Pricing Your App: Trends & Strategy
While on the surface pricing a product or service may seem like a relatively easy task, it is one of the most complicated decisions that can be made about a product, or in this case an app. There are professionals who spend their entire careers dedicated to the science and psychology of pricing. It comes down to balancing the cost of the item, brand perception, customer needs, the competitive landscape… and the list goes on.
App Pricing Models
Since the launch of the App Store and the subsequent launch of in-app purchases and in-app ads, app pricing models have changed dramatically. Today, we have four primary pricing models in play:
- Paid model: As simple as it sounds – pay once for the app, download it and use it.
While likely the most straightforward model, it has significantly decreased in popularity over the years. Why? A study of iOS apps that used Flurry saw a significant increase of free apps over a four-year period, concluding that consumers are willing to accept in-app advertising in exchange for free content.
- Free model: The app is completely free to download in the App Store with the main source of income being in-app advertising (IAPs). However, not all apps are developed simply to make money. Often free apps are created by companies that are creating a service or product extension of their main offering. Apps are offered for free because they serve as a tool for customer retention, customer service, communication, etc.
- Freemium model: The app itself is free to download from the App Store, but it will often have limited functionality or reduced offering.
Back in 2009 Apple announced the coming ability to create apps with in-app purchases, allowing developers to charge for everything from extra lives to more features in productivity applications. To increase value, customers can pay money within the app to open up more features, speed up game play, pay for a subscription or pay to remove ads, among others.
- Paymium model: A mixture of the freemium and paid models where users pay to download the app but also have the option to unlock more features within the app by paying additional money.
Choosing your pricing model
When it comes to determining the pricing model for your app, it’s important to think through which model makes the most sense for all stakeholders. It’s essential to be seen as a good value purchase by the consumer while ensuring the ROI is high enough to continue to invest in future development and support.
Before you get started, consider the following:
- What is the purpose the app? Are you trying to amass a large user base, or is your goal to provide value to a smaller, niche market?
- What is the cost of creating your app? How will you make a profit or fulfill your goals if you’re not expecting to monetize it?
- What are your competitors doing? Are their available substitutes for free or a lower price point?
When it comes to acquiring a large user base, free or freemium models generally work best because you’ve removed one barrier to entry.
If you’re considering a freemium model, be mindful that you still need to provide your customers with value. Freemium apps, can deter potential paying customers as opposed to attract them if not done well. There is a general feeling in the industry and consumer communities that in-app purchases have been abused and damaged some apps, and Apple now highlights games without in-app purchases in the App Store.
A great example of an app that does freemium well is Hours Tracker. Users can download and use the app for free with limitations on the amount of data that can be stored, etc. As a user needs more storage, data backup, or line items, they can pay additional one time or subscription fees. By offering the base model for free, Hours Tracker can entice new users by removing a barrier of entry.
Paid or paymium models work best when the value of the app comes from the content of the app itself, whether it removes a pain point or provides entertainment. A great example of a straightforward paid app is 2014 Mac Apple Design Award winner Day One (Journal/Notes/Diary) App. Consumers receive clear benefits from using this app, and without having different tiers of service or features Day One charges a flat one-time fee.
Pricing is not permanent
As I mentioned, product pricing is difficult so remember that it’s not permanent. Do your research upfront and approach the market with a pricing strategy but know that your pricing model can change. Take into consideration your product roadmap and how new features or product releases will affect what you already have in place.
Generally speaking, it’s easier to start at a higher price and discount it or make it free than it is to raise a price. However, if testing and feedback from your customer base says otherwise, don’t be afraid to go against the norm. When looking to test if a lower price point may increase the popularity of your app, consider promoting a sale for a fixed period of time, ensuring you’re collecting enough data to make a smart decision.