4 Questions to Help You Price Your App in a 'Freemium' World Streaming music, videos and games is still largely free. How do you get your piece of the pie?
By Kuty Shalev Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Technological advancements have impacted the app marketplace in many ways, but one of the most significant areas of impact is price -- or lack thereof, when you get right down to it.
Related: A Step-by-Step Guide To Building Your First Mobile App
The reason is that modern consumers have grown accustomed to receiving high-quality online services free of charge. They can stream music, watch videos, play games and read the news without spending a dime. And, sure, these free options can be glitchy and littered with ads, but that doesn't bother most users. As long as these options are free, they're happy.
Which creates a tricky problem for developers: How do you price apps in this freemium world?
Answering these four questions will send you down the right pricing path:
1. What's your target market?
This question applies to pretty much every aspect of building a great app, but it's especially relevant for deciding how to price it. Does your app enrich the lives of people with disposable income or people searching for money-saving tips?
An app that targets students will likely be ignored if it isn't free, but an app targeting established professionals can still gain traction, even with a price tag. It's pretty simple, really: Charge only for apps that target those markets willing to spend money.
2. What does your competition do?
Analyze your industry's app marketplace to see what your competitors are doing. If their apps tend to cost $1, a $5 app will struggle to earn downloads. If your competitors offer only free apps, you'd better make sure yours provides an otherwise unattainable service, with crisp features and functionality.
3. Which device will support the app?
Due to Apple's streamlined, one-touch purchasing process, iOS users have proven more willing to pay for apps than have Android users. Developers face an uphill battle when charging for Android apps, so plan accordingly if your app is going to hit the Google Play Store.
Related: iOS or Android: Which Operating System Should You Program for First?
4. How do you plan to make money?
Most developers make money by using one of four pricing models: ad placements, upgrades, in-app purchases or beta versions.
Ad placement is exactly what it sounds like: You earn money by displaying ads in your app. They typically run at the top or bottom of the screen and also pop up interstitially.
The upgradable model works for both free and paid apps. You can periodically offer updated and enhanced versions of your app for a small fee. You can also consider upcharging users for ad-free experiences.
The in-app purchase model is quite similar to that of the upgrade but differs because it offers additional à la carte features, not app-wide updates. Think along the lines of how Hipstamatic periodically debuts new lenses and filters for users to purchase. In-app purchases have proven to be quite lucrative, making up 76 percent of all app revenue in 2013.
In the beta version, offer the full-fledged app for free, but only for a limited time. After gaining a loyal user base, pull the free version and hope your audience will be willing to pay for it. You may ruffle some feathers, but if your app is truly valuable, users will likely be willing to reach for their wallets.
Developers need to eat, too, and there are a few different ways for them to put food on the table. In the coming years, I predict that the app world will sort itself into two categories: beautiful and delightful apps that cost money, and clunky, ad-ridden apps that are free.
So, ask yourself these four questions before deciding which route and price level are right for you and how you plan to make some money for all of your hard work.
