person who downloads Alpha Combat, I can expect to make $0.08.
Sweet.
More importantly, this means that for every CPI install I paid for, I was basically giving away $0.42.
I’m almost embarassed to admit how easily I lost myself in the grandeur of opening up an advertising funnel on one of my apps, but it was quite the lesson learned. My apps have no business being advertised.
….unless they make $0.51 Rev/Download.

Hitting the Gas on Penny Lane

I stepped back and realized something that is SO obvious but I wasn’t able to see it clearly – I can’t advertise in a CPI network until I have an app that makes more than the CPI cost.
Duh.
CPC is a much harder metric to forecast and measure because the conversion rate (install) is still variable. Too many variables in a framework means trouble in business. I’m sooo over variables ๐Ÿ™‚
Looking at the “Apps That Are Advertising In The Network” list, I started to see a trend – these are all very complex games that have some sort of awesome currency system built in. Even if it’s not a literal currency, almost all of them give users the ability to spend a TON of money in the game.

Similarly, when you look at the Top Grossing apps in the app store, you’ll notice that most of them have the same characteristics (the free apps, that is). They’re also the games that I see most often in every ad network across the entire market.

The defining difference between apps that CAN and apps that CANNOT pay for installs is whether or not their Revenue/Download exceeds the CPI for that network. Once you achieve that level of user monetization, it’s party time. You can go get your Amex Black Card and spend $50,000/day and make $51,000. If you’re beating the $0.51 benchmark, your upside continues to rise. Some of these apps (from what I’ve been told) have Rev/User metrics in the order of $4. Spend $50k, make $200K.
That’s when an app’s success becomes less of a marketing exercise and more of a financial exercise, and when you turn a business model into a financial model….well, that’s when you become REALLY rich.

What Does This Mean? What Should You Do?

What this experiment taught me is that I’m going to be owned by Apple and old school hustling/marketing until I can control my revenue stream.
Yes – there are some awesome ways to increase your revenue/download before you need to break that $0.51 barrier – push notifications, updates, multi-player incentives, price manipulations – but these are still dependent on HAVING a lot of users in the first place.
The takeaway you should have from this article is this: start looking at your apps like investments. Approach every decision the way you would if you were running a company and back it up with data. Measure EVERYTHING and optimize every hole you have.
You’ll start to see pieces of the puzzle that you never thought you would see.
Once you take your app and really break it down to metrics, you can begin testing the app to see what changes and what the effects are.
“An update can expect to re-engage 40% of the users, who will purchase 22% more than usual, leading to an increase of $XXX in revenue for that particular update. It’s going to cost us $XXXX to build that new functionality. Yes we should do this.”
Etc.
My own personal strategy is to build an army of games that all make anywhere from $5-100 a day over the next 6 months. I already have about 5 of these and am averaging $175/day. This needs to be 15-20 games averaging $400-500/day. THEN I’m going to sit down, hire an awesome developer for 6 months, and build an app that’s going to be as close to the $0.51 rev/download metric as possible.
I hope you find this helpful and provides some new insight into how to become a major player in the app world.
Talk to you soon,
Carter

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