Apple sets many rules and makes a lot of decisions instead of the developers throughout the design, implementation, approval, marketing and selling process. And I think everybody is fairly happy with this: Apple controls the software that runs on its devices and pockets a good amount from the sales, the developers have less questions to ask themselves when they create and sell the app, and the users feel in security when they buy and install the app on their devices.
But the developers still have almost entire control over setting and changing the app price, as long as it is a multiple of $.99.
There are 7 pricing models:
- Free: the developer doesn’t earn any money from the app downloads. The general purpose of this kind of apps is to increase the notoriety of some brand or organization.
- Free with advertisements: the developer integrates an advertisement platform (iAd, AdMob or others) and monetizes the ads displayed in his app. This works well for the apps with high volume of downloads.
- Free and paid: the developer launches a limited features free version and a full paid version of the same app. The free version allows the users to try the app before actually buying it.
- Paid: there is only one version of the app out there, and it costs $.99 or more.
- In-app purchase: the user can unlock with an extra cost more features from within the free or paid app. This model slowly replaces the Free and paid model.
- Better version: some developers create a better copy of an existing app, name it differently (add v2 to the name), and sell it. The goal is to get around the “updates for free” rule of the App Store.
- Subscription: the user downloads the app which is often free, then buys the content on a monthly basis. This works well for newspaper and magazine apps.
To give an idea of the amounts usually charged in the App Store, the average price of an iPhone app is about $3.85, and of an iPad app is around $5.25 (Distimo report).
Choosing the right price
What price should the app have is not a totaly subjective decision for the developer. To optimize the price, some competitive research and good thinking about the app’s position in the App Store are recommended.
This simple checklist can help the developer set a price that maximizes the profits. Of course, it only applies to paid apps.
- Calculate the cost
- Estimate the value to the customer
- Take a close look at the competition
- Evaluate the app’s interest over time
- Adapt to the sales volume
As a developer, you spend money and time in such things as design, coding, promotion, web presence, and the goal is to drive enough sales to cover these costs and make some profit.
So use the real amount you expect to earn for each sold copy (subtract the 30% Apple commission from the price) and try to figure out how many sales you need at a given price to get to your target.
This is not easy to do and it is very subjective. If you think that your app offers a good deal of value to the user (it accomplishes a very practical task or it successfully entertains the customer when he is bored), you have all reasons to consider setting a higher price. Be honest about the real value of your app and make a good interpretation of its perceived quality.
This should be done before starting the development. If you consider that your app’s features or design are real differentiators compared to the other similar apps, you might want to set the price a little higher. But you must keep an eye on the competition, because it usually doesn’t take long before they bring their apps at the same level or higher.
If your app is alone in its niche (pretty rare these days), then it’s up to you to choose the price according the value or service it offers to the users.
You can afford to set a higher price for a utility or productivity app, particularly if it stands out from the competition. Apps from these categories live usually longer and better in the App Store than games or entertainment apps (there are exceptions to this rule, but games and fun apps are more influenced by the short-term hype).
The goal is to maximize profit. If the sales volume is high and the app is somewhere in the top of its category list in the App Store, keeping a lower price like $.99 is a good idea because it drives more sales and it is commonly considered as requiring less thinking from the user before pushing the Buy button. On the other hand, if the number of sold copies is low, it might be better to raise the price if you think the app really worth it (refer to the Value to the customer tip); this could help maintaining a fair profit margin.
Changing the price
It is possible, and even recommended, to modulate the app price according to the sales volume and the marketing strategy (price cuts to increase sales during holidays is not unusual).
For example, many developers set an introductory low price when they release the original app or an update, and they make it visible through a message on the top of the iTunes description page. Some developers never change the message and the price even if the app is out there for a long time.
We sometimes see apps that start free and then become paid; the goal is to get a lot of users and positive reviews from the beginning. If you adopt this strategy, make sure it is clearly stated in the iTunes description and on your Web site.
When the sales begin to slow down, one technique that could temporarily boost the sales is to lower the price and make sure it is apparent on the iTunes page: “on sale for today”, “on sale for a short period”. That implies that the initial price is higher than $.99. This method doesn’t always work and could have good results only for a short period of time.
There is also the other way around strategy: when sales go down, increase the app price to maintain the profits. This generally amplifies the sales decline, but the overall earnings might be the same as before.
Using price changing strategies means constantly monitoring and interpreting the sales results, but they are effective and worth spending some time once in a while.
The minimum price of $.99 should not be chosen by default and you are not committed to the initial price for ever. Keep in mind that the main target is to optimize the overall profit, and the price is one of the most important adjustment variables.