How to Unlock Your App Idea and Forecast Your Profit and Loss (Part 2)

In my previous article (Part 1), I focused on testing and refining a rough app idea, and I had promised that I would show you how to move forward once you have validated the initial product/market fit.

Razi Alakhdar - Marketing Manager

Table of Contents

In my previous article (Part 1), I focused on testing and refining a rough app idea, and I had promised that I would show you how to move forward once you have validated the initial product/market fit.

The first post was about how to identify your audience, the most important features, and potential return on investment. The key is to determine the app’s core functionality and the optimal business model based on actual user insights and cost of user acquisition.

In Part 2, I will show you in more detail how to employ other marketing and UX tactics, depending on which stage you are at. The more you advance in the product development process, the more you can investigate, experiment, evaluate, and forecast.

How to Unlock Your App Idea and Forecast Your Profit and Loss - 1
UX research and experimental marketing are the key. There you go, I said it. But let me take a step back and tell you why, what, and how.

Next Questions

Let's assume by now that you’ve determined the percentage of users willing to pay and which specific features they prefer. You should also have found a common interest, behavior, or occupation that characterizes a broad segment of your target audience, as well as figuring out your likely cost per user acquisition (CPA). This data can indicate whether you are on the right track but is not yet enough to justify investing tens—or even hundreds—of thousands of dollars on development.

In this article I will help you to get solid answers to the following questions, supported by real data:

  • Is your target audience unique enough to sustain a successful business?
  • Can you gain a similar audience by tweaking your current product?
  • How does CPA vary over time and budget?
  • What does the cost per user look like on other channels? And how can it be reduced?
  • Can user retention and growth be estimated without a functioning app?
  • What is the best business model: subscription, advertising, or both?
  • Is it time to plan a full marketing strategy including social media and content?

Next Moves

At this stage it is worth building a Minimum Testable Product (MTP) and testing it on the group of users you’ve acquired so far. If you’re not sure about the process I would highly recommend reading this: Case Study: How to Run an Effective Remote UX Workshop, which includes a detailed description of how to conduct a remote Design Sprint to create and user test a clickable prototype. It also includes a Live Demo and a Webinar Replay presented by Salsita’s CEO Matthew Gertner and Director of Product Jan Mikula.

Let’s stop here to explain the difference between a Clickable Prototype, an MTP, and an MVP:

  1. Clickable Prototype: Typically the result of a four-day Design Sprint workshop. It’s a series of wireframes exposing the core features of the app, linked together using a tool like Adobe xD or Figma. No coding is involved at this stage.
  2. Minimum Testable Product (MTP): A functioning application based on actual software code. It doesn’t necessarily include essential features like log in, settings, and so on but there's enough there to test it on users to get their feedback
  3. Minimum Viable Product (MVP): A product that is ready to be launched publicly. It may not have all the bells and whistles you imagine, but it includes the core features necessary to achieve initial product/market fit.

When you’re between steps 1 and 2 (i.e., right after conducting the Design Sprint and creating the initial clickable prototype), you should have a clear enough understanding of the product to conduct a technical and legal feasibility study. This will help establish whether the planned product is feasible and verify that there are no legal constraints. See case study here

Legazey MVP: Go or No Go? (Case Study)
Alfredo Sciascia, a C-level executive began looking for developers to build an MVP for his social media startup. His search led him to Salsita, who recommended marketing research and UX exploration as crucial first steps before kicking off development.

Do that before you invest in the MTP and take advantage of the Clickable Prototype to further investigate the market and business model. But if you get the green light after concluding the study, with no obvious legal or technical blockers, go ahead and develop the MTP before the next step.

Give them a goal to achieve and then get their feedback.

Start your product investigations with the Clickable Prototype, then follow up with the MTP once it is available. The former will give you initial feedback from users with minimal investment, while the latter will allow you to get more detailed feedback about something that looks and feels more like the final product.

Send your user list a link to the Clickable Prototype or the MTP with clear instructions to make sure they see and experience all the relevant features. For example, if your product is the car configurator described in the case study mentioned above, ask them to select a car, change the color, change the seats, modify the engine, and so on.

