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.
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.