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Opinion: Why You’re Charging Too Much for Your App

Guest Post: This is a guest post from Matthew Palmer. Matthew is the founder and CEO of Marketing Your App, a mobile marketing company for iPhone, iPad, and Android developers.

 

image via Flickr user puuikibeach

After all the hard work of creating a mobile app, there is one decision that can sink even promising apps more than any other: choosing a price. Knowing what to charge for any product is tough, but the peculiar world of the App Store makes it a top question for even savvy developers.

The rewards are great: Apple has already paid out $4 billion to app creators who have combined a smart app with good marketing. But, too often, sticker shock leads customers to ignore otherwise helpful apps. When developers choose the wrong price, more often than not it seems, they aim too high.

Consider your competition: According to 148Apps.biz’s breakdown of the App Store, free is by far the most popular price. $0.99 is the second most popular. Just 6% of all apps charge more than $5.

For nearly every type of app, you’ll be facing a free competitor. That is not to say the quality or features of the free app will be as good as yours, but the allure of free is so strong, it might not matter to customers.

What is pricing based on?
Although it can be tempting, smart pricing is not based on your development costs, number of hours coding, or company overhead. What to charge is mainly based on the value your customer places on it – the benefits they will receive from having it.

If your app saves time, for example, users will value that. Maybe it helps people do their jobs better or is just entertaining. The stronger the benefit, the more you can charge. Put yourself in your customer’s shoes and see if the benefits your app provides are worth the price tag.

Also, make sure to think of pricing against other mobile apps, not other types of products. (After all, why does coffee or even bottled water cost more than a sophisticated piece of software?) These comparisons could lead to a price that is not based on the unique landscape of the App Store, where your app will go head-to-head with other competitors.

Maximizing your revenue
The goal for choosing your price is to maximize revenue. So, choosing a lower price is not saying you didn’t work hard enough on your app or you’re willing to settle for less. It’s a marketing tactic to get more people to buy your app to actually make more money than if you had a higher price.

Cutting your price can boost your total revenue even when done for a short time. A study by Distimo showed that, on average, App Store revenue increased by 22% during a limited-time sale (41% on the first day alone). They looked only at high grossing iPhone apps, but it shows the result that offering a discount can have.

It is important, they found, to offer a substantial discount such as cutting the price in half or the sale could have the opposite effect and decrease total revenue.

Boosting App Store visibility
Getting your app into the Top 100 is one of the most powerful ways to get seen by huge audiences. Since these rankings are based on popularity, picking a lower price can help you boost sales and climb the charts.

The alternative to keeping your price low is to spend more in advertising to get the same exposure you could get being in the Top 100. With the investment needed to do that, you could break even or come out ahead by lowering your price.

Free: the ultimate price
Sometimes, even charging $0.99 for an app can be too much. If you are looking to maximize the number of downloads and users, nothing beats free.

In fact, there are really only two prices that matter in the App Store: free and not free. It’s two different worlds in the eyes of the consumer.

Put another way, the difference between $1.99 and $0.99 is not that big. But the difference between $0.99 and free is huge.

That’s because the thinking someone does before downloading your free app is very different than deciding to buy your paid app. Downloading a free app does not take any thought on the part of the customer and they can act in an instant. Buying a app that is not free makes the customer stop and think “but do I really need it?”

The future of app pricing
With this in mind, what is the future of app pricing? More and more, top apps are moving away from the traditional paid app approach and finding more profitable ways to monetize.

Combine a free app with premium offerings such as more levels, advanced features, and virtual goods and you get “freemium” apps. You’ve put together the best of both the free and paid worlds: customers can download your app at no charge, try it risk-free, and use in-app purchasing to buy add-ons.

In the iOS gaming world, the majority of revenue is made this way. Flurry estimated that 65% of App Store revenue comes from freemium games – about $2 billion. The growing interest in this strategy is one reason Apple, Google, and now Amazon’s app stores all support in-app purchasing.

Creating a freemium game or app will require a new way of thinking. You’ll need to make the free experience high quality to hook and continually engage users. But you’ll also want to reserve some levels, features, or upgrades only for paying customers.

Now that games have proven the freemium model, however, it’s only a matter of time before more non-game developers find the best ways to profit with this strategy.

Paying the bills with ads
Another primary way that free apps can drive large profits is with advertising. eMarketer expects total US mobile advertising revenue to hit $2.61 billion this year, nearly double last year.

With many advertising choices available to developers, it has become easier to find more profitable solutions. Unlike in-app purchases, advertising can easily be inserted into most apps without needing a plan to offer something premium.

While many mobile users say they dislike ads, they are increasingly getting used to the trade-off and would rather have ads than have to pay. 54% of tablet users prefer free, ad-supported apps over paid ones, which is an increase over 40% a year ago according to the Online Publishers Association.

For advertising to generate significant income, the app needs to have a large number of users. This makes it ideal for apps that are free and have a broad appeal. Ads are not right for every type of app, but can be an attractive option so you don’t have to charge a high price for your app.

Downsides of low prices
This is not to say that all apps should have bargain-basement prices. Some would perform better at a premium cost. If your app has unique or advanced features, little competition from lower-priced apps, and an audience that is willing to pay, you could benefit from having a higher price tag.

Also, there are possible downsides to free and low-cost apps. You could get more negative reviews from customers who are less engaged and more customer support questions. Many free games still carry the stigma of being low quality or full of ads. Plus, you must find other ways to make money (if that is your goal), which may not be feasible for all types of apps.

However, many apps would benefit from giving a second thought before charging more than a dollar or two. You can often attract more customers at a lower price for larger revenues. And, with in-app purchases and advertising, there are real ways to make money from free apps.

What has your experience with app pricing been? Share your comments below.




Matthew Palmer
Matthew Palmer is the founder and CEO of Marketing Your App, a mobile marketing company that helps iPhone, iPad, and Android developers get more exposure, new customers, and increased sales in the iTunes App Store or Android Market. More marketing tips are available at their website.
Connect with Matthew Palmer // email // www // twitter // facebook


  • http://www.marketingyourapp.com/ Matt

    What has your experience with pricing your app been? Have you had to adjust your price after launch?

  • Dan

    Any thoughts on a starting price of 1.99, followed by a “limited time special” price of 0.99 to help motivate buyers?

  • http://www.marketingyourapp.com/ Matt

    Hi Dan,

    That can be a smart strategy because it gives people a reason to buy now before the sale ends. And, it’s a way to test out both the $1.99 and $0.99 prices to see how people respond.