Winning on the Marketplace: Finding the pricing sweet spot
Ah, the ultimate question for developers trying to maximize their profits on the Marketplace: “What should I charge for my app?” The question is simple. The answer is always far from simple. As a developer who spent intense and likely long hours making an idea come to life in the form of a Windows Phone app, honing it and tweaking it and then tweaking it once more, this decision is an agonizing one. Fear, uncertainty and doubt creep into your head… What if I overprice it? Even worse, what if I underprice it? How many apps will I have to sell/distribute to break even? Every single app situation is unique; there isn’t any single silver bullet that can solve your pricing questions. This post is meant to provide you with a set of tools to help you come to an answer to that incredibly important question.
$5.99 for that? Are they crazy? How many times have you found an app you wanted to purchase but balked at the price? Probably quite a few times. And here’s an even more interesting question: After balking at that price the developer is charging for that app you want, how often have you bought it anyway (even if you had to walk away first and then come back later to purchase it)? It’s a good question and says a lot about the psyche of the typical consumer with app shopping on the mind.
The most successful entrepreneurs selling apps and games on application Marketplaces (it really doesn’t matter which mobile platform we’re talking about here; Windows Phone, iOS, Android, Blackberry – it’s all the same for this context) have something in common. They know their market, their target customer and the purchasing behaviour of their customer. In other words, they intrinsically know the true value of their app to prospective purchasers.
So how do these successful app publishers know what price to charge their app? Well, frankly they do their homework. Think of it this way: if you were in the market to purchase a fast food franchise, I’m guessing you wouldn’t just hand over a suitcase full of cash to the franchisor and say “Here, now gimme my franchise!”. Of course you would research it first! Things like how much does the franchisor charge as a startup fee? What are the recurring franchisor fees? Are there minimum revenue targets required to keep the franchise? Is there an ideal (or at least good) location for my franchise? Is my location going to attract the clientele I am targeting? etc., etc., etc.
It’s essentially the same thing with pricing an app. Doing your homework (and not cheating or copying, mind you) goes a long way to driving the success of your app. For example:
- Understand the market you are addressing. What would you define as the typical customer for your app? How much buying power does that typical customer have? How many of these typical customers are in a given market?
- Who is my competition? Understanding the competition you will be facing (past, present and most importantly, the future – more on that below) is very important. As you’ll see later, your price point doesn’t have to be similar or less than the competition, but you should have confidence in the price point you end up on compared to your competitors’ price.
- Does my app have differentiating features compared to the competition? If you have implemented a feature that clearly differentiates the experience or value of your app compared to your competition, then you have an opportunity to charge more (but note this can be a dangerous line of thinking – be reasonable and self-critical about the value of these differentiated features).
- What volume of downloads are you expecting? Depending on how many instances of your app you expect to sell, it may be a competitive advantage for you to use this knowledge to force the price of your app up or down.
- How much did it cost you to build your app? Sounds like a simple question but there are a lot of nuances to it. The cost to build the app includes hardware and software, your time (and that of anyone you recruit to help you), real estate and office expenses and other miscellaneous expenses (such as taking out an investor to lunch, etc.) among a myriad of other expenses.
- What are the carrying costs for your app? Just because you published your app doesn’t mean your actually done. The best apps don’t rest on their laurels. Bug fixes, feature updates and general customer service (like any software business out there) are part of the bargain. You need to spend some time here to determine realistically how much the app is going to cost to maintain and factor that into your pricing decision as well.
The equation above is about as obvious as it gets. But your revenue goals may vary greatly from other publishers’ revenue goals. Are you looking to break even? Make a profit? Make a monster profit? Every decision comes at a price so be aware of the cost of your goals.
Free, Freemium and Paid
Free is free. As in beer. Meaning you build the app, you publish the app and make it available to anyone and everyone with a Windows Phone for free with no real strings attached. In this model, price = 0, meaning your revenue is also 0. There are lots of reasons why you would want to build free apps, but I’ll leave it to you to think of some of them.
Freemium is free, with a catch. The catch could be implemented in a number of ways. The most obvious way is advertisement-supported. That means that you are giving away your app for free to anyone on the Windows Phone Marketplace who wants it, but you are generating your revenue from ads that exist on the app. There are tons of apps in the Marketplace that have adopted this model. The catch to you as a publisher, however, is that the revenue stream you get from this model will vary. The revenue you get from an app in this model depends not only on the number of downloads, but also how often the users will open the app. If users download the app and open it once, your revenue will be small. If your app is popular and often used, however, the app may actually far exceed the revenue you would get from a paid app. For more info on how freemium can work, there’s a really great blog post by the author of the Krashlander game that you might want to check out about how his app did.
Paid apps are exactly what you would expect. Users download your app and (eventually) pay for it and continue using it. If you price your app or game right, this model is a great one as you can almost forecast the revenue you get from your app in the Marketplace based on download trends and run rates. If you use the paid app model, however, please be aware of a few things:
- Include a trial (more on trials in your app here). A great feature of the Windows Phone app platform is that it provides a great facility for allowing you to put trials on your paid apps easily. This will allow you to showcase your app without risk to the user, which has shown so far to produce seven times the revenue (on average) that you will gain for your app compared to an app with no trial.
- Use the Freemium model in your trial. There is nothing stopping you from adding advertisements into your trial mode. In fact, I strongly encourage it. That way, you still get revenue even from your trial app. Who doesn’t like free money?
- Spend time figuring out the right price . As discussed above, there is an art and science to pricing your app. Make sure you research your potential user base and geographies to determine appropriate price ranges. Be careful not to overprice or underprice your app as you will be leaving money on the table if you do.
Parting Shots: Tips on Pricing your App Right
As you can see, pricing your app correctly requires work on your end. Do your homework and it will likely pay off in spades for you. That said, you can still have a number of tricks up your sleeve to entice users to buy your app. I discuss some of them now:
- Do not underprice your app. If you underprice your app, you leave money on the table for sure, but you also make it very difficult to hike the price of your app later.
- Experiment with different price points in similar geographies. If you are rolling out your app in a controlled way (i.e.: not publishing in every market right off the bat), then you can test the waters for your app’s pricing in targeted geographies that are similar to see what the purchasing behaviour ends up being. That way you can make corrections as you enter new markets.
- Start at the upper range of pricing. It’s ok to be optimistic in your pricing as long as you’re realistic. Understand the value of your app and after you do your research, follow your intuition and price it out even if you feel it might be a little high at first. As an opposite rule to the first point above, it’s a lot easier to adjust your price downward.
- Use app sales to your advantage. Offer your app at a discount for limited times. This will allow you to generate interest for your app and create buzz for it. If someone sees your app is on sale for a limited time, that will make him/her think of buying it. During the sale you’ll get less revenue per purchase but you may make up the difference and then some in volume.
Good luck! If you have other pricing strategies that you have found worked, feel free to comment!
This post was the third in a series of five posts on strategies for being successful on the Windows Phone Marketplace. The first post (publishing in the right geographies) is here. The second post (trial mode and the art of the upsell) is here. The fourth post (differentiation using Windows Phone-specific features like Live Tiles and Push Notifications) and fifth post (how to get promoted in the Windows Phone Marketplace) are upcoming on this blog.