Product pricing is one of the most important decisions for any business, but it can also be one of the most stressful. How do you walk the delicate line between maximizing sales and pricing your product competitively?
In this post, we will cover the factors that are specific to pricing apps and what you need to do to price your app correctly. It will take some work, but luckily it is probably easier than you think, especially because you can always test your pricing.
Know Your Customer
Having a profile of your ideal customer is the key to any successful business. This knowledge will not only help with pricing your app, but with your marketing and app design.
Don’t know who your customers are? Ask them. You can put a survey link into your app or ask your users to register for your app with an email address and email them a survey created with SurveyMonkey or Google Docs.
Remember to keep the survey short, limit it to 3-5 of the most important questions that you want to find out about them. The fewer number of questions you have, the more likely they will fill it out. You want to find out things like: age group, income (ideally asked indirectly by asking about profession), app buying habits and country of residence.
Hopefully you also have a Facebook Page for your app. You can view the demographic information of the people who like your Page in the Insights section. Although you cannot get this information about other Facebook Pages, you can also check out the Pages of the successful apps in your space and get a feel for the type of people who use those apps.
What does this have to do with pricing? Having this knowledge can help you figure out how much your target customer can afford to pay and which pricing model might be most effective. Pricing game apps should be different from pricing social network apps, and both are different from pricing medical apps.
Know Your Competition
Now you want to check out what successful app developers in your space are doing. This will give you more clues as to how to price your apps. Download their apps and review the overall quality, how easy they are to use, what is wrong with them and figure out their additional revenue sources, such as in-app purchases or advertising revenue. What is working best for them? Knowing the strengths and weaknesses of your competitors will help you build a better app and price it competitively for success.
However, don’t be afraid to be different either. Using a different pricing model might also help you stand out from the crowd and make more sales.
What Is Your Business Model?
The up front cost of your app is only part of the picture. There are different ways to price your app depending if it is more profitable to make your money up front, with in-app purchases, with ads or with and outside revenue source.
In general, free apps with in-app purchases usually gross more than paid apps over the lifetime of their users. But you will have to test to see how different pricing models work for you. The common models are:
- Free with ads
- Free with ads, paid upgrade with no ads
- Free with in-app purchases (freemium)
- Paid with no ads or in-app purchases
Another thing to consider is if you are using the app to generate leads for an existing business or if it will be a standalone revenue source. If it is part of a larger marketing plan, you may want to make it totally free with no ads or in-app purchases if it will improve the user experience and generate more revenue outside the app. Bank apps are a good example – if chase charged for their mobile app or put in ads in their app users would be very unhappy.
Also, consider if you can get some investor money to pay for Your expenses while you build your user base. This can be a great way to focus on building a killer app without worrying about generating immediate revenue when you first start out.
iPhone vs iPad
Take a look at how the successful app developers in your space price iPhone and iPad apps. Are they able to charge a premium for iPad apps or are they generally priced the same? This might give you a clue as to what your target market is willing to pay.
Another question that you want to ask is: Does your iPad app require significantly more development, maintenance and support costs than your iPhone app? If so, you probably want to price it higher to cover that cost.
Remember To Factor In All Of Your Costs
This might be obvious to you, but some people can overlook the true costs involved in maintaining and selling their app. As you know, the App Store takes 30% of your revenue off the top. But are there other costs that you may have missed?
Are you paying an employee to manage and track payments? Is there a lot of programming maintenance? After you factor in all of the costs, does the revenue from your app create enough income for the project to be worthwhile? If not, you should think about experimenting with your pricing to create the income you are looking for.
Pricing Is Not Permanent
You might think that once you set a price, you are stuck with it forever. Not true. You can be strategic about how you change your pricing.
You can always change the price of your app but it is usually easier to start at a higher price and discount it, than to start low and raise it. However, if your testing shows that your app is under priced, do not be afraid to start charging more.
Holding a sale for a fixed period of time can also be a great way to test lower pricing. The sale price might even be free, to generate some buzz for your app and to test if you would do better with one of the free pricing models.
Regardless of what you do, be sure to test your pricing for a long enough period of time for your results to be significant. There may be a spike in sales right after the change, but the baseline numbers after that may be worse than before. Let the sales numbers settle down before coming to any conclusions about a price change.
The Clone Test
This will not work for everyone, but if you are able to easily create a very similar app, you can use the clone as a way to test different pricing and revenue models. For example, let’s say that you have a game similar to Doodle Jump called SuperRocket.
Maybe you could change the main character, the name of the game and the start screen but keep the rest of the game almost the same. You might call it RocketQuest. Or you could create a different version of SuperRocket called SuperRocket - Mars Edition. Then instead of charging $0.99 for it, give it away for free without ads and have in-app purchases to unlock higher levels.
This will allow you to test the two different pricing models side-by-side to see which one generates more revenue. Then you can always switch both games to the better pricing model or continue to test different models with RocketQuest and only use the best performing model on SuperRocket.
We hope that this post has given you the tools you need to take some of the stress out of pricing your apps. Ultimately, it comes down to research and testing.
You need to have demographic information about your market, but that will only take you so far. After that, do not be afraid to test different pricing models. If you are starting out, pick a price that you think would be best and just get your app published. Having hard data from live testing is always worth more than just speculation.
What are some lessons that you have learned about app pricing? Leave a comment below and let us know if there is anything that we missed.