Mobile app marketing ROAS (Return on Ad Spend) and CAC (Customer Acquisition Cost) are two of the most critical metrics to watch when running app install campaigns, with each being a great performance metric in its own right. Here we will distinguish between the two, discussing the pros and cons, and also touching on LTV and ARPU.
(Or if you are ready to dive straight into how to boost your mobile app marketing ROAS, read our article on how to optimize your ROAS for your App User Acquisition Campaigns.)
Customer Acquisition Cost is a metric that determines the cost of acquiring a paying customer. This metric focuses on customers rather than on revenues. It is calculated by multiplying the expenses of the entire marketing campaigns by the number of paying clients that have been acquired.
Why is it important? It’s useful to understand your company’s Customer Acquisition Cost since comparing this to LTV can reveal a lot about what methods are working for your app install campaign and how much money you might make or lose. You want the CAC to be as low as possible.
It is calculated by:
CAC= Total marketing expenses/number of acquired users
However, unlike mobile app marketing ROAS, CAC does not reflect efficiency. It merely indicates the average cost for acquiring a new paying customer. This indicator also does not provide the customer’s Lifetime Value (LTV) in that individual purchase, nor does it reveal the quantity of products sold or the customer’s lifetime value in the case of recurring sales or a subscription model.
We have just touched on the customer’s Lifetime Value, but what is it? LTV is a measure that is used to determine each individual user’s value from the overall pool of users that were acquired from that marketing partner’s traffic.
Why is it important? LTV is an important mobile app metric since it helps you rethink your app install campaign approach and predict marketing expenses based on your app’s profitability. It can be looked at as the measure of the overall revenue that a customer will generate in their “lifetime” as a user of the app. The LTV is determined over a period of time, and so it is not something that can be determined right off the bat. This calculation does not take into consideration operating expenses and is based on gross revenue.
While we are speaking about LTV, another metric worth mentioning for your app install campaign here is Average Revenue Per User. APRU is another good indicator to gauge how much the advertiser will end up paying the publisher to provide new users for the app. ARPU is a really popular metric among game developers, who measure it in order to assess how much money they’re making from new users. One thing to note, however, is that this measure is calculated using a different system than LTV; it is calculated by first determining a standard period of time.
Why is it important? APRU is a key metric as it tells you how much money you are earning, on average, from each user in a given time frame. ARPU is essentially the total revenue, divided by the total number of subscribers. Since the number of units can vary daily, the average number of units should always be estimated for a given month. This allows you to get to the most accurate ARPU measure for that particular month.
Last but not least we come back to mobile app marketing ROAS. Return On Ad Spend measures the revenue gained from each dollar spent on app install campaigns.
Why is it important? Mobile app marketing ROAS is the cornerstone for analyzing the performance of an app install campaign because of its ability to focus simply on ad expenditure and ad income. It ignores other aspects of your marketing investments, such as design, software, and IT, and is just concerned with the cost of running the ad and the income earned from it. This provides a clear picture of the effectiveness of your app install campaign initiatives.
It is calculated by:
Mobile app marketing ROAS = Revenue of Ad / Ad Spend
All these metrics can be used as KPIs to optimize app install campaigns. Demand side platforms that leverage machine learning algorithms can optimize their app install campaigns towards acquiring users who are likely having a high LTV or ARPU.
While each metric deserves its place at the table, we believe it boils down to this: mobile app marketing ROAS is the one that tells you if your efforts are generating more revenues than the money you are spending on acquiring new users. However, if you are more concerned with the lifetime value of each customer for your app install campaign, you should probably opt for CAC, which allows you to acquire new consumers even with a lower mobile app marketing ROAS. However, unlike ROAS, CAC does not reflect efficiency. It merely indicates the average cost for acquiring a new paying customer.