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What's the retention tool cost sweet spot?

How Much Should You Spend on Retention Tools?

Posted Mar 31, 2016

Across multiple industries, conventional wisdom dictates that it’s more cost effective to keep an existing customer than acquire a new one – the same holds true in the mobile world as well. If you were to poll traditional marketing gurus, they would tell you that a successful business allocates up to 80% of its marketing budget to retention and engagement. 

Even the low end of that number is an unheard of amount for mobile engagement and retention at the moment. User acquisition is the main marketing cost for most publishers and developers, whether your app’s main marketplace is the App Store or Google Play. That reality isn’t going to change any time soon.

The good news is that you don’t have to spend 80% of your marketing budget on engagement tools for them to be effective.

It’s Cheaper Than You Think
According to a Developer Economics report, after platform fees and other costs, most developers put about 50% of their revenue toward user acquisition. That comes out to about 35% of gross revenue set aside for marketing. Usually that entire budget is spent on acquisition, not retention or engagement. So what happens when those new users actually arrive? Ideally, you engage and keep them.

Like all tools, there’s a sweet spot for ROI. Some engagement and retention tools can run into the thousands of dollars per month per app, with many solutions quickly becoming unaffordable for apps with large user bases.

A good rule of thumb when determining how much to spend on engagement tools is to take into account the percent of revenue coming from existing users versus new users. If 90% of your revenue comes from newly acquired users, then a modest amount (1-2% of marketing budget) is fine. However, if 90% of your revenue comes from existing users, then a higher proportion (25% – 50% of marketing budget) is a better move.

The great news for mobile publishers is that new innovations and tools are bringing that cost down. This allows publishers to shift more of their budgets back to acquisition campaigns, or to expanding their user loyalty and community management personnel.

That old adage that it’s more expensive to gain a new customer than to retain an existing one is as true in mobile as it was in the days of the General Store; it’s just a little easier to do now.

Join the Conversation
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