Retail Apps: How To Calculate ROI
Did you know that 50% of online retailers cite mobile apps as a top priority for their 2019 omnichnnel strategy (source)?
Are you aware that 66% of all online mobile revenue in Q4 2017 was generated by apps and that apps converted sales 3X better than mobile websites (source)?
The case for an app has never been stronger, but many retailers remain hesitant and wonder if consumers will download their app and if new app revenue will give them a solid Return On Investment (ROI) .
In this article I will: 1) Set the stage with usage and conversion growth stats for retail apps, 2) Cover the 3 most common ways retail apps are built, and, 3) Describe how retailers can calculate ROI for an app build.
Note: When I use the term “app” in this piece, I am really talking about TWO apps (iOS and Android).
App Usage Stats
Before we talk about ROI, it’s important to look at some app usage statistics. Stats show that consumers strongly prefer apps over mobile sites, and apps out-perform mobile websites, regarding conversions and revenue generation.
According to Comscore, apps accounted for fully 87% of all US mobile traffic measured in 2017 and that number is accelerating (chart below). Year-over-year “Shopping” mobile app usage grew 54% in 2017- the biggest jump of all categories measured (source)
Shopping apps are being used by consumers like never before and we can look to the recent 2018 Holiday Season for proof. According to Internet Retailer, consumers downloaded nearly 10M shopping apps on the 5 days of the 2018 Black Friday weekend.
While mobile commerce continues to skyrocket, generally, app adoption stands out, with retail app usage by consumers doubling in 2018 (source).
The vast majority of time spent on mobile is spent on apps. According to a report by Criteo, native retail apps generated 66% of all mobile commerce revenue – twice as much revenue as mobile websites. Apps even outperformed desktop eCommerce sites—accounting for 44% of all online sales in Q4 2017, versus just 33% for desktop in the same period.
And consumers like using apps. According to Business Insider, the app millennials rated as “Most Essential” was Amazon (35%), beating out all social media apps (chart below).
As compared to older mobile users, millennials are 3X more likely to embrace apps and be excited about new features added to apps they already use (ComScore). Most millennials are looking for new apps and wish they could better-utilize the apps they have on their phones
Options For Building Retail Apps
Now that we have looked at the stats, let’s shift gears and take a look at the the three most-common approaches for building native mobile apps. One option I do NOT cover here is an “app wrapper” approach – whereby your current mobile web experience is simply “framed” inside an app. This is not a real app experience and offers few of the benefits.
Note: shopping apps must be integrated with the ecommerce platform a retailer is already using (Magento, Shopify, BigCommerce, etc) and using a solution provider that has experience in this regard is key.
The three most-common approaches for building a native app are:
- The Agency Model. This typically means hiring a design agency to create the UI and then having the code written. These projects are typically in the $100K+ range and require the retailer to support the app code (for both apps). Remember, most agencies do not have deep ecommerce integration experience. So, while they might deliver stunning designs, their lack of ecommerce platform integration experience might come back to haunt you.
- The In-House Model, where a retailer staffs up and has the resources to design and build and maintain both apps, in-house. This may be the right choice for big retailers who want their native app experience to be a core competency – one they want to strategically invest in, via resources and infrastructure they own.
- The SaaS Platform Model whereby a retailer works with a third party Software As A Service (SaaS) platform that is already integrated with the published APIs from most major ecommerce platforms. The solution provider delivers custom designs on top of this proven “foundation” for both iOS and Android. The partner builds and hosts the apps and provides a secure control panel to the retailer, for changing imagery, sending push messaging, etc.
So, as you consider these three approaches, keep the Total Cost Of Ownership (TCO) in-mind, over the long-term. Both Google and Apple introduce new device platforms and software updates quite often. A big part of having an app is supporting that app and keeping things smoothly integrated with your ecommence platform and generally up-to-date.
Calculating ROI – Conversions, Conversions, Conversions
ROI is simply a matter of generating enough revenue to pay back the investment on a net basis. This can be calculated via pure math, but there should also be a value placed on a better user experience. While the latter is harder to quantify, the former is literally a matter of tracking app sales and applying the net upside (after margin) to the cost of the project. With proper GA tagging, this is as easy as looking at your analytics dashboard.
Native mobile apps convert sales at a rate significantly higher than mobile sites served via a browser. This all-important conversion rate metric is the first place to look, when considering how to calculate app-build ROI.
Online retailers should start by knowing their current mobile website conversion rate. Put simply, this is the number of people who had a chance to buy (site visitors) and then did so (transactions) and Google Analytics breaks this out. Typically, mobile sites offer conversion rates stuck in the 1.5-2.0% range (about half that of desktop conversion rate). Native mobile apps, on the other hand, boast conversion rates averaging 6%, according to Forrester.
While this conversion rate lift should be reason alone to build a native app, here are some more stats to further the case:
- App users browse more products (22 on average vs 5.7 for mobile web).
- App users add more to cart (24% vs. 13% for mobile web).
