Have you tried advertising your app through banners or textlinks? If so, did it pay off? What do you look at when putting up money up front to buy reach (hopefully resulting in downloads) for your app? If you think long term, you might also be taking the value of iPhone users “only” seeing your name or the name of your product into account. This means you might actually be satisfied with a fair CPM increasing your brand value and recognition because your banner or your message was “noticed” by a certain amount of people.

In reality, for the majority of you, having been noticed by a lot of people without a noticeable increase in downloads probably doesn’t cut it. You want downloads. You want a measurable increase in performance, right? Also, this performance increase should be affordable.

As an oversimplified way of looking at it, let’s say you are selling your app for 79 Cents and have no additional revenues generated through that particular app after it was downloaded. After Apple and taxes, your payout is approximately 49 Cents. Accordingly, without taking any other costs into account, your cost of customer acquisition should not be more than 49 Cents, right?

Taking this example a step further, let’s say you manage to buy clicks in an ad network for 5 Cents on average (which seems pretty low already) and 5% percent of those that click actually download your app afterwards (5% conversion rate). In that case, you have to buy 20 clicks to get one download, which leaves you with a cost of (5 Cents/Click * 20 Clicks =) one Euro (or Dollar) per download.

Feel free to correct me, but paying 5 Cent per click and achieving a 5% conversion rate for a paid app already seems like a good deal, but in the end this leaves you with a deficit of (49 Cent – 1 Euro =) 51 Cents per download.

There are other things to consider here, for example that a strong push in the beginning might get you into the top rankings where your app will be noticed all by itself. But still, in general, are we seeing problem here? And if so, what’s the solution to it?

Of course, we do not have the answer (yet), but it seems the only two ways to improve this is to either find more effective ways to market your app (for example through “free” channels) or to increase your customer lifetime value. In this context, In-App Purchase has huge potential, especially when taking higher conversion rates (click to download) for free apps into account.

Is your calculation a completely different one or are you seeing this problem as well? Any thoughts?