How to Model Mobile ROI
Sooner or later, you must dig in to uncover the truth about your product, which comes directly from its Return On Investment, or ROI. Proving ROI for a mobile product is no different than proving ROI for any other product, but there are metrics you must look at in order to gain the full picture before sharing your ROI hypotheses.
Mobile PMs can generally apply the same models and tactics they’re familiar with when it comes to mobile product ROI, but even though proving ROI is a necessity, it can be tricky, no matter the size of your team and mobile product. Today’s post shows you how to model ROI before your product work begins, shares tips on how to gauge ROI over time, and shows you how some of the biggest brands in the world approach mobile product ROI.
Why proving mobile ROI is important
Proving ROI is an important step for all product managers, but it’s especially necessary when it comes to mobile product management. Because mobile teams typically struggle to acquire budget, even at large companies, every dollar spent and returned on the mobile product is under incredible scrutiny from executives. By supporting your product through proving ROI ahead of time, you have a stronger business case for scaling your scope, team, budget, and product positioning within the company. If there ever was a “magic bullet” for opening doors within mobile product management, ROI is it.
For example, you might think your ROI story is obvious: “When customers engage with our mobile experience through product X, it will result in an immediate savings of time, frustration, and money.” But how do you know? How can you be sure without testing and hypothesizing ROI before product X’s release?
In some instances, it’s not possible to isolate ROI on every single feature, especially those which include non-functional engineering requirements. Most mobile products include a handful of these scenarios, so it’s important not to get caught up in the features you can’t necessarily pull metrics together for until after they’re launched. A good guideline is the 80% rule: If you can model out 80% of your product’s ROI, the outstanding 20% should be aligned and/or close to your hypothesis.
Let’s move onto what modeling ROI looks like.
How to model ROI
Now that we understand the importance of ROI, we can now set out to model our hypothesis.
There are two main ways mobile teams can prove ROI for their product:
- By using internal business data and product knowledge
- By hiring an external ROI expert to lead the project
Because hiring an expert to outsource modeling ROI comes with its own set of challenges (e.g. budget, time, knowledge gaps, etc.) and isn’t the option most teams select. Let’s focus our time on the first option of using internal knowledge and data to help prove ROI. However, know that if your mobile team is struggling to prove ROI, hiring an expert could be a good way to escalate.
To start, let’s look at some time-saving tips meant to help simplify the ROI exercise. You’ll want to begin with feature prioritization and grouping.
The first step is to make a list of all the features your new mobile product will include. The exercise’s main goal is to help you and the rest of the mobile team (or other involved departments) understand what the project scope will look like, and ultimately, give you an opportunity to add or cut pieces that you may want to reconsider. To create your list, pull in members from all teams that will be involved in the product, including engineering, marketing, customer success, and so on. This brainstorm can take as little as one hour or as long as a week, depending on the scope of the product and complexity of the features you’re attempting to build.
Once you have your list, begin grouping features into categories based on the business problem they will solve (i.e. productivity, cost reduction, increased time spent in-app, etc.). Looking at features categorized by business problem will not only help you understand priorities within the product, but will help you recognize features that might not be worth building in the first iteration of the product, speeding up the process for your entire team.
The most important point to keep in mind is that new mobile features and products exist simply to solve old business problems. If you keep your ROI exercise focused on the business problems the product/feature is meant to solve, the conversation will be easier to translate across teams and with executives.
The ROI equation
Now that we have our feature list, let’s move on to modeling the ROI equation.
There are four steps to modeling ROI:
1. Estimate increased profits
Once you’ve outlined the business problems the product/feature will solve, the next step is to identify how much money your company will save or pull in as new revenue because of the solution. In order to make this conversation quicker and more accurate, use what you know about your existing products/solutions to help begin your calculations.
To start, think about how much money having this product will save your business, how much revenue it will generate from customers, etc. All products are different, so there is no one “right way” to pull this number together. We recommend working with your executive team, if possible, to ensure you’re thinking about the numbers correctly as you work through the math.
2. Estimate profit loss if the product/feature is not built
This step in the ROI process is the inverse of the previous step (estimating increased profits). You’ve already looked at how much money the product/feature could save your business, but it’s just as important to look at how much money you could potentially lose if you decide not to build it.
Pulling this number is similar to understanding increased profits. If you don’t build this product, how much money could you potentially lose through competition in the market, customer churn, etc.?
3. Estimate cost of the build
In this step, take a step back and look at the full picture of the product’s project scope. How much time it will take your team to build it can give you an idea about how much it will cost the company (in salaries, etc.). Additionally, think about how much it will cost if you need to outsource pieces of this product to contractors to help complete the work. Understanding how much your company will spend on resources is a great way to estimate how much the total cost of the build will be.
4. Finalize the equation
You now have three important variables to consider:
- Revenue you’ll gain by releasing the product/feature
- Revenue you’ll lose by not releasing the product/feature
- How much the product/feature will cost your company
Now, it’s time to put them all together.
Add the revenue you’ll gain with the solution plus the revenue lost if you don’t deliver the solution. Then, divide the total by the cost of bringing the product/feature to market. In short, the equation looks something like this:
Congratulations! You’ve now successfully attached ROI to your new product. This is a big step, but it’s not the last one in the process. Let’s continue with presenting your findings to the rest of the stakeholders on your team.
Presenting your findings
Now that you have ROI attached to your product, it’s time to present your findings to the other involved stakeholders. When presenting your data, be sure to only present one key conclusion at a time. Presenting them all at once will dilute the power of the findings individually, which can be key to explaining why this mobile product is the next one your company should focus on.
Also, be sure to keep your audience in mind. Just like any other form of storytelling, delivering data in the way that will speak to the audience is key to the story clicking, which is where you’ll get your support for product approval, mobile team growth, budget, etc.
Brainstorm the following questions ahead of time to ensure you’re prepared to deliver your findings:
- What types of questions will your audience have? What can you prepare in advance?
- What will your audience do with the information you present? How will it affect their day-to-day?
- What listening style does your audience have? Is the information presented better through charts and graphs, or should you deliver your findings in packet-form?
Once you’ve done your homework, not only will you feel more prepared going into your meeting, but you’ll be able to deliver your findings in a more informed way.
If you are able to prove some form of positive ROI for your next mobile product, you’re in a good place. From there, think about how you can iterate on the product to really pull in the revenue cross-team support—for both your team and company.
I hope the above tips help you calculate ROI for your mobile product. Best of luck, and we’ll see you at the top of the charts!