Making money on apps

Tomas de Souza is the managing director of web strategy agency Good Old in Malmö. This article is taken from our publication ”App app app app app”.

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.

App Bubble

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.

  • Fredric Lundgren

    Spot-On Analysis. It does however relate to another interesting subject – namely that of mobile media consumption/web surfing. For example, does an app or mobile website version really recquire location-based services or is there greater use in sociability/shareability? How does that affect the content on your site today? How different does it need to be in order to satisfy the expectations of mobile media consumers?

  • Wfm

    Maybe the lesson here is to not focus on the Swedish market. There are around 200 million iOS devices to date.

    The real benefit of having a ‘product’ on the app store is that it generates a passive income.

    If you can develop a portfolio of apps over a period of time then that will grow to a very real income, plus give you time to make money in other ways.

  • Tomas de Souza

    I agree, but a lot of companies discard that possibility since they are focused on the Swedish market in everything else they do.

    An app can of course generate a passive income but with the iOS life cycle and new devices comes a responsibility to support your apps, which also tend to be forgotten as a future production cost.

  • Gondor