Everyone wants to get on board and make money on nifty little programs that make life easier for users. But there is widespread misunderstanding about the financial potential of launching an app. If you are in the Apple App Store to make money on your app, it is a very good idea to check your figures and then check them again.
If we assume there are half a million iPhones in the Swedish market and one out of twenty users will buy your app, we come up with the following:
- Amazing App: €0.80
- Apple’s cut (30%): €0.24
- Revenue per app: €0.56
- Total revenues on sales of 25,000 apps: €14,000
- And then there is the Swedish Tax Agency’s doubt about whether app revenues are subject to VAT, so un- til further notice you should expect 20% of the revenues to be paid in tax.
- That leaves only €11,200
And there we have the potential for an 80-cent app on the Swedish market – provided you can attract one twentieth of the market. The total is just about on par with the cost to develop a mid-range app if you use a cost-effective production company.
Last August, Aaron Shapiro wrote an article for Fast Company making a case that we’re in an app bubble. He referred to Apple’s own figures saying that the App Store had generated about one billion dollars in revenue for deve- lopers worldwide. That’s a lot of money, but the median paid app was earning $682 a year for its owner at the time, equal to about €485.
Those who have done their homework and calculated the sales potential will realise pretty quick that produc- tion costs have to go down. If financial gain is the only incentive for developing an app, it will eventually become an impossible product for us to deliver to our customers.
Think this way
So, what’s the solution? One way of skinning this cat is to focus on an international market, but that won’t fit all types of operations. Another is to weave side incentives into the equation. If the app contributes positive PR and builds your brand, maybe it would be enough to add the cost to the marketing budget instead of the revenue to the sales budget.
However, the PR impact of releasing an app fades with every day that passes, and brand building can be hard to quantify in actual impact per invested euro. The app has to work for you the same way your website or other digital communication does. It has to generate business – especially because it will probably not make a profit on its own. If we can create an app that can do that, then considerably more can be spent on development. Otherwise, a mobile version of your website may be the right solution.