Framework For Measuring the Cost and ROI of Enterprise Applications
ROI is one of the most important measures for evaluating the ongoing success and contributions of an enterprise application.
However, measuring how ROI applies to a mobile initiative can be difficult.
Just as you would every other aspect of your business, measuring the cost and ROI of enterprise apps requires thorough management and reporting tools.
App metrics should be monitored continuously and have action plans that stem from each report.
Consider the basic formula for measuring ROI of any project:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment (expressed as a percentage)
Whether your organisation already has an application or is looking to build one, this post will give you a three-step process for measuring and evaluating ROI for your imitative, and estimating if the investment is worthwhile.
COST OF INVESTMENT
Firstly, let’s take a look at how much an enterprise application might cost you.
1. Cost of development – $50,000-$120,000
Assuming you are looking to build a custom medium-sized app using the lean approach to app development, which delivers a Minimum Viable Product (MVP) first to eliminate wasted resources, a budget for development should be set between $50-$120,000.
2. Maintenance cost – $2000-$7000/yr
One of the hardest concepts to grasp for many of our clients is that bugs are a part of software development. How often have you received an update for an app on your phone and one of the reasons given is “Bug Fixes”?
Even many of the updates to the core operating systems in Apple and Android devices are to fix bugs.
All apps require ongoing maintenance, because bugs are a normal part of releasing an app and can arise because of the large requirement for integration across many versions of systems and platforms.
Maintenance activities are required to ensure app’s remain fast, powerful and run smoothly.
They can cost $2000-$7000 per year, which will include OS updates, API changes and other 3rd party software and hardware changes/releases which may impact your app’s systems.
Of course, the cost and necessity of these maintenance activities will depend on the complexity of the system, and how your app integrates with other systems.
3. Cost of updates – $5000-10,000 each update
Assuming you are updating regularly based on user feedback and to increase customer engagement, you should budget between $5000-$10,000 for each update cycle.
Some updates are bigger than others, so usually updates will be quoted on an individual basis based on the requirements.
It’s incredibly important for the lifetime value of an application for it to be updated regularly. This keeps apps relevant and valuable to their users.
80% of enterprise applications fail to engage users, and one of the biggest reasons for this is stale content.
Releasing regular updates isn’t just about fixing bugs – enterprises should be proactive and release updates that make apps run faster, smoother and more intuitively based on user metrics and feedback.
Have a look at Sensor Tower’s analysis of the top 25 apps on the iOS app store for how often they release updates.
They found that the average time between updates was 30 days, with many apps updating more frequently than this.
Of course, this type of update frequency is not required for most enterprise apps, especially if they are for internal use, but the point is that apps are like any other part of your business – If you let them become stagnant your user base will get bored and drop off.
Now that you have benchmarks for the cost of your mobile application investment, let’s look at how you will measure the benefits.
GAIN FROM INVESTMENT
Step 1: Identify your application’s goal
Many organisations will have a specific formula or system already in place to measure the ROI of a new initiative, and mobile should be no different.
That being said, not all metrics are created equal, and organisations should be aware of which KPIs are most indicative of an application’s success.
You don’t need to look at 300 KPIs to measure an app’s success. 3-4 meaningful metrics could even be enough!
The valuable behavior that you’re attempting to track will depend on your app’s unique vertical and purpose.
Identify the core aim of the app itself – what business challenges does it seek to solve?
We’ve found that the most common reasons for building an enterprise application fall under the following broad categories:
- Improved internal inefficiencies – For example, automating processes that previously required time-consuming manual tasks.
- Improving employee productivity, faster communication or collaboration
- Increasing sales – Using mobile as an additional touch point to engage customers
Step 2: Choose KPIs that reflect that goal
Whatever the purpose of the application is to your company’s overall strategy, identify the most important 5-10 metrics for reaching them.
Your metrics should always reflect the KPIs you are trying to reach by measuring them in the first place.
Don’t measure what won’t add value (or future action) to your organisation.
Let’s take a look at those 3 broad categories again and explore some common metrics which will help you assess the ROI of the activity.
TANGIBLE KPIs
- Goal of the application: Improving internal efficiencies
- Travel reduction – For example, online meetings replacing face-to-face meetings, remote support replacing onsite support
- Time saved from reduced numbers of errors
- Time saved from improved system reliability and having less maintenance or fewer problems to resolve
- Time saved with improved software vendor support – For example, quicker responses, faster fixes
- Goal: Improving employee productivity, communication or collaboration
- Frequency of use – How often employees are actually using the app. If they aren’t using it regularly, you may need to optimise processes to support its integration into your workplace.
- Number of hours saved per week, month, etc – For example, from reduced length/number of calls to remote workers
- Other cost savings – For example, from retiring old machines/systems that had fixed costs
- Number/increased frequency of tasks achieved – how much extra work actually gets done?
- Goal: Increased sales
- What are sales from the app? This includes number of sales as well as amount spent
- What types of actions/events are being completed in app?
- Customer satisfaction – measured through surveys and ratings
- Number of active users – This does not mean number of downloads. Users should be using the app on a regular basis you have benchmarked.
- Retention rate – Retention is the number 1 issue for most applications, enterprise or commercial. 75% of app users will become inactive or leave an application within 3 months of downloading it.
INTANGIBLE KPIs
These benefits are intangible or difficult to measure on a numeric level.
The benefits of developing an application can’t always be quantified, but they can’t be overlooked either – they are often the most compelling components of the business case.
These should still be included in the evaluation of an application’s performance, but not within the ROI calculation itself because they can’t be quantified.
These may include:
- Demonstrating that you are a forward-thinking, relevant and modern company which is committed to never-ending improvement
- Serving as a key point of difference to your competitors
- Increased customer satisfaction (demonstrated through verbal or anecdotal feedback)
- Ability to offer improved customer service and support
- Improving customer sentiment or employee morale
And don’t under estimate the cost of procrastination.
- What would be the result or your key competitors implementing a mobile strategy?
- How long before your organisation would feel the impact of this?
- And what would be the cost of re-gaining the advantage again?
Your organisation will need to decide how much weight to place on these intangible benefits compared to the ‘harder’ data.
For example, your app may have only increased employee productivity by 5% over 6 months, but if the publicity and industry recognition you are getting is significant, this could justify your investment because of the ground you are making in capturing market share from competitors who aren’t in the spotlight.
Step 3: Calculate, evaluate, and improve
Once you have all the estimated or actual costs (development, maintenance and updates) and benefits (taken from a handful of KPIs you identified as most important), you can begin your ROI calculation.
Your organisation will also need to set benchmarks for the yearly return on investment of your application.
Many mobile initiatives don’t see return within 2 years of investment, but they may see greater increasing returns year on year.
For example, a large-scale internal application that completely changes existing processes may not see a return for 3 years, but realises 15% increased revenue 4 years after development, and then 25% the year after that, increasing year on year as it matures.
Alternatively, your application may see diminishing returns if it fails to engage and retain users over its lifetime.
The ROI number will speak for itself!
Want to achieve ROI within 2 years of deploying your mobile initiative?
Follow the 7 best practices of the top mobility leaders – these enterprises that have seen ROI on mobile initiatives within 2 years of launch.
Graham McCorkill
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