Mobile App Pricing and Revenue Models

We’ve all heard stories of developers making millions of dollars from apps. However not all apps make money in the same way. And in fact, there are several very popular apps out there, that don’t make any money at all. How does it all work? How much should you charge for your app?

Pay to Download: This is how most people expect app developers to make money. You create an app, set a price and then people pay that price to download the app. So how much should you charge for your app?

  1. Race to the bottom. Obviously the lower the price of your app is, the more units you will sell. The more units you sell, the more likely it is that your app can rank in the charts. The higher your app ranks in the charts, the more units it can sell. The more units it sells, the more money you make. See how that works? As a result, the price that most people charge for their apps is $0.99. $0.99 is also a price that results in a lot of impulse buys – it’s only $0.99 so people are willing to try out your app, since even if they don’t like it, they are only out $0.99.
  2. Niche Markets: There are exceptions however. If your app is in a niche market that doesn’t have many competitors, then you may find that you get the same number of downloads, whether you price it at $0.99 or $4.99 – so you may want to experiment with pricing to see which price makes you the most money.

As an example, here is a snapshot of the top selling apps (unit sales) in the US on Apple’s app store.

Top Paid Apps

If you look at the pricing, you’ll notice that 16 of the top 20 best selling apps (80%) were priced at $0.99.

Free app: There are 4 ways to make money from free apps:

  1. Make your app free, and run ads on the bottom. Unfortunately though, unless your app has broad appeal and is used by hundreds of thousands of users, then it is hard to make significant money from this model, using traditional markets. If your app is targeted at a niche market however, you may be able to manually charge for ads.
  2. Create a lite version of your app that lets users try out your key features. If it’s a game for example, the free version could let you try out the first level or two. If they like your app, then you hope that they pay full price to upgrade to the paid version. This is also knows as the freemium model. You may even find that you can get away with charging a higher price for the paid version since the user is now sold on your app.
  3. Many apps are given away for free, in order to promote a brand, website or other product. A finance website might create a financial calculator app that is free, but that promotes their website brand. Or a car company might create a driving simulator app that is free, but that promotes theirs cars.
  4. In the last few years, in-app purchases have been extremely popular. They allow developers to charge users to unlock specific features and add-ons from within the app. So now an app can be free, or for a lower price, and users only have to pay for features they will use. How popular are in-app purchases? Take a look at the picture below:

Top Grossing Apps in the app store

Even though this is the “Top Grossing Apps” list, 17 of the top 20 apps here are free! The rest of their revenue comes from in-app purchases which provides them with even more revenue than standard paid app sales.

Which of these strategies fits best for your mobile app? Are there any additional add-ons that you can include as in-app purchases to increase your revenue further?

How much should I charge for my Product?

Sale priceYou have done your market research and found the demand. You have now created a product to solve this demand.  So what should you price it at?

With traditional products, you figured out your costs to make the product, then added a sufficient markup to come up with a price.

You could also factor in supply and demand.  If your supplies were lower than the demand, you could charge more for your product, and vice versa.

With digital products, such as an ebook, access to a website or a software download, cost isn’t an issue.  Neither is supply.  So what other factors can you consider?


You could take a look at what the competition is offering, and at what price they are selling it for.  If your product has less features, then sell it for less.  If your product has more features, then sell it for more.

Obviously there is more to it than that.  The competition’s price may have brand recognition included in the price.  So competing products without the same recognition have to price themselves lower, with the same features in order to compete.

There is a tablet war going on right now, with several companies selling their own tablets to compete with Apple’s iPad.  The initial batch of competing tablets had more features, and so were priced higher than the iPad.  Sales were disappointing, and they have since had to lower their prices to undercut the iPad, just to compete.

Customer Type:

Another angle to consider is what type of person you are trying to attract as your customer.  If you are competitive on price, then what types of customers will that attract?  I have experimented with pricing with my apps on the app store and have noticed that different prices attract different types of customers.

  • Free: The majority of customers on any of the mobile platforms have never purchased an app.  There is a huge selection of apps in the free category, so there is no need for this group to ever need to purchase an app with a price tag.  If you’re targeting this group, then you should have a good freemium strategy, or find other ways to benefit from them.
  • $0.99: This group loves bargains.  They look for apps that are on sale, and rarely purchase apps at full price.
  • $0.99-$4.99: This group will purchase apps that solve their need for the right price.
  • $5+: This group will purchase apps that solve their need, regardless of price.
  • Would you prefer to have 100 customers purchase your product at $1 each, or would you prefer 20 customers purchase your product at $5?  20 customers may require less support and maintenance than the 100 customers.  Then again those 100 customers might recommend your product to more people.  Which is more important to you?  Price accordingly.


At the end of the day, your product is worth what customers are willing to pay for it.  So your goal should be to show the value in it.  Things you could do to show value include:

  • Free trial.  Get your customer using your product, so that when the trial ends, they can’t live without it.  This strategy works especially well with products where a user has accumulated data, that they don’t want to lose when the trial ends.  Customers will pay more for products they are familiar with and have satisfactorily used before.
  • Feature Chart: Summarize the features your product has, versus competing products.  More checkmarks on your side should suggest more value for your product.
  • Segmented Products: If you’re targeting different customer types, then you can have separate products for each of them.  For example you could have a cheaper product for individuals, a more expensive one for small businesses and the most expensive one for large businesses that can afford it.
  • Choice Products: Another approach is to create a very expensive product, whose main purpose is to create value for the main product you want to promote.  This works with the segmented approach above.  Very few customers may purchase your most expensive product, but having it there creates additional value for the cheaper ones.
  • Bulk Price: People shop at Costco to get bulk pricing.  How can this apply to your business?  If you’re selling subscriptions, you can offer long term subscriptions for a cheaper per month cost.
  • Add-ons: You can also break down the price of a product into components that can be purchased separately.  This way customers can purchase the exact features they want.  I use this strategy in my Contact Manager app.  Add-ons are also easier sells since the customer is already sold on your product at that point.

