Before the app store launched, no one knew what price point would gain traction as the main price point for premium apps. Pretty quickly that price point settled at $9.99 with the announcement that Super Monkey Ball would launch at $9.99 and many other apps following suit. Since then we have seen the average price for apps continue to fall and recently we may have seem some of the most vocal advocates of that price point have recently lowered their prices and seem to be settling in at $3.99/$4.99 now.

As David points out, apps are not measured for their value, they are measured against other apps. With so many apps launching or quickly dropping in price now, a $10 app is a really hard sell. To quote from user reviews from Davids article:

“This is the best app I’ve purchased by far… the only down fall is the $10 purchase price. I highly recommend this app…”

“Real good app. Does everything I wanted and then some. The only reason I am giving it 4 stars is because of the price….$10 is a bit excessive, although I think this will help me save money in the long run, so it could pay for itself.”

These quotes, unfortunately, show the general mentality of the users when it comes to app pricing. Apps are not measured on value they give but their price comparison to other apps, perhaps apps not even in direct competition. Even though the apps for the iPhone are priced considerably lower than on any other mobile platform, as users compare prices to other apps, it’s hard for them to justify the higher price point.

I asked Rob Murray from Firemint his thoughts on app store pricing. Firemint are one of the few game developers with a non-franchise game still priced at $9.99 in the app store.

“My confidence about the $9.99 price point is about the same now as when Real Racing first came out. We knew it would be a tough price point for some shoppers to swallow, but we didn’t plan all our marketing around the top 100 app list. The issues surrounding price are complex and cannot be easily removed from issues of quality, brand recognition and hyper-competition. I can say that while I am a little disappointed that Real Racing hasn’t steadied out higher in the charts and pricing undoubtedly had some part to play in that, I am content with how its sales are proceeding and I don’t believe that dropping the price would increase the overall revenue or success of the product.”

Real Racing is an example of one of those apps that is well developed and deep, and described by many as console quality. It makes sense to have at a higher price point for an app like that, compared to something like the Moron Test. But that higher price point is still hard to justify to some people and has most likely lead to lower sales.

Yesterday in Apple’s quarterly earnings call, Tim Cook mentioned that Apple may be working on some modifications to the app store rankings:

“As you know, today we do it by type of app and also have show popular apps and top-selling apps, etc. We realize there’s opportunity there for further improvement and are working on that.”

What that really means and when (or if) we’ll see anything, we don’t know. For now let’s hope that Apple is really working on something to help increase revenues and address some of the app discovery issues of the app store.

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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.

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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If you have aspirations to make more than a little spending money from your iPhone app then you must develop a marketing plan and apply tried-and-true marketing principles to your sales strategy. For example, as you wrote your iPhone app did you take some thought to determine who your target market is and how you will message to them in a way that they immediately understand the value of your app? Do you understand how to price your app for maximum success? Have you spent some time to formulate a marketing plan that will create a strong following of satisfied customers?

Marketing for iPhone apps is similar to marketing other online software products, although the marketing tools available have expanded in recent years especially in the area of social media. The steps are still the same: develop a product that your customers need (iPhone app), create and deliver a strong marketing message to attract a following, and continue to develop new products and upgrades to retain existing customers.

When you understand that marketing is a process that incorporates these fundamental steps you will be able to perform them to increase sales success for your iPhone app. For many iPhone app developers an understanding of the necessary marketing steps to increase exposure for iPhone app(s) is something new to them. Whether you are just starting out as a first time developer or have created and posted a number of apps for sale, you’ll want to take a closer look at marketing if you desire to move beyond being a casual developer and seller of iPhone apps to a successful marketer of your own best-selling brand.

Step 1: Understand Your App’s Unique Value and Message It

What sets your iPhone app apart from all your competitors? Let’s face it. There are lots of competitors with similar apps. You have to come up with ways to be unique. There are three key questions that you should attempt to answer as you define your iPhone app’s unique value. The answers to these questions become the pillars of your marketing process and should be incorporated in your marketing plan to the best of your ability:

1. What’s unique about your iPhone app? List all the features, graphics, sounds, functions that are unique to your app. This list will help you develop a marketing message for your app and keep you focused during app development.
2. Who is your target audience? Who will buy your app and who do you really want to sell to? Are you focused on the teenage market? Do you have a business app geared to a specific type of profession? Understanding your audience will help you develop a targeted marketing plan.
3. Who are your competitors? Are you going up against a large game developer or a business program? Knowing your competitors will help you define strategies to compete against the big boys.

The answer to these questions forms the basis of your marketing message.

Step 2: Deliver Your Message to your Targeted Audience

Demand for your app is created when you help a prospective customer see that you have a solution to their problem or you pique their curiosity. The demand for most products is already there; it’s just a matter of you creating a message that resonates with that audience and gets them to notice you.

Delivering your message happens when you create powerful descriptions and visuals for your app on the AppStore and on your app’s own web site. You must think in terms of showcasing your app on the AppStore and on a corresponding web site. The web site can be used to show videos of your app, provide additional screen shots and other content. Always display a “buy now” button prominently on your own site that directs the buyer to your app on the AppStore.

Social media marketing (SMM) can help you generate buzz for your app. Long before you launch the sale of your app you can be visiting and blogging to audiences that share an interest in your type of app. This interest can be converted to buyers once your app is launched. Take a look at using Facebook, MySpace, Twitter and other social media tools to help get the word out about your app.

Step 3: Price Your iPhone App Effectively for Maximum Success

Much has been said about pricing your iPhone app. The strategy of pricing your app at $.99 to gain entry into the Top 100 category is becoming more difficult because of all the apps already posted to the App Store.

A better approach is to review the competition to get a feel for the price ranges for similar apps. If your app has strong features (go back to your list of unique features from step 1) then don’t be afraid to price the app at a higher price than $.99. Achieving break-even at $.99 is a lot harder than you may think unless you are one of the lucky few who hit a grand slam first at bat.
Starting at a little higher price gives you some room to discount and try some promotions to test out where your app will sell well. People will pay for quality and as more business-related apps become available their prices will reflect their value.

Step 4: Implement a Brief Marketing Plan for Your App

With the right message and the right audience combined with the right marketing tools and methods, you can create marketing campaigns that will be extremely effective in reaching your ideal audience. Your marketing plan does not to be lengthy but it needs to define what steps you will use to reach your defined audience. In short, your plan should include a clearly defined marketing message, a description of your ideal target audience, campaigns definitions (product reviews, press release and promotions) so that you have a roadmap of what you want to happen before your app hits the App Store.

Regardless of where you are at in the development process of your app you need to spend some time looking at how you want to market your iPhone app. The days of “hoping for the best” when selling your iPhone app are gone. Your marketing efforts should work in lockstep with your development efforts. Your sales results will improve through marketing and you just might come back to write another app, perhaps a best-selling blockbuster app!

Author: Jeff Hughes
Creator and Instructor of “Intro to Marketing iPhone Apps” available at http://www.xcelme.com

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