Prepare a feedback survey and ask them to fill it out once they’re done testing. Make sure you include these two questions:

  1. Would you consider using the app when it’s ready?
  2. How likely is it that you would recommend it to a friend?

The answers to these questions will give you an idea of potential organic user growth and retention. However, you will only know the real numbers once you develop the MVP and start promoting it.

An even more effective way to get these answers is by asking the questions on a video call during the user testing. That way you get to see the user's facial expressions and how they interact with the prototype. There are tools like Userlytics that make it easy to recruit remote user testers and conduct user testing sessions.

This feedback is invaluable to the successful development of your app. If the feedback is positive, you can also use the videos in your investment pitch and/or online ads.

Ask them to rate the current features, what else they would expect to see in the final product, and show them a list of other features you are thinking of developing. You can ask some of the same questions you asked before, like willingness to pay, because now that they have seen the MTP they might change their mind. Maybe in the first survey they answered “yes,” but after seeing the product in action they aren’t impressed... or vice versa.

Compare the survey results from before and after seeing the MTP to get a sense of what has changed. Obviously you need positive indicators such as the rate of “willingness to pay” staying the same or increasing, along with the percentage of people who are considering using the app and recommending it to others.

Now that you have this feedback you can improve the prototype, take screenshots, and create an explainer video demonstrating the interface. This content can then serve as the basis for a micro-site, a one-page website showcasing product features and briefly explaining the benefits. No need for a lot of details; let it be a teaser. You need this to prepare for the next phase of product/market fit investigation.

Once you have your microsite, you'll need to drive traffic to the site and measure the visitor interactions. For example, include an offer to motivate users to enter their email address so that they'll be notified when the app goes live. If you find that the number of signups is low, try rewarding them with a discount or exclusive membership.

Launch ad campaigns on your main channels, depending on where your potential users are most active. Send them to the microsite and monitor the conversion rate and cost. Compare that with the initial CPA and see which channels are bringing the most relevant users. As previously explained in Part 1, the more your cost per user drops, the closer you’re getting to identifying your niche. However, keep in mind that the cost varies from location to location, and from season to season.

In many cases it makes sense to run Google search campaigns if you think people will be actively looking for a solution similar to yours. In other cases Google search might not be a good channel for a startup since, if the concept is new, people won't even know it exists in order to search for it.

You don't have to guess though since it's actually easy to check this. It’s right in front of your face whenever you use Google. The algorithm starts displaying the most searched-for terms while you’re still typing.

Let’s say your app is about buying and selling used phones. You can see in the image below where the highest level of interest is:

To find more search term volumes, forecast and see historical data, check out the Google Ads Keyword Planner.

Earlier in the article I spoke about finding your broad audience. On Facebook, Google Ads, and LinkedIn, it’s possible to define a broad range of audience criteria (interests, demographics, etc.) and see the number of people in that group.

For campaigns to be effective, the ad platform must first learn about the audience by how users engage with them (the so-called "learning phase"). Generally this means achieving a certain number of ad impressions before the associated metrics can be trusted. To test the scalability of your campaigns, wait until they exit the learning stage. Once that happens, try to gradually increase the daily budget and see if the campaigns are able to utilize the larger daily budget.

For example, if a search campaign is not spending the full daily budget, it probably means that there are not enough people looking for the targeted search keywords. It could also mean that there are a lot of competitors bidding on those same keywords. In either case, it’s not a good sign. Try adding more keywords and excluding irrelevant ones.

  • On Facebook and LinkedIn, if the campaign is not able to spend the daily budget, it means there are not enough people in the target audience or the competition is too high. Try to broaden the interests or demographics that you are targeting.

You can test other locations, but be aware of local language preferences. In some countries English ads are not effective at all. You can split the campaign per age group or gender depending on what you are offering; for example your best niche might turn out to be females aged 24 to 35 who mainly use Instagram, live in the UK, and are interested in smart wearables.