- App users complete more purchases, once they add an item to their cart (54% for apps vs. 44% for mobile web).
So, if your conversion rate from mobile traffic to your responsive website is stagnant (and you should find out), a native app can turbocharge this all-important conversion rate stat and allow you to reap the rewards in terms of additional revenue.
Calculating ROI – Personalized Engagement With Your Best Customers
But more revenue from higher conversion rates is just PART of the reason to build an app. Statistically- speaking just 10% of your customers generate a whopping 40%+ of your sales and these are the VIP customers that are most-likely to download and use your app. An app provides important engagement benefits for these customers and here are some specific ways an app can help you take personalized customer engagement to a deeper level:
- Push Notifications: Unlike email blasts that get lost in the clutter, specific calls to action delivered via in-app push messages are rendered only to opt-in customers who have your app – the very customers most-likely to act upon the offer presented. Click through rates for push messages averaged 7.8% in 2018 (source).
- In-Store Engagement: App features like location-awareness, barcode-scanning, product image recognition, AR, beacons, and buy online and pick-up in-store (BOPIS) can all be used to drive app users to physical stores. This cross-channel appeal is key to understand.
- Loyalty: Apps are perfectly suited to incorporate Loyalty Programs, because the interaction with the app is inherently personalized. When the app is opened, the user is ALREADY logged in and the experience is tailored to them, including the display of points earned, discounts awarded, etc. Treating your app-download customer base as a special subset of your loyal customer base can generate big rewards.
- Augmented Reality/Visual Search: Apps can activate the camera on the phone and then overlay real products into a scene, by way of Augmented Reality. Apps can also trigger visual search via image recognition to allow in-store interactions to drive sales. More and more retailers are experimenting with these app add-ons and the results are impressive. After all, 83% of consumers ages 18 to 44 used a mobile device in store in 2018 (source).
These examples of app-based interactions add personalized, deep engagement to the mobile shopping experience which can, in turn, drive more sales. They also link the digital and physical worlds so an app can support retail locations, as well as better online sales metrics.
Calculating ROI – Faster Checkout, Less Cart Abandonment
Cart abandonment is a BIG problem on the mobile web, with over 85% of all mobile website carts abandoned (source).
Retail apps can help combat this in a number of ways. The first is that, by simply opening an app, the consumer is already logged-in and this means no need to enter password, address or credit card data. This greatly reduced checkout friction, boosts conversion rates and lowers cart abandonment rates. Apps also typically feature mobile wallets at checkout like PayPal, MasterPass, GooglePay which further speed the checkout process.
As consumers come to expect an experience tailored to them across all touch-points, apps provide a unique opportunity to not only track the buyer’s journey, but enhance that journey by providing an integrated and personalized experience. While this can take many shapes and deliver various benefits, faster checkout and reduced cart abandonment rates add money to your bottom line, and drive the ROI.
Calculating ROI: Speed Wins
According to a Google study, when mobile page loads get to 10 seconds, the probability of a bounce increases 123%. The same study showed that the average mobile website loads in 9.6 seconds. In comparison, over 50% of current native iOS apps load in less than 5 seconds.
As desktop websites become more and more clogged with features, responsive design mobile sites are slipping farther and farther behind regarding performance. Even the best responsive web design mobile sites cannot hold a candle to app speed and convenience. Out simply, app are faster because they use on-device caching to store the data used to render the shopping experience. A native mobile app is literally always-on and in the device your best customers interacts with for 3+ hours/day (source).
Retailers considering building an app should do so with ROI in-mind. After all, who wants to invest in a new omnichannel mobile retail experience that does not pay for itself? Higher conversion rates are the best metric for generating this revenue. That said, there are many other reasons to offer an app and personalized, deeper engagement with your best customers can payoff too.
Remember, you will need 2 apps (iOS and Android) and retailers should be wary of design-heavy proposals from agencies that do not include maintaining or updating your apps, once delivered. Bringing app build capabilities in-house is always an option for retailers with deep pockets. A platform build approach should be considered by retailers who want to leverage a custom design AND an API integration into the ecommerce platform they are already are on, so data and orders flow seamlessly to/from current ecommerce operations.
Retail mobile native app adoption and usage is growing and smart retailers will offer a native app to drive deep, personalized engagement with their best customers AND yield a rapid return on investment via improved conversions, lower rates of cart abandonment and better/faster performance. Remember, 70% of millennials are looking for new apps and 50% of retailers surveyed have prioritized an app for 2019.
In closing, ask yourself this: When was the last time you visited Amazon’s mobile website using a browser on your phone? You most-likely never have because the personalized, fast and convenient tools Amazon has added to their native app makes using the mobile site obsolete. The same logic should apply to retailers looking to win in 2019 and, if done right, a rapid ROI will be the result.
Have more questions about developing a native app for your business or calculating ROI? CLICK HERE
Author: Wilson Kerr, VP Business Development and Sales. February 20, 2019. Copyright Unbound Commerce.