App pricing strategy

Written by David Frampton @ 6:14 am, January 5, 2011

I’ve read a lot of opinions on how to price apps from iOS and Mac developers over the past few years that make me cringe. Particularly lately with the Mac App Store launching, many developers have really struggled with how to price their apps, and some are making the wrong choices.

I’ve seen developers state that they will charge 1.4x their shareware price, to make up for Apple’s 30% cut. I’ve seen developers say that they will price based on the time spent, or the complexity of the app. Others have said they will price it at what they ‘feel it is worth’ or what they think customers should pay.

All of these ideas are wrong.

For any given time period there is a single price point that will make the most money. There is also a single price point that will get the most downloads. And neither of these can be figured out by any of the above reasoning. In fact they can’t be figured out at all, it’s a best guess situation. But that best guess can be a hell of a lot better than ‘add 40% to the shareware price’.

The first thing a developer should do when pricing an app is to decide on what their goal is. Whether they want to make the most money, or grow the largest customer base, or probably somewhere in-between.1

The ideal price point for any app is going to be somewhere between the ‘most money’ price and the ‘most customers’ price, dependent on how important a large customer base is. It could even lie higher than the ‘most money’ point, to drive customers to another product. The ‘most customers’ price is easy. Without the developer actually giving money to the customer, that price is free. The ‘most money’ price is the tricky bit. This price is something of a bell curve, it is unique to every app, and varies continuously.

To clarify this ‘most money’ price point concept, at 99c, developers are selling their apps at the cheapest price possible to make money – without going freemium which I’ll ignore here for simplicity. Most apps will make less money here than at higher prices most of the time. Despite what you might read, 99c is not the average ‘most money’ price point. At $1.99 you might expect 75 downloads if you were getting 100 at 99c. To continue pulling numbers out of the air, at $2.99 you might get 40 and at $4.99 you might get 10. This is basic economics, and in this particular case means the ‘most money’ price point is $1.99.

I won’t go into exactly where this price lies for any given app. It requires experimentation, and research into the potential customer base and competition. It is also heavily influenced by the app type, any current marketing pushes, and many other external forces.

What is really important here, and really what is the entire point of this post, is that this elusive price point that makes the most money bears no relation to so many of the pricing strategies I have seen. The amount of time the developer has spent, other development costs, Apple’s percentage cut, emotional investment, or ideological concerns do not in any way affect the price point at which an app will make the most money.

Developers will continue to price higher because they think app store prices should be higher, or because they spent 6 months on the damn thing so it is worth $20, but these developers are leaving money on the table. Whether they are actually achieving anything or proving anything by doing so is up for debate, but they are certainly not making the most money they could out of their work.

Price is hugely influential in whether a customer buys an app or not, and is one of the most powerful tools that developers have to position their apps and drive sales. It is incredibly important to get right. Throwing away that opportunity by carelessly pricing on emotional grounds is a huge waste, and can be the difference between a failure and a huge success.


  1. Developers also have to decide how generous (or not) they are going to be. In general there can be more money to be made short term by being evil, but this will eat away at future potential, as customers remember the way they were treated. When Chopper 2 reached the #10 app at $2.99 there was a huge temptation to drop to 99c, get higher in the charts and stay there longer. But I didn’t, as this would piss off everyone who had paid $2.99 already at the ‘launch sale’ price. It probably cost me financially in the short term, but it didn’t destroy my customers’ trust.


Update: You may also be interested in this post by @MarkusN http://pocketcyclone.com/2011/01/04/mac-app-store-sneak-peak

It describes the pricing strategies and expectations for the Mac App Store launch of myself and other similar minded developers.









8 Comments

  1. Markusn

    Great post!
    With the Mac App Store, we will have classic shareware entering the mix. I found that I really had to throw a lot of my experience with shareware/software pricing over board when entering the world of centralized app stores. With shareware it is almost impossible to trigger spontaneous purchases. And charts were typically a concept not available for most of us, especially for vertical software. Both concepts play a huge role in app store sales though, so devs need to factor that in.
    As you said, experimenting carefully (and knowledgable) is key. And I’d like to strengthen your other statement even more, this is not just about leaving money on the table, it’s about potentially leaving a LOT of money on the table. Or in a positive scenario: taking it :)

    Comment by Markusn — January 5, 2011 @ 6:51 am


  2. Bruce Hoult

    You’re right that how much time you put into it has nothing at all to do with what it will sell for (be valued by a customer).

    But I think that you should think about this before you start on an app.

    How much will a customer pay for this app and how many customers can you (really conservatively) expect at that price? That gives you the total likely income for the product. Now: how much time is it worth spending for that income? Is it even worth developing the app at all?

    If your goal is to just not have to have a job then I think it’s reasonable to aim for, say, US$10k a month of work. (you might think more, you might think less, doesn’t matter, it’s just an example)

    If you think you’ve got a likely market of at least 1000 copies then you can afford to put in a month of work for each $10 it’ll sell for. That’s a tough ask, but 1000 copies is obviously a highly specialized market. Doctors, maybe, or real-estate agents.