Whatever pricing strategy you end up using, keep it simple for your customer.  Your customer already has to make a decision on whether to purchase your product or not.  Don’t also give them a decision of what product to buy as well.

How to Increase Sales and Satisfaction Through Add-Ons

© m.gifford

The freemium model introduces users to your content.  Your goal then is to offer something worth purchasing beyond the free content.  However don’t stop there.  Real fans will want more beyond that.  Make sure you have something to keep offering them.

My Chinese Learn Online (CLO) website attracts users with its free podcasts.  If they like what they hear, they can purchase a subscription.  Users continue the subscription in order to progress from basic to higher level content.

My CLO iPhone app is available for free.  If users like the content, they can purchase additional lessons.  If they like those, then more lessons are available for purchase beyond that.

My STL Contacts Manager app has a free version for users to try out.  If they are happy with it, they can purchase the full version.  If they are happy with that, then additional add-ons are also available for purchase.  My long term goal is to continue offering additional products beyond the app to satisfy the demand from current users.

If you have a choice between creating new products for a new market, or creating additional products for your existing market, choose the latter option first.

Your job should be for your products to continue fulfilling demand from the same audience.  This could be done by offering:

  1. Higher levels of difficulty (eg. language learning)
  2. Additional feature sets (eg.  iPhone app add-ons).
  3. Additional stories that continue a plotline (eg. sequels to books)
  4. Other products of the same genre (eg. line of cookware, fashion,
  5. Alternate ways to consume your content (eg. ebooks, mobile apps)

These add-on sales are a much easier sell since you are selling them to a group who is already satisfied with your product and actually wants to purchase more from you.  They would rather buy it from you.  But if you don’t offer it, then they will be forced to look elsewhere.  Don’t make them do that.

Why you should Love Freeloaders

Couch Potato © by Furryscaly

Freeloaders are common in most businesses.  They are the ones who collect all the freebie samples you give out, but yet never return to buy the full product.  They are the ones who go into bookstores and spend all day reading without buying.  They attend free seminars but never purchase anything there either.  They consume all the content you provide them, but never upgrade to a paid membership.  They download free apps, but never upgrade to the full ones.

What can you do about this?

We live in a society of free.  Why pay for things when there is so much available for free already?  News can be read online for free.  Blogs can be read for free.  Podcasts can be downloaded for free.  Wikipedia can be read for free.  So many apps are free.  Can you blame people for wanting things from you for free?

The trick is to change your business model to embrace freeloaders.  What can you do to benefit from them?  By emphasizing the following aspects of your business, you can actually get them to increase your business revenue.

1. Social Media

Encourage your users to share your links on twitter, like you on Facebook and join your fan page.  These are all activities that don’t cost anything, but end up promoting your product to other potential paying members.

2. Ratings and Reviews

Ratings and reviews of your products can be crucial for generating future sales.  From time to time, I’ve put apps on sale for free to get more downloads, which lead to more ratings and reviews.  Obviously this strategy can backfire if your product isn’t worthy of a good review.

3. Recommend to a Friend

Make it easy for users to recommend your products to other friends of theirs.  This could be through social media links, or through email templates with your product link already in them.

4. Provide feedback

If you are receiving negative reviews on your product, it is in your interest to find out why.  Respond to support emails promptly.  Even after solving any issues you may have, maintain your relationship with the user.  If they took the time to point out an issue to you, they may be willing to provide feedback on other aspects of your product.  I’ve used this strategy several times with my mobile apps.

Even though you may not directly benefit from freeloaders monetarily, it is in your interest to continue publishing free content to them through freemium type models.  Their engagement in your product is what will introduce it to the real paying customers who will be following behind.

The Power of Free – the Freemium Business Model

FreemiumHow do you build a business by giving content away for free?  I wondered this myself when developing my initial sales strategy for Chinese Learn Online.  Here were the issues I had to deal with:

  1. I had no marketing budget.
  2. I had no brand recognition, and thus no credibility with my customers.

My solution? Give my main product away for free!  Then offer an upsell to a paid product.  (This is also known as a freemium strategy).

This solved both issues above.

  1. By making the product free, it attracted a lot of users, who then recommended it to other users.
  2. Using the product sold users on its quality, thus building credibility.

Obviously this freemium strategy only works if you have a good product to begin with.  One that people would recommend to others.

The next issue was what to offer in the upsell.  I had to make sure that whatever it was, the core product had to remain free and completely usable without purchasing the upsell.  Some options here include:

  1. Supplement the functionality of the product.
  2. Provide a more convenient delivery system of the free product.

I used both options in my case.  I sold PDF transcripts of the free audio (the audio was still completely usable without the transcripts).  I also sold a bulk download of the free lesson packages.  This let a user download all lessons of a set together, rather than having to download them for free.

There are many famous examples of the freemium model at work, with people paying for items that can be had in other forms for free.  Many authors have had huge sales of books that are also available in free PDF form.  In this case, users are willing to pay for the physical form over the free digital version.

Can the freemium model be used successfully in your business?

For more ideas based around freemium and other free models, read the excellent book Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing by Chris Anderson.