The cost of making money

Vasily Malyshev
counting budget

Today we will talk about the cost of making money. Who do you need to share your profits with and in what do you need to invest in order to earn money with your app.

Developer program

Let’s start with the most simple thing. In order for you to be able to publish an app on Apple’s App Store or Android’s Google Play you need to register with their respective developer programs. To sign up for Apple’s Developer Program you will need to commit to paying an annual fee of $99. To sign up for Android’s Developer Program you will need to pay a one time fee of $25. Once you enroll in that program you’ll have a place where you can actually publish your app so that others can download.

Domains & servers

If your app is like the majority of other apps and it has user accounts or some other use of servers then you’ll also likely need to purchase a domain name and a hosting. Domains can be used not only to rout your servers through specific addresses but also to serve as the address for your landing page – a website that will explain how your app works and attract new users. Domain names usually start around $12/year. In addition to that, you will need to obtain a server or some hosting. For our clients we always suggest Amazon Web Services because they are perhaps the oldest, largest and most stable cloud server space provider out there. When you will start out the chances are you might just use their free instances for a while. But as you grow you will need to upgrade it. AWS has a calculator that can help you determine its price but likely you will land somewhere around $20/month to start.

While developer accounts, domains and servers are important for you to actually publish your app there are also some important fees that you need to be aware of in terms of monetizing.

Transaction costs

Previously we have already discussed that the payments in the app can be made for digital or physical goods & services. When they are made for digital goods then users can pay straight from their Apple/Google accounts and if they are for physical goods and services then they should pay with a credit/debit card.

Digital goods & services.

Let’s start with digital purchases. The general rule is that when you make an in-app purchase Google or Apple will take a 30% commission. So if your app costs 99 cents to download. Apple or Google will get 33 cents from that. Or if it costs 99 cents to purchase a new item inside the app then Apple or Google will still make 33 cents.

The only interesting exclusion happens with subscriptions. By default when somebody subscribes you still need to give 30% to the big guys. However, if someone stays on your subscription for over a year then the commission fee drops to 15%. So if someone has been subscribed to your services for over a year and was paying 99 cents each month, then after 12 months you will now only lose 15 cents instead of 30. This way Apple and Google try to motivate developers to produce services that solve long-term problems and also increase the total revenue.

team

Physical goods & services.

With physical goods & services, you won’t be losing as much money. Here users will pay through their bank cards and the commission is about 10 times lower. Well. In most cases.

The two main payment processing companies – Stripe and Braintree – both charge similar processing fees – 2.9% + 30 cents per transactions. Those 30 cents are what can screw up your monetization if you sell physical items for $1. However, most of the time something physical is sold through the app (think Amazon or even Uber) it costs more. A $10 Uber trip will have a total of about 60 cents in commission fees, which is just 6 percent in total. A $100 gift bought on Amazon will only have a total commission fee of $3.2, so roughly 3%.

Therefore, generally speaking, selling physical goods and services is much cheaper. However, that might not be the case if you are working with high-risk industries, for example, financing, medical procedures, etc. Both Stripe and Braintree are low-risk payment processors so if they will see your business model as one having a high risk of fraud then you might need to look for another payment processor who works with high-risk merchants. And in this case, you can find a lot of those companies that will actually end up charging you up to the same 30% commissions.