Everyone who develops an app for consumer use has to face the question of price. Should your app be free to use? If not, what should you charge for it?
These are difficult questions to answer, especially if you’ve spent countless sleepless hours thinking through every last feature of your app to make it the best it can be.
Pricing your app is a bit more complex than classifying it as “free” or “paid.” There are four different payment models you could consider, based on a number of factors. Before you decide on an app price, take a look at all four models, the benefits of each, and then decide how you can choose the right model for your app.
Meet the App Pricing Models
The majority of apps in the Apple and Google Play store fall into this category. It’s interesting to note the contrast between the two stores. In the Apple Store, 61% of apps are free, compared to 92% of apps available for Android. This is due to Android’s open source software and the fact that it attracts more DIY, small-scale app developers.
In this pricing model, your app will be free of charge to download and use. If you are looking to generate revenue from your app, your revenue stream would come through advertising and directing users towards a larger platform where people can opt into other charges. Free app developers understand their best shot to make money is not with an upfront download charge. Don’t underestimate the revenue that in-app advertising can bring — more than 80% of Facebook’s ad revenue now comes from mobile advertising.
Free apps have the major advantage of being searched first in app stores.
Freemium apps are free to download, but place in-app restrictions on what a person can do or access with the free version. This model acts as a teaser, giving people access to the basic functions of an app in order to hook them into paying for additional features.
This includes encouraging users to buy new filters for their photos, extra lives or tools for their games, exclusive recipe content for cooking apps, or items for their virtual farm. Anything that requires the spending of real money to advance functionality in your app space. Remember, in order to get your users interested in the premium version of your app or the paid features, your free version must offer some engaging value at the basic level.
This pricing model is ideal if you want to reap the organic traffic brought in by free apps, but think you have enough features worth monetizing. For some categories of apps, such as games, you may need to plan for regular updates and additions to your available in-app purchases in order to keep users engaged long term.
Paid: One-Time Purchase
In this model, users pay a one-time fee to download your app. Setting a price for your app will depend on a number of factors, including the demographics and interests of your target market, and competitor price points. Interestingly enough, $0.99 is not the most popular price. In the Apple Store, 12% of apps are listed at $2.99, and 8% at $4.99. These outrank the 6% of apps charged at the minimum $0.99 rate.
One challenge of the one-time payment model is that users cannot try out your app before spending money on it — you’re essentially asking users to buy a product without testing it. This can slow downloads, unless your app falls under a niche market, doesn’t have much competition, or comes with heavyweight reviews. These kinds of paid apps are best for popular businesses that already have a large base of loyal customers.
Paid: Recurring Subscription
As opposed to charging users once to download your app, you may consider charging a recurring monthly or annual subscription. This works well for apps that produce fresh content on a regular basis (such as news apps) or those offering ongoing services (such as personal finance apps and streaming apps). One advantage of this model is that you may be able to charge users more in the long run than they’d be willing to pay in a one-time fee, generating a steady stream of revenue for your business. The subscription model also allows you to offer a free trial, which can lower the barrier to entry for new customers.
This model does require you to make additional decisions, such as whether you want to bill monthly or annually, (the answers depend heavily on your target market and how the app is used). You’ll need to plan for the subscription model early during development of your app, as the app will need to recognize the time interval set for your subscription, and be able to accommodate changes in user subscription status, expired subscriptions and more.
This pricing model is a blend of the paid and freemium models. These apps require an initial download cost — plus additional opportunities for in-app purchases. The paidmium model keeps developers on their toes, but should only be used if a company is certain it can continue providing valuable content to users on a consistent basis.
Choosing Your Pricing Model
There are three major questions you should consider when choosing a pricing model for your app:
- Who is my audience? Survey results show that those in the baby boomer generation will be less likely to pay for an app than younger consumers, who have fewer reservations about spending money on app downloads.
- What are my competitors doing? If you are the only paid app among a sea of freemium apps with similar offerings, your product will drown. Look at the most popular pricing model for your competition and price your app accordingly.
- iOS or Android? The Apple Store has more paid apps than the Google Play Store. You may consider different pricing schemes, depending on whether you’re selling in one or both stores.
Pricing for Internet of Things (IoT) Devices
If your app is for an IoT device, scrap the regular pricing model schemes. Because these apps offer highly-personalized, on-demand services for IoT devices, they naturally demand an initial payment from the user for the actual device. Many IoT gadgets come with a selection of apps already installed by the company that produced the device. Consider whether your app would be better sold to consumers, to be downloaded onto their various IoT devices, or to the makers of the IoT devices themselves.
IoT apps offer a range of services in one app (think of a home security app that can identify potential fires, intruders, and lock your front door if it has slipped your mind). While the app itself may be included for free, its provided services are not. As a result, IoT app companies are creating tiered payment models for customers, ranging from the most basic of services to higher paid tiers that offer more flexibility. This allows customers the freedom to choose their level of investment.
IoT apps can also be pay-as-you-go. For example, imagine having an air conditioning unit that’s connected to the IoT, and charges you only for your rate of usage. We already see insurance payment models in which users pay for car insurance per mile driven; the rise of IoT vehicles will make it possible to not only pay-per-mile to rent a car, but also pay-per-usage for any IoT app services you may use while driving that car. The pay-what-you-use approach gives users flexibility in how much they spend for the services your app offers.
Don’t Wait Until Release to Set a Price
It’s best to consider the pricing model and price point for your app before you go into the development stage. This way, your development team can design and produce features that fit what’s needed for your revenue model — whether that’s elements to accommodate advertising, encourage in-app purchases, or direct users to a wider network. During development and design, you can always rework the pricing model as you add or remove features from the app.
By the time you’re ready for release, you’ll not only have a well-built app but also a well-suited pricing model to go along with it, so as your app delights users it also provides you with appropriate revenue.
If you need help assessing a price point for your app, Barefoot Solutions offers a full-service team to guide you in the process, from strategy and marketing to design and development — let us help you bring your app to life.