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Mobile Apps

Ways To Determine The Best Pricing Model For Your App

Ways To Determine The Best Pricing Model For Your App
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You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Mobile apps are more than just a trend today. They are an extension of your business and the most convenient way to reach out to a global platform of users.

Pricing Models for Mobile Apps

Whilst you might be in the process of developing a really cool app for fun, the idea is to place it properly and earn some profits and revenues. If truth be told, building an app is much easier than determining its cost, or whether or not to charge for the app.

After all, it is tough to create a perfect balance between cost of production and maintenance and find the pricing with respect to how much users would like to pay anyways for the app.

In a broad sense, mobile apps cannot be considered only a symbol of your web presence; rather, these are convenient business models. So, it is significantly important to price your business model correctly in order to generate revenue through the app.

Free – The Buzzword

Users love everything for free!

Free games and apps may not sound well to developers, but it is one good way to generate a lot of revenue. Especially on the Android platform, free apps are absolutely essential. However, these apps come with annoying ads and features to generate revenue from other sources. For starters, this could be a good beginning. But once you’ve reached your threshold, it is best to go paid.

The overall selling price of apps, across various platforms, has been declining consistently. Increased competition is one of the major causes of this trend. However, another important cause of this decline in price is the alternative revenue streams available for developers.

Instead of charging an up-front, flat fee for apps, developers have started spreading the message of revenue generation across the experience of using an app, especially with in-app purchases as well as in-app advertising.

Free Vs. Paid App – The Unending Debate

Charging a flat fee is obviously not a way to generate good revenue. Many free apps promote or simply support other paid services. However, there are many apps that directly aim at generating better revenue, but those apps are free.

The only idea is – give your app away for free but load it up with ads to generate more revenue than having any paid app as more users are likely to download a free app.

The easiest way for app developers to draw attention is to reduce price of app temporarily to free. There are apps that drop from USD 9.99 to free all of a sudden with “limited time only” tag. When apps go from paid to free, the world pays attention. Free apps are really alluring deals for users. There are several websites specializing in tracking app price reductions like AppShopper and 148Apps.

The perk for developers is that their apps draw attention and expand their user base. However, the downside is that they don’t make much profit from it. However, one advantage certainly exists when apps are available for free, even for a short time.

The sale still draws users to the same app even after the cost of the app gets back to normal. In addition, price drops can also attract a sudden rush of new app users, which were not on the list.

So, the dilemma is – should you offer an upfront fee or should you charge to download? Noted below are a few options that can help you to decide:

1. Freemium / Lite Version

Freemium is considered the most lucrative concept of giving away a free version of service or product while charging only for more advanced versions of the app with increased functionality. Hence, it comes in 2 versions – free and premium. The game is to allure users with the free version, which would automatically compel them to download the paid (premium) version.

But, it may not work the same way. For instance, Instapaper, a popular app, dropped its free version recently. The result was – sales of the paid version of Instapaper increased dramatically. Free apps also come with a low of drawbacks – it might lead to an “image issue” whereby users may fail to realize that their much loved app is a limited edition compared to the paid full version.

It’s much easier to follow this freemium plan when gaming apps are concerned. Users can start at a basic level for free and evolve their gaming skills to go to the next (paid) level.

A latest study by Distimo, an app marketing consultant, the average selling price of mobile games in app stores declined by 28 percent over the past one year, whereas the revenue generated by most successful freemium games increased almost tenfold during the same period in Apple App Store alone.

2. In-App Purchases

During the same period, the app marketing consultant Distimo also found that some in-app purchases within games also exploded. Only in 2015, 8 percent of all top-grossing games banked heavily on the in-app purchases. However, this year, the figure has skyrocketed to a massive 52 percent of all top-grossing apps using the in-app purchase feature, which is now a significant part of the revenue model. This has helped propel the leading games to 79 percent increase in overall revenue.

3. In-app Advertising

Advertising is the key to generate revenue consistently from your app. You get paid only once for app download, but you get ongoing revenue through in-app advertisement. There’s a wide range of advertising opportunities, starting from small banner ads to pop-over. You have to, however, find a balance and try to manage your user expectations for how invasive and annoying these ads can be. Users expect that the free versions of all paid apps would have intense ads.

What Should You Charge?

What to charge for the app – the big question!

Firstly, it is very important to do a competitive analysis to find out what’s going on in the market? Which are other similar apps and what are the rates? You can attract attention by simply undercutting your competitors on the price factor. However, if your app is more advance, or complex, you should charge more for superior offerings.

Before pricing an app, understand that it is a way to set user expectations. Users simply expect apps to be either free of cost or priced at 99 cents.

Other complex apps sell for USD 2.99 to USD 4.99 Apps in higher range should have expansive features and polish to do well in the competitive market – that is, they should look attractive and provide value for users. Whilst users may not know the worth of the money spent before installing the app, they would be prompt to leave a negative feedback, which can surely turn off other users.

Conclusion

App prices cannot be fixed. Developers have to leverage the ease with which pricing can be changed in order to experiment with different price points. The ideal way is to release the app with a higher price tag and lower it over time. However, note that the launch time is usually the best time to attract more user attention to the app; so, don’t charge outrageously. Be reasonable!

Edition: December 2016

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