Pricing Your Mobile App
Pricing is an important part of strategy for any successful business. No matter if you are just starting out with app development, or you’ve been in business for a long time, you always think about your pricing. The models, metrics and many other variables that build your pricing are going to have a direct impact on your prospective client’s decision to buy or not. If you are struggling with this, you are not alone.
Users usually pay for the apps they use with 2 currencies:
Users download an app, the app generates data, the app developer then can leverage that data and sell it to 3rd parties for money.
Many apps use both mechanisms to generate revenue.
Pricing Models for Paid Mobile Apps
For the paid apps, there are two general pricing models. One that is used the most often is the Flat Fee Model.
In the Flat Fee Model, you pay to purchase the app once and then you own it forever. You can use it as much as you want and you usually get some updates for free, but major updates are not included. This is the case for many games you might have on your phone. The ones you only paid 99c for.
The alternative is the Recurring Subscription Model. This model is less used for mobile apps so far, although more and more companies have started using it for their pricing.
In this post, I’m going to give you a few reasons why you should consider using the Recurring Subscription Model for your app pricing strategy
1. More value for your customers = more value for you.
Unlike the flat fee model, in which you only care about customers until they purchase your app, the recurring subscription model means that the more value you generate for your customers means more value for you. This model basically incentivizes the companies to provide ongoing value to users. So if you build a great app that customers will use on an ongoing basis, they get more value and they will pay you more money for it.
Let’s look at a comparison between the two models. In this case you have two imaginary options: 1- sell your app for $10 flat fee. 2- Sell your app for 99c monthly subscription fee. Let’s see how the two different options look over time.
As you can see, if your app is used by your users for more than 10 months you will generate more revenue in the Recurring Subscription Model than the Flat Fee Model. The fact that your revenue is tightly connected to users continuing to use your app, will not only have the added benefit of building trust among your client base, it will make you work harder to keep them happy and deliver a kick ass app that people will use and love for years.
Business is about service, not fly by night sales and you can show your belief in that when you use subscription fee model.
2. Lower price = less risky for clients to buy = easier for you to sell
Look at the example we had before. Which one do you think is easier to sell: an app for $10 or an app for 99c? You will be much more likely to convince prospective customers to buy your 99c app than a $10 app. Your users take less risk, and know that if they don’t find your app useful they can cancel any time. They can convince themselves that they will only lose 99c if your app is crappy, not lose much at all.
3. Customers are used to it.
You app customers are used to paying for products and services with subscriptions. They likely have Netflix and maybe many others like Creative Suite, Evernote, Dropbox, etc. The subscription fee model is no longer a new concept, so don’t worry about them not trusting you if you sell with subscription fees. They actually will look at you as a cool new app, cause all the other cool apps they use are using the Recurring Subscription Model. It’s good to be associated with cool guys!
4. Customer Lifetime Value is key.
The issue with flat-fee system is that you get paid only once. Your Customer Lifetime Value (CLV) is equal to your app’s price tag x 1, and in today’s economy that’s bad math!
You can increase your CLV with a recurring subscription model tremendously and that’s very important. We are going to cover the importance of Customer Lifetime Value in another blog post soon, but CLV is a very often used for evaluations of products, companies and businesses in general. They will inform your marketing strategies and revenue model. The higher CLV means you can invest more in selling your app.
Some people confuse the recurring subscription model with usage based model. Although both are good for increasing the CLV, the usage based model has the disadvantage of being unpredictable. What people hate more than paying a lot of money is not knowing how much they are going to pay. Monthly subscription models don’t have the problem of unpredictability. Your customers know exactly how much they will pay every month for the sake of using your app. No surprises.