UK Marketing How to Determine the Price of Your App

For every Apprenuer, building a great mobile application takes center stage. Since the startup app development process has been repeatedly talked about, a considerable amount of time and effort is spent on discovery, design, and development.

Determining the price to develop an app is a very rigorous and scientific endeavor. Some important elements used to perform calculations are highly standardized. Nevertheless, it is not an exact science. The risk of using false premises or calculating specific elements erroneously is real. This is because pricing an app is as much a science as it is an art. Many subjective factors also come into play. Experience plays a major role. Luckily, it can be conceptualized into a series of steps.

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App Pricing General Overview

You should always keep in mind that there isn’t a magic formula to determine how much an app will cost. Hopefully one day we will be able to do this easily through the use of AI or similar technologies. However, as of today, this process requires a great deal of human interaction. As a matter of fact, I personally cannot conceive of this process, even in the future, without humans being involved.

The reason why this is so fundamental is that well-done app pricing requires multiple creative iterations, something computers are not yet experts in. Potential clients and app development companies need to discuss the scope of what the app will do. It is also important to set clear goals. Aspects like functionalities, design, and customer journey become extremely relevant. 

Design thinking is a key component of how this is done because it allows app developers to refine estimations on the go. It is important for app development companies and clients to work hand in hand to determine critical success factors. This is done through workshops, like the ones we do at Koombea. Ideation workshops allow the parties to get a better idea of the app and consequently develop a Minimum Viable Product (MVP). After all, if it were easy to develop an app completely from scratch, everyone would do it. The reality is that apps need to scale, and this needs to be taken into account at the moment of defining its development process and its price. 

Once an MVP is defined, app developers and business analysts can set clear estimations on the resources needed and subsequently define specific goals. This involves calculating the necessary man-hours. Because these are estimations, unexpected events can derail the process, usually delaying the end date and increasing costs. These risks need to be considered. A responsible app development partner should let you know these risks and consider them at the moment of setting a price.

App Pricing Process

The app pricing process is not a straight path that app development companies follow. There is usually some rework to be done throughout the different steps. Here is our approximation to how it works:

Scoping

Scoping is all about understanding what the app will do and how it will look like. This is where the fundamentals of the app are established. Whatever is defined here will be used to calculate any further estimation. Getting it right is key to a successful app pricing process.

Ideation workshops are performed at this stage. Questions like the what, who, why, where, when and how are answered, usually through qualitative research or the team’s expertise. The most important outputs are wireframes, user stories, and epics. 

Wireframes are the most basic sketches of how the design of your app will look; they will eventually be updated, but as a starting point a wireframe fits the purpose. User stories and epics relate to the features that will be considered for your app while considering the user journey. These elements will help determine the app’s overall functionalities, the MVP, and how the development phase should evolve. Being strategic in this phase is all about choices and how you prioritize them. 

It is important to note that an ideation workshop is not mandatory to establish the scope, but it will help both the app development team and you to determine the steps to follow. The clearer the information you have, the better estimations you will get. In other words, if you want to have an accurate estimation, ideation is a must.

Risk Analysis

In this second step, the idea is to identify potential risks throughout the following phases. Errors in setting up the development of an app can result in high costs and delays. If not done properly, the risk assessment can lead to a false conclusion that everything has been considered. This is a big threat to your project. 

Make sure that you understand the importance of this stage and what it means to your app. At the end of the day, you are responsible for the vision of your product. A good development partner can always guide you, but can’t make key decisions on your behalf. Choosing the right one is crucial for your success.

When it comes to choosing the right development partner there are two common mistakes you should avoid at all costs. The first one is choosing a complacent development partner. Beware of companies who will say yes to everything you ask for. Realism is better than ‘yes-ism’. The second mistake is avoiding important discussions just to save time. Some development companies can dismiss key aspects of your app as unimportant. Things like design (UX/UI), technical configurations, or even business-related aspects like in-app purchases should not be taken lightly. A development partner has the responsibility of qualifying your project’s risks and subsequently letting you know if something is unrealistic or too risky.

Assuming risks is not necessarily a bad thing. Just consider that not all risks are the same, and some can deliver great payoffs if the right preventive actions are considered. Make sure that aspects like potential price variability, assumptions, dependencies, integrations, and the technical team involved are properly aligned to meet your needs, and most importantly, to reality. Avoid vanity metrics at all costs.

