App Marketing 101: Pricing your iPhone App – Art and Science
It has been said that pricing is as much an art as it is a science. There is no doubt that pricing is a challenging prospect with any product in this economy, but especially with iPhone apps because they have taken some of their pricing cues from iTunes songs, sold cheaply but huge volumes. With the current iPhone app price hovering around $2.85, many developers, however, are simply following the herd, pricing their apps at $.99 in an attempt to gain acceptance and market share.
iPhone app developers would do well to carefully examine all aspects of pricing as it pertains to their product, make careful pricing decisions, monitor and measure sales results, and make adjustments as needed to maximize their revenue. You can maximize sales results for your app through better marketing and marketing includes spending some time on the challenging area of pricing.
You should consider a number of factors when pricing your iPhone app. For starters, look at competing apps in your category and then ask yourself the following questions:
How much do competitors charge for a similar app? Take a look at the AppStore and review how many apps are similar to yours. Have you produced another Battleship game that is similar to other apps or is it far better? Be honest!
What are the differences between my app and someone else’s? Do you have more features? If it is a new financial calculator, does it offer something more than the other competing apps on the store?
How does your app rate against the competition? Do you feel that your app has better graphics? Better sound? More exciting action? Have you confirmed this with your reviewers, friends, followers, and customers?
How do you define your app and market? If you are selling a tool for sales reps only, have you attempted to define approximately how many sales reps are in your country or market? Of your target market how many of them might own iPhones?
How does your app compare to free apps? If there are many competing free iPhone apps you will need to strongly communicate the value of your app. Overcoming objections to free is a high hurdle that can be mitigated with better marketing.
How much would the app cost to develop by another company? Larger development firms can create an app less expensively than a small developers because they already have developers and graphic designers on staff and can quickly redirect their efforts to that iPhone app. Independent developers may have to outsource some of the skill set of development (especially if it’s a game).
What were the actual development costs or time involved? Knowing your development costs is also very important in helping you determine the price of your app.
Setting Your App’s Price
After you’ve considered these issues, the big question remains, “How do I price my app?” You’ve come this far to develop a great app so don’t pass up this crucial step in making your app as successful as possible. Now, everyone defines success in their own way. Perhaps you want to generate $20,000 a year in additional income from an app that cost you $5000 to create.
Perhaps you have grander ambitions and want to generate $100,000 in app sales for a product that cost you $20,000 to create. If you start at a $.99 selling price (less Apple’s 30% take) you would have to generate 28,860 downloads to clear $20,000 or 144,300 downloads to achieve $100,000 in sales! These are huge numbers of downloads any way you slice it and that’s after you pay for your development costs. Starting at a $.99 sales price is going to take some time to breakeven unless you have a “grand slam, out-of-the-park, into-the- parking lot” kind of app!
In both examples I didn’t mention the breakeven which should also be factored in. I’m assuming you want to make some money selling your iPhone app. But, for the record you would need 7,215 downloads at the $.99 selling price to break even on the first example at a development cost of $5000. The second app would require you to have 28,860 in downloads just to break even on expenses of $20,000!
I also realize that you may have spent less developing your app and so your break even may be lower. But, regardless you need to calculate your break even so you at least have an idea of what it’s going to take to cover your development costs. If you haven’t spent real dollars in development you most certainly have burned long nights writing code! So, you should calculate your hours spent in development and estimate some sort of development cost based on your typical hourly rate.
Let’s assume you have spent $5000 to develop your business application. You believe you can sell 100 apps per day. Your sales numbers based on different price points are shown below. As you can see by looking at the table, pricing your app at $.99 will take you over two months (70 days) to break even assuming you spent $5000 to develop your app.
| App Sales at 100 Sales/Day | ||||
|---|---|---|---|---|
| App Price | Gross Sales | After Apple Commission | Break even reduction (1st sale) | Days left to break even ~ |
| $.99 | $100 | $70 | ($4930) | 70 |
| $1.99 | $200 | $140 | ($4860) | 35 |
| $2.99 | $300 | $210 | ($4790) | 23 |
| $3.99 | $400 | $280 | ($4720) | 17 |
| $4.99 | $500 | $350 | ($4650) | 14 |
| $5.99 | $600 | $420 | ($4580) | 11 |
| $9.99 | $1000 | $700 | ($4300) | 7 |
Based on the chart above I am of the opinion that it’s better to price your app a little higher at first and carefully monitor the results. By this I mean at least $1.99 so that you’ve got room to adjust your pricing downward if needed. The issue with any pricing assumption is trying to figure out how elastic the pricing model is for iPhone apps. Some app developers have said that lowering their price has had some effect on sales but only for a limited time. Others have said that lowering the price has had no effect on their sales. Who do you believe? Well, they are both right. It depends on the type of app being sold. So, the best approach is to experiment at a price point that makes sense for your app based on your competitive research, breakeven analysis and type of application. A truly unique app can command a higher price. Some utility apps are selling for much higher than $.99. Yes, even some games are selling for more than $.99!
Some app sellers have also found some success in offering some limited time offers where they drop the price for a few days to spur sales. If you have a certain promotion you want to do around an event you can often spur sales by offering a temporary price cut. Let’s say you offer a financial calculator that includes special tax features. You may want to reduce your price for a few days around tax time to spur sales to have your app take advantage of this particular time of year.
If you are confident that your app is unique and has qualities and features that no similar app provides, I say price it higher and measure the results. If over a few weeks your sales start to drop off you can carefully reduce the price for a time and measure the results. If you are spending some time on marketing and building a following for your brand you should see steady sales. Remember, in this economy people are willing to pay for quality at a reasonable price. They are not willing to pay for poorly designed apps at any price.
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