    If you think you’ve got a likely market of at least 10,000 copies then you can afford to put in a month of work for each $1 it’ll sell for. That’s maybe the kind of numbers you can assume for a participatory sport: pilots, golfers, fishermen etc. Maybe you’ll hit the jackpot and sell ten times more, but if you’ll sell at least this number then it’s at least worth the time you put in.

    If you think you’ve got a likely market of at least 100,000 copies then you can afford to put in a month of work for each 10c it’ll sell for. This is the market Dave is in. Casual gamers. He spent 18 months on Chopper2. If he sells 100,000 copies at $2 each then he’s made a pretty OK salary for that time. If he sells 2 or 3 times that amount then … bonus!

    If you don’t think price * number sold / months of work will be at least $10k then don’t even bother writing it.

    That’s my 10c from someone who doesn’t have anything in the AppStore but is looking on enviously. I’m sure Dave will rip it to shreds :-)

    Comment by Bruce Hoult — January 5, 2011 @ 10:55 am


  3. Simon Edis

    Thanks Dave, this article has clarified our pricing strategy going forward. As you say, dropping your price to $0.99 early on will piss off the early-birds that purchased at a higher launch price. So, if you need to experiment with pricing to find the ’sweet spot’ of maximum revenue then you are better off going with a $0.99 launch price. That way you can maximise your downloads – increasing your chance of grabbing a Top 100 chart position. Then, when the daily downloads start to trend down, experiment with a price increase. This way you will actually be rewarding the people who bought it early at the $0.99 price, not angering them.

    Comment by Simon Edis — January 5, 2011 @ 11:38 am


  4. Andy

    Pity you missed the obvious way to make more money. Make it available in all app stores in all countries. Honestly apple is being stupid about this by restricting the apps present in app stores in various countries. All it does is irritate and infuriate customers who dont live in the USA. They control the licensing of apps in the store so there is no reason why there needs to be different stores.

    Yesterday I read a review of Chopper 2 and thought it sounded like a great game. Even better it was from an indie developer (like myself). So I jump on the newly downloaded Mac app store. Strange Chopper 2 is not there. Then a notice a little flag at the bottom. I change it to the USA and now I can find chopper 2. Good at last I can purchase it I think. No such luck !! I can’t purchase it without a US itunes account which can only be got with a US credit card. Cue for me to put a fist through my monitor at the stupidity and frustration of it.

    I have no idea if apple charges more to list you in more than one store, but if they do its crazy and purposeless.

    Comment by Andy — January 9, 2011 @ 2:13 pm


  5. David Frampton

    Your anger is misdirected. If I could sell in every region I would, but there is no games category in your region (South Africa?) because of the stupid content rating laws that your region has.

    I have no control over this, and to an extent, neither does Apple. You should lobby the government in your region to make a law change that stops them from having control over what content you are allowed to access.

    Comment by David Frampton — January 9, 2011 @ 6:49 pm


  6. Andy

    Thanks David for your response.

    I had searched apple’s documentation for some mention of the restriction but didn’t realise they didn’t have a category for games. Seems there are a number of countries they have adopted this approach to including Ireland. I have seen quite a lot of games in the iOS SA app store but now I realise that they must have put themselves in another category to avoid the restriction. I am surprised apple allowed that.

    Actually the ball is solely in apple’s court and nobody elses. Apple doesn’t operate in South Africa and is not bound buy its legislation. The app store is operated in America, I pay in dollars and for tax purposes its a foreign transaction. The segregation apple creates between countries is completely artificial, adds an unnecessary layer of complexity and really harms their distribution model, not to mention their image.

    I have never seen any other company, such as Valve bind themselves to the laws of countries in which they dont operate, and where their distribution model is online.

    If apple were really interested in compliance with local laws, section 22 of the Film and Publications Act provides for a simple application for a blanket exemption by distributors of films and games. This is given to a distributor who does their own classification or content restrictions. The Act is actually very limited in its scope and is intended only to classify material aimed at children which is potentially harmful.

    Good luck and I hope you sell a ton in the app store anyway.

    Comment by Andy — January 10, 2011 @ 6:40 am


  7. Andy

    I did a quick comparison between the NZ Films, Videos, and Publications Classification Act 1993 No 94 and the SA Films and Publications Act 1996 No 65 and they have almost the exact same requirements for content rating, mandatory classification and labeling and exemption requirements. They are in fact so similar in tenor and construction, it wouldn’t surprise me if the SA legislative drafters used the NZ Act as a model.

    The app store restrictions are solely apple’s fault and they need to sort them out.

    Comment by Andy — January 10, 2011 @ 7:32 am


  8. Dipanjan

    When I bought it on Mac App Store for my MBP, I paid $0.99. Then later I bought it for my iPhone, which I thought would be free as its a universal app. But to my surprise, I had to pay $0.99 again for that download. This is not expected.

    Comment by Dipanjan — January 17, 2011 @ 6:43 am


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