Chapter 3

That’ll Be $999.99

(Pricing and Monetization Strategies)

“Everything worthwhile, everything of any value, has its price.”

– Loretta Young

Pricing Strategies

How do you go about pricing your app?

This is not an easy question, but let’s look at some general approaches to pricing.

The Cost Method

√ It costs you X dollars to develop and market your app, and you want to make Y dollars in profit. Based on X, Y, and an extremely rough estimate (more of a guess, really) of how many sales you can make, you come up with Z, the price for your app.

Get it in your head right now that users don’t really care how much you spent developing the app. Don’t say you have to charge Z for the app because it cost you X to develop it.

No, it is your responsibility to price your app according to what the market will bear. If you can’t control your costs and still leave room for profit at the market price, then you shouldn’t be in business.

Here’s what Seth Godin have to say on the cost method:

“If you’re not happy with your pricing options, focusing on your costs might not be the right path. Instead, focus on how the design or delivery change the availability of substitutes, and how the price becomes part of the story of your product.”

The Demand Method

√ You price your app based on what users are willing to pay.

Using this method would require a lot of market research on consumer demand. You would need to find out things like:

  • At what price point will you face resistance from potential customers?
  • What added features would they be willing to pay for?

The Competitor Method

√ You price your app similar to what your competitors are charging.

For example, assuming your app and the competitor’s app offer comparable features, it would not make sense for you to price your app at $9.99 when they’re only charging $0.99 for theirs. Users can easily compare features and determine very quickly that your rival’s app offers a better value.

The key word here is comparable.

Games and utility apps are priced differently. And utility apps in different categories are priced differently. For instance, medical-related apps are on the high-end of the pricing spectrum while games are on the low-end.

The Value Method

√ How much is the app worth to your customers? That’s how much you charge them.

Example: How much is an app that will help a person pass the California bar exam worth to the exam taker? Well, considering that person probably racked up a 6-figure student loan debt and won’t receive a penny of that handsome major law firm salary if he/she fails the exam, quite a lot. $999.99 to be exact (the maximum price allowed by iTunes). That’s how much BarMax LLC charges for their BarMax CA app.

This is the holy grail of pricing. You create so much value that you can dictate the price.

In addition to the above pricing methods, how you plan to monetize your app can also affect your pricing.

Monetization Strategies

Besides the flat, up-front fee for an app, you can also look to alternative revenue streams for your app, revenue streams that enable you to offer your app for no upfront fee.

Freemium/Lite Versions – Give users a “taste” of your app in a free/lite version that doesn’t have all the bells and whistles of the paid/premium version. The idea is to capture their hearts first before asking customers to open their wallets.

In-App Advertising– Even though most users have come to expect ads (from banners to pop-overs) in free apps, if it’s too obtrusive and negatively affects the user experience, people might just end up uninstalling the app. An interesting alternative to consider is a service like Kiip where players are given a “reward” by sponsors for reaching an achievement milestone in your app.

Subscriptions– Subscriptions is great for generating recurring income. It’s popular with “newsstand”-type apps like The New York Times and Fast Company Magazine apps.

In-App Purchases – In-app purchases allow users to purchase upgraded functionalities, additional content or complementary features directly from within the app. There’s no need to go back to the app store, thereby making it easy for the customer and lowering the friction on additional purchases.

Here’s an interesting statistic: according to research from Distimo, even though only 4% of iPhone apps feature in-app purchases, those apps account for 72% of the revenue! It’s a wonder that more developers aren’t implementing in-app purchases considering how they also help deter app piracy.

“Would you like some fries with that?”

← Go to Chapter 2: No Shoes, No Shirt, No Service (Who Do You Want For Customers?)

→ Go to Chapter 4: May the Force Be With You (Understanding the Competitive Forces)

Return to beginning of book.