Once you find your niche, try targeting a similar audience on Facebook or LinkedIn. Both platforms have a feature called ("lookalike audiences") that uses a proprietary algorithm to find users similar to the ones that match the criteria you specified. The only condition is that the original list must include more than 1000 users. This type of campaign can be very effective and is often worth trying.

You need to identify campaigns that can be scaled up over time while maintaining the average CPA or, better yet, decrease it. This requires investing in a range of test campaigns, but it’s worth it. It is always better to spend $10K on experimental advertising rather than $100K on developing an app that no one wants.

Based on the new round of prototype user testing and the scalability of the ad campaigns, you should come away with a realistic idea of organic growth rate and retention, the average cost of conversion, and the potential size of your target audience. Run the numbers over three to five years to get a sense of whether the numbers add up for your project.

Based on the user testing you may also discover that there is a high percentage of users who would be more interested if you tweak your product. For example, if your app is about finding, rating, and ordering wine online, you might find that there is a demand for such a solution for rum as well. Keep an open mind and adapt your business plan if appropriate.

Keep testing every time there is a significant change to your app or business model. Try different ad formats, visuals, and copy. Continue refining your niche and target segment. Define the user personas based on the contacts you already have, and conduct user studies to find common points that attract the most attention from that particular target audience. The main KPI (Key Performance Indicator) is a drop or at least a stable cost of user acquisition.

As for the business model:

  • If you see for example that most users are not willing to pay but they find your product useful, then you should probably rely on in-app ads and/or sponsorship to generate revenue.
  • If a high rate of users are willing to pay, you can base your business model on paid plans only, while offering a week- or month-long free trial.
  • If there’s a balance of both, then adjust your business to account for this, e.g., offering the choice between a free membership with ads or paid membership without ads.

Next Strategies

If all the indications are positive, you can be confident about starting the development of the MVP. Once you have published it on the App Store and Google Play, it is then time to start testing App Install Campaigns. You might be surprised that the CPA can drop even further with those campaigns, as the user is one click away from installing the app.

While the product is being developed, do not stay quiet. There’s no need to plan a full marketing strategy at this point, but you better keep making some noise, at least towards potential users that have signed up. Send them newsletter updates about your process, involve them in the product story, post relevant content, and run retargeting campaigns.

Be ready with a strategy to be kicked off once your MVP is ready. Treat your product as a brand and define it by:

  • Essence: What is the brand idea? Why does it matter?
  • Persona: This is your brand’s tone of voice and personality. Who are your customers? What do they need and desire?
  • Emotional Benefits: How does your product/service make the consumer feel?
  • Functional Benefits: What are the physical benefits to the consumer? What makes your brand useful and valuable?
  • Unique Values: What unique value does your brand add to the market? What extras, beyond the basic product service, do you offer to customers?

The above are starting points to create a comprehensive marketing strategy including content and communication. Plan the methods by which you will be creating and distributing relevant, valuable content in order to attract, acquire, and engage a well-defined target audience, with the objective of driving profitable customer action. Think like a publisher, not an advertiser.

Educate, entertain, inspire and inform to expand your reach.

Start a blog, write a piece or two about each pain point and explain how your product is going to solve it. Make it valuable and easy to read. Then listen to the users and engage with them to have a better understanding of the space. By observing which content your user does or does not engage with, you will learn a lot and gather more data about how effectively you are reaching the target audience. This will further validate your product’s market fit.

You don’t need to be too active on social media yet, just show your audience how you're planning to get from point A to point B. Leverage the success you have achieved by now. In other words, don’t let your users forget about your product while it’s being developed. To make the most of your limited resources, find the channel that is most heavily populated with your ideal customers and focus your activities there.

Steadily maintain the flow of new users and subscribers. Keep optimizing the campaigns to get them ready for your launch, like a button ready to be pressed once you go live with your new product.

Good luck!

MarketingProject ManagementUX & DesignProduct DiscoveryMVP Development

Razi Alakhdar - Marketing Manager

Razi is a marketing pro who helps companies succeed through effective marketing optimization, product validation, and lead gen.

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