Effort Estimation

This is where everything comes together. Based on the choices you’ve made, now the necessary development resources can be calculated. The most important thing to consider in this step is to establish realistic expectations on resources, particularly costs and time. To do so, it is important to consider the required developer/designer-hours.

Other important elements should also be taken into account. Things like travel expenses or communication tools are key to the success of your app’s development, so don’t save on them. Many app development companies like Koombea are ready to work remotely. This experience is invaluable, otherwise, you run the risk of having to improvise and you surely don’t want that for your project.

Making sure a rigorous billing process is in place will save you a lot of headaches. At Koombea we have a dedicated team of experts that calculate realistic estimations of billable hours so that chargebacks are reduced, saving you lots of time on unnecessary discussions. This increases the accuracy of budgets while guaranteeing your project a successful financial execution.

Types of Mobile App Pricing Strategies

Free

We don't usually get a lot of things for free. The ‘Free’ tag is not just a pleasant surprise but also a great tool to attract a large pool of customers. The same applies to the free app pricing model.

As the name suggests, these apps are free to download, and in most cases, the primary source of income is through advertisements. Free apps are often seen as a great tool to attract a large pool of users and retain them in the long run. They are meant to facilitate communication and customer service. 

Depending on the purpose of your application, there are two types of free pricing strategies to choose from. The former is a Completely free strategy, which is used when you already have a well-established product or a service in place. In such a scenario, the app is an add-on tool for the users. The goal behind completely free apps is not to make money directly from the app but redirect potential customers to other revenue streams. 

For instance, free apps involve features like coupons, discount notices and other pertinent information which encourages users to take action. The app is used to spark interest, support the marketing strategy and drive users to other revenue channels. 

The latter is an in-app advertisement strategy. In this strategy, the apps are offered for free but users see ads while using the app. Primarily, gaming apps use this strategy to generate ad revenue. With in-app advertisements, the key is to ensure that the advertisements that are being displayed are relevant to the users.

There are services through which you can easily filter the ads by user relevance and format and ensure the ads in your app actually pique the users' interest.

According to Statista, mobile app pricing statistics indicate that the distribution of free and paid apps is such that 96 percent of apps in the Google Play store are freely available whereas in iOS 90.3%  apps are free.

Freemium

The freemium pricing model is a modified version of the free pricing strategy. This model is highly popular and widely used by businesses. Freemium apps can be downloaded for free but include limited functionality and features. To generate money from these apps, in-app purchase opportunities are created. There are three freemium strategies to choose from depending on the tiers, features, and incentives.

Two-tiered approach – It includes apps that customers can download and use for free but there is a premium functionality that can only be availed upon payment. This strategy is widely used in gaming apps where users have to buy in-app currencies, extra lives or upgrade to additional levels. 
The second model includes apps that offer full functionality but only for a limited period of time. The idea behind this strategy is that users can see the vision and get familiar with the app’s utility, and after a while, they will be willing to avail the services.
The last model includes apps where all the features and functionalities are free except it comes with built-in advertisements. The catch here is that a small amount is charged from users to offer an advertisement free app.

Paid

The name clearly gives it away, for paid apps, customers have to pay to download the app. Due to the huge popularity of free and freemium apps, the paid model is considered least effective.

In case you opt for a paid pricing model, it is essential to back it up with a compelling marketing effort. To drive users to purchase your app over a free equivalent, you should have an effective marketing strategy in place. Besides the description of the app in the app store, a potential customer must be equipped with the value you are offering with your product.

With a paid app, users tend to have higher expectations. But once you manage to attract a user, they will turn into a loyal customer if your app offers the perceived value.

To leverage the paid pricing strategy, many brands opt for a week free trial. It is a good tactic to approach potential long-term users by showcasing what your app is all about and giving them the opportunity to make a choice.

Paymium

Paymium is the amalgamation of freemium and paid model. For paymium apps, the users not only pay for the app but also pay an additional cost to avail an added functionality. Although it is not a widely used strategy, it does have the potential to generate great revenue streams. 

This best pricing model works well for music and social networking apps. This strategy can rapidly gain traction if exciting content, unique functionality, and useful features are introduced on a regular basis.