Paid vs. Free: Which is a Better Pricing Model for My App?
Are You Getting the Most Out of Your App Pricing Strategy?
As an app developer you are probably well aware of the challenge of choosing the right pricing model. Most developers choose a price for their app based on competition or based on a “gut feeling”. There are many hours spent arguing with team members, investors, and yes your customers about what you should charge. Unfortunately, developers don’t know they have a pricing model problem until they actually start spending marketing dollars to acquire customers. The app marketing team usually complains about conversion issues and the developer is forced to look at why people aren’t downloading the app. I’m not saying that conversion issues are always pricing problems. Often times, there can be fundamental problems in the product offering itself that need to be addressed. However, if you aren’t seeing conversions, pricing is one of the easiest variables to adjust to acquire new customers.
The truth is, there are clear principles that can be followed to help determine a pricing model that truly generates the most revenue and users for your app. Yes, that’s right, there is really no need to waste time and resources marketing an app with the wrong pricing model.
The Wrong App Pricing Model Effects:
- Overall Revenue
- User Acquisition
- Profit per Customer
- User Engagement
Why Free is Almost Always Better
Let’s face it, it goes against everything we’ve ever learned about business to just give a product away for free. There is a bit of comfort you get from slapping a price tag on your app. Heck, you put all this time, effort and money into building it. Why would you just give it away for free?
The truth is, a free app with in-app purchases can drive more revenue per engaged user than an app with a one time charge. A paid app generates revenue only on the initial purchase. Conversely, a free app with an in-app purchases has the ability to create revenue every single time the person opens the app; either from ad revenue or from purchases made within the app. In-app purchases often take the form of unlocking features within the app or monetizing elements within the app like weapons, points, photo filters. The ability to monetize your app from in app revenue is only limited to your imagination.
Thus, for this reason only, free apps with in app purchases simply create a higher revenue per user.
Don’t Take Our Word for It
Even Apple believes that a free app with in app purchases is the best way to drive revenue. Our clients have reported on multiple instances of Apple pushing them towards a free model. And let’s face it, Apple isn’t suggesting this so they make less money.
A Gartner Study Supports this Same Theory:
In-app purchases will drive 41 percent of app store revenue in 2016, up from 10 percent in 2011. The number of downloads with in-app purchase will increase from 5 percent in 2011 to 30 percent in 2016, According to a report by Gartner.
How to Decide if You Should Charge for Your App
Hopefully, by now you should understand why a free app model is superior to paid. However, there are instances where a paid app does makes sense.
You should Consider Charging for Your App Only if:
- Your app is NOT a social networking app
- You don’t require ad revenue
- You have a highly superior app than any other app in your sub category
- Your app rivals the quality of equivalent paid desktop software
- The app can create an immense increase in productivity
Once again, if your app doesn’t meet any or all of these criteria you should not charge for your app. Don’t even consider it. Don’t pass go. Don’t collect $200. Hopefully, by now we should have convinced you as to why free is almost always better. Now, its up to you to take everything you’ve ever learned about business and throw it out the window. Build a great product and focus on creating a community of engaged users that use your app regularly.
Need help to determine the right pricing model for you app? Hire App Marketing experts like Space Chimp and unlock your apps potential.