How can you know if an app idea will be profitable? You can’t, but you can define its potential for profit. There are really about five core components involved with a profitable app – 1) size of target market, 2) your reach within that target market, 3) conversion rate, 4) popular acceptance of the app, and 5) pricing or business model.
1. Size of Target Market – It is very important to define your target market as precisely as you can. This involves demographical and mobile market data:
Using the references here, you should be able to define most of these points on a combination of ballpark number and percentage point basis. Age range can be tricky, particularly with premium games for children requiring adults (parents) to purchase on their behalf.
The size of your target market is itself very useful at least for helping to define what is not likely to be profitable in the way of free and freemium apps.
2. Your Market Reach – This will likely be much harder for you to define as it will require you to know the demographics reached by your advertising venues. Further, you will need to approximate what portion of their audience you will be able to reach through your advertising – how many people in your defined target market will actually see your advertisements?
3. Conversion Rates – How many people reached by your advertising will proceed to purchase, install, use it, upgrade or make in app purchases? You want to track all of the conversions applicable to your app. Projecting these rates is difficult though. Your previous experience can be a useful guide. Alternatively, factoring in an extremely conservative rate (like 10-25% of what you would expect) plays it safe. You might also factor in how actively you will be watching and working to improve your conversion rates.
4. Popularity – While there is a lot that you can do to influence the popularity of your app, a large portion of this will relate to the overall quality of the app and how competitive it is compared to similar apps. Getting a viral lift can propel an app’s profitability into the stratosphere, but for as many times as that happens – it does not happen for 999 others. It’s best to consider this as icing on the cake when making projections on an apps potential for profit.
5. Pricing or Business Model – Whether you decide to go with a free, freemium, premium, or subscription model will substantially define your profit potential. There are other factors to include, here, too – possible revenue from B2B arrangements, monetization of surveys, or even whether you opt to produce your app via crowdfunding. These all influence the extent to which you will depend upon your app’s lifecycle and end user longevity.
Customer longevity should really be included as a sixth core point for the purpose of any but premium apps.
All of these points taken together can give you a reasonable approximation of an app’s potential. The size of your target market, how many you can reach and then convert are your primary indicators – and can help you define the optimum business model.
The basics of supply and demand are worth considering, too. You might have a very small target market – for example Canadian Doctors and Medical Professionals. If your app is useful and interesting to them, that could push your app into a high-end premium or subscription payment model.