As an entrepreneur, I understand very well those who, on a wave of inspiration, fly towards their goals despite all obstacles and circumstances. But math is a strict science, and it is math that decides whether a business will be viable. This case is about how NOT to lose money, and it will be very short.
So, I was approached by a Ukrainian wine producer who decided to launch an additional distribution channel. This channel was to be a mobile application.
The plan was for customers to find and download the app themselves so that they could use it when they needed it. It was planned to spend tens of thousands of euros on development and the same amount on marketing. It was planned to be an economy segment, with a small margin per sale, but with a large volume of sales.
Therefore, the prospects were very attractive. Everything looked like a powerful project with a good budget. But after looking into it, I showed the client the following sequence:
Install -> View offer -> Buy
That is, before you buy something in a mobile app, you need to install it. For businesses, this means that they need to attract installers.
Only after that, a potential customer will be able to view the offer. And if they like something, they can buy it. This was the problem that caused the project’s math to fail.
The fact is that the average conversion rate of an online store is 3-5%. This means that out of 100 visitors, 5 people will become buyers.
That’s why mobile apps are not a good solution for generating first sales, because to view your offer, you need to install the app first.
Even if the cost of installation is only $0.50, you need $50 to attract 100 installations. If 5% of them buy, the business will get 5 customers. Thus, the cost per customer should not be expected to be less than $10.
This far exceeded the potential margin and made the business unprofitable. I consulted with my colleagues, we calculated various options and came to the conclusion that the app could only become an element of PR, but not the main sales platform.
In the end, the client abandoned the idea and wrote this review:
Later, we launched a joint project, which the European Bank for Reconstruction and Development made a video about, highlighting it among hundreds of other Ukrainian projects:
But this is, as they say, a completely different story.
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