Conducting an App Pricing Analysis

Although you may think it's a little over the top to do a pricing analysis for an Android app, the skills involved will come in handy as you build your brand and start to build multiple apps. A pricing analysis (or cost/benefit analysis) is an exercise you should do prior to developing your app. So many developers (and entrepreneurs) think of an idea for an app and set out to develop it (or contract with someone to develop it) without thinking through what it might cost them. It's easy to get caught up in your life-changing, world-dominating idea for an app, but prudence should be your top priority.

A cost/benefit analysis will help you predict whether you are likely to break even on your app and start to make a profit on it. As an independent developer, a cost/benefit analysis is probably not an exercise you are used to, but it's pretty important to count the costs beforehand so you don't end up in financial trouble down the road. The Android Market is littered with half-baked apps that were very costly to produce and have left the developers with no hope of ever recouping their costs.

Think about it. On the low end you may spend $2,500 to develop your app—and that's really on the low end! If you price your app at $0.99, it will take over 3,500 downloads just to break even on your costs after Google takes its 30% cut. It's also not uncommon for a developer to spend upwards of $30,000 to develop and market an Android app. It will take tens of thousands of downloads to break even in this scenario.

The other important step discussed in this chapter is to perform a breakeven analysis so you know how many downloads you'll need just to recoup your costs. Therefore, it's very important to do a little math before you get started down the development path to make sure your finances can handle the costs you are going to incur. Who knows? You may decide, after doing a little analysis, that building a particular app is not worth the effort and scrap the project until you can find an idea that will work.

Game apps, as mentioned before, tend to fall into a tight range of $0.99 to $1.99, sometimes $2.99. As you define the market for your type of app, you may find that the number of potential buyers is quite limited. In order to see a profit from your app, you are going to have to identify a price point where you can make some money and the buyer will still be inclined to buy.

The challenge for many developers of non-game apps, which usually don't fall into the $0.99 pricing category, is deciding what they should reasonably charge. Therefore, it helps to have some background on how to go about performing a cost/benefit analysis for the more expensive types of apps. Setting an accurate price is crucial to determining a breakeven point and attempting to do some amount of forecasting.

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