Digital marketers moving into the mobile channel are having a hard time identifying hard ROI from mobile, whereas mobile specialists, particularly game developers, are realizing significant ROI from their apps.

You can learn a thing or two from game developers, who focus not on download numbers, but on driving up the lifetime value (LTV) of existing users. They continuously measure their users against Retention, Engagement and Monetization, the best indicators of which come from cohort analysis. This level of analysis helps game developers identify and capitalize on their highest-value users, which in turn leads to greater ROI.

A cohort is a group of users that have completed a particular action at a certain time, say those who launched your app for the first time on 27 February, for example. You can create a cohort of these users and track how many are still active (loyal); how many have reached a certain level in the app (engaged); and how many made an in-app purchase (monetized). By looking at these segments of users over the course of time, you can gain true insights into their value.

Engagement
Engagement is critical. Measuring engagement data tells you if, when and why your users continue to launch the app. Marketers define engagement differently, depending on the app. For a game like Angry Birds, it could be reaching higher levels. For a shopping app like eBay, it could be actively bidding on an item. For a social photo app like Instagram, it could be sharing photos with friends.

Using the photo-sharing app as an example, cohort data would show that photo-sharing drops off dramatically after day five, following the first session. Looking at this data, you realize you should improve the user experience to encourage more frequent sharing – after, all that is the purpose of your app! Say you update the app to offer a new set of photo filters – by running a cohort analysis comparing new users, post-update, against those from the initial cohort, you can determine, with accuracy, whether the additional features improved user engagement.

Monetization
Apps can generate revenue through digital goods purchases, mCommerce, display advertising, third party offer-walls, premium upgrades, and so on. You need to know how much money you earn from your various monetization strategies. Are users spending more money than they used to? How many are spending, and how many times will they make a purchase? What do they buy? Which kinds of users best monetize the app?

This is where cohort analysis is vital. You might see your overall app revenues increasing, but don’t be lulled into complacency. This apparent growth could by fuelled by the continual influx of new users (at a growing acquisition cost). You need to know if your average revenue per user (ARPU) and LTV are also increasing. If not, your revenues are likely to plummet once the flood of new users peters out. Cohort analysis gives you data-driven information to track the right metrics.

Track cohorts daily

Most game developers track the first two to three user sessions because they know that users who drop off generally lose interest within this window. Data from the initial few days provides the best insight into determining an app user’s LTV. Game developers increased their real-time cohort analysis to daily so they can make react quickly to improve user engagement before the user stops using the app. 
In the end, cohort analysis is a must-have for marketers looking to measure mobile audience loyalty.

Michael Oiknine is CEO of Apsalar