Profitability of Mobile App Development

One of the most common questions, when it comes to app development, is “how much does it cost to make an app?” and “how do free apps make money?” With some of the more popular apps grossing millions of dollars in sales and the mobile first strategy of all companies, it seems a logical means for making some serious dollars. This is especially true when top-grossing apps such as Clash of Clans, Spotify Music and HBO Now are all free to download. It’s important to remember that most users expect their apps to be free. So, how much does it cost and how can you recoup your expenses?

Before you get into pricing

It’s difficult to give a definitive answer to this natural question. The reason is there are so many different variables. Here are a few things you must figure out first:

  • Your priorities: Would you like it to be good and fast? Good and cheap? Fast and cheap?
  • Who will develop your app: Do you have the skills to develop an app, or do you have to hire someone?

Your budget: Developing an app can range between $5,000 to $500,000 and may take 12-20 weeks.

top-grossing-games

How to determine the cost

You have many options for building an app, depending on your budget and time constraints. We list your choices below:

  1. Hire a mobile app development agency. Mobile app development companies are the most worry-free route to take. You’ll know you are working with professionals who build apps on a daily basis, for a wide variety of clients. You get to see real products and true testimonials. For some, this is the only route to take because it may be the surest option to make your app idea go live. If you look at the most polished apps at the top of the charts of the App store, you’ll notice they are usually built by a mobile app agency.
  1. Hire a freelancer. The gig market is growing, which means you have many developers who will work for around $50/hour. It helps to utilize a site where you can see a freelancer’s portfolio and customer ratings. In this situation, you will be working directly with the freelancer. If you’re not familiar with app development, you may not understand some of the processes involved. In addition, some freelancers may not complete the job or do so and you find your app is down in a matter of months. In addition, your app may not turn out exactly as you imagined. On the other hand, you might use this avenue to save money and end up with the app of your dreams.
  1. Purchase an app starter kit. When an app gets really popular, there are usually droves of clones. In many cases, someone will have created a clone of the popular app which you can purchase for around $50-$150 per license. You can then hire a freelancer to customize it. The only caveat is you’re not the only one buying the clone code.
  1. Take a course and make it yourself. This will save you money, but not time. You can take a coding course for around $99. But, it may take you months before you can create anything worth submitting to the app store.
  1. Try app maker software. Prices for this type of service can vary from $10 a month to a one-time cost of around $5,000. There are free app makers, but they don’t offer many features.

Think of it this way, the cost of developing an app depends on complexity, features and platform. You also have to create a budget for marketing, updates and unanticipated costs.

Pricing your app: Paid vs. Free

If you’ve developed a complex, unique and engaging app–the average consumer shouldn’t mind paying at least $2.99, right? You’re about to publish your amazing application, and you can’t wait for the cash to start rolling in. You’ve already planned on moving into your dream home and taking that world tour. But, wait. Should you make your app free? Or, maybe charge $0.99 for it?

Research has shown that consumers are much less willing to pay for mobile apps. Most consumers, especially Android users, expect apps to be free. According to Forbes, 76% of all revenue from the U.S. Apple App Store is derived from in-app purchases. Moreover, a report by Distimo shared that 92% of the total revenue earned in Apple’s App Store in November 2013 came from in-app purchases in free applications.

On the other hand, only 4 percent came from paid applications. And, the other 4 percent came from paid applications with in-app purchases. Uh oh. Does this mean you won’t make any money? Not so fast–free applications with in-app purchases is on the rise.

How to make money off of a free app

Now you’re worried. You’ve outspent your budget and devoted all your weekends–over the last six months–to develop your app idea. How are you supposed to make a return on your investment if you can’t charge a red cent for it? You can do so through in-app purchases and advertising.

In-app purchases allow users to get additional and optional paid features. This is often seen in gaming apps where users must buy new gear, levels and items. You can also offer a “freemium” version of your app, which is reduced in features. Users can then upgrade with a purchase. You might even go the route of an auto-renewable subscription, which can help with maintaining servers or creating new content. Of course, your audience won’t pay for additional features unless they like your app.

As a result, the key is to know your app market. Do your research. Find out what and how your competitors are monetizing their apps. Research the demographics and attributes of your target audience. Understand what attracts and motivates them.

App rewards programs

Some companies have had massive success with their rewards apps. One such company is Starbucks, who first introduced its app in 2011. Today, over 10% of purchases are made using the Starbucks app on iOS and Android. The customer then earns rewards through the My Starbucks Reward Program.

McDonald’s has a similar program with their McD app. It lets customers know of deals in their area such as dollar deals or a buy-one-get-one-free breakfast sandwich–something they wouldn’t have known had they not downloaded the app. In some areas, you can get a free McCafé drink after purchasing five.

McDonald-menu

Still, McDonald’s is currently working on an updated loyalty plan set to launch this year. It may be connected to how many visits you make to McDonald’s each month. It might then offer limited time deals for loyal customers. If you haven’t visited your nearby McDonald’s in a while, the app will try to entice you back with coupons.

The McDonald’s app has been downloaded over 7 million times. Clearly, people like the food. A rewards app might be something you consider developing for your company. Even Dunkin Donuts has 4 million members on its rewards app.

Final Thought

As you can see, figuring out the cost to develop an app and the incoming ROI isn’t completely straightforward. It all depends on your budget, your idea, the level of complexity and whether or not you understand your market enough to publish an app they want. With all of the criteria considered, creating a highly successful app has been done many times over–which means, you can do it too.

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