One of the most frequent questions we get is regarding one of the most important decisions an app owner must make – how to make money with your app. In this first post of our “App Monetization” series we will discuss the first decision you will have to make:
Should I make my app free or paid?
Let’s start with the obvious: if you have a paid app, you are guaranteed to earn money on every single user; if you have a free app, you will certainly get more downloads (sometimes 1,000 times more), but you will live with the hope of earning money on only some of the users. Is living with this hope of income worse than having guaranteed income? Turns out not at all!
According to a report by Distimo, the total App Store profit revenue from paid apps accounts for only 24%. The revenue from in-app purchases, made inside of paid apps, account for another 5%, and the revenue from in-app purchases from free apps account for 71% of profit revenue.
Besides immediate revenue, you should also consider several other things, including app reviews, user commitment and competition.
App reviews
If your app is free, users won’t lose anything by downloading it and users generally will have lower expectations. Hence, there is a greater chance of getting a good review for the quality of the app and a lesser chance of getting a bad review, simply because users didn’t lose any money on the app. The simple logic you need to remember is that the higher the price of the app, the more users will expect from the app. If the app doesn’t deliver, be prepared to receive harsh reviews.
User commitment
With the free app you will certainly get more downloads, however many of the users will download the app simply out of curiosity. These users may have no real interest in the app at all. Hence, if your goal is to retain users or get users that are actually interested in your app, then a paid app might be a better option.
Competition
Before you decide on the price of your app, make sure you research your competition. How do similar apps earn money? Besides your competition, you also need to understand user needs. For example, with one of the first apps we ever built, LSAT Triangle (helped students get into law school), we were able to set the price at $10. This is because ten bucks is considered nothing for a chance of getting into a better law school.
Seems like free app is the way to go
So you want great reviews, you want to get as many users as possible, and you see that all your competitors have free apps – does that mean you should make the app free? No. First, make sure you have a strategy for how to make money on ads or in-app purchases. If you don’t think users would be willing to buy anything inside the app or you don’t expect to have enough users to earn money on ads – don’t expect to earn money with a free app. Additionally, remember that higher priced apps allude to higher quality.