More Mobile App Breakeven Analysis

As we’ve looked at many of the different expenses associated with app development, we should be able to define a pretty good breakeven point. As long as you are breaking even, you can do whatever you want to do for as long as you want. Unfortunately, defining our costs is only half of the equation. It is the easiest half, but is frequently ignored for the second half, i.e. actually trying to break even.   If you don’t know your breakeven point, in most cases you won’t really know if you are making a profit.  [Editor:  About 60% of mobile developers are not breaking even – see this PCMag article and app-promo.com infographic.]

If you have a day job that more than meets your cost of living requirements, you have far more latitude in defining your breakeven point than if you are completely reliant upon your app development for your livelihood. A good day job offsets the need to include your labor, your computer and mobile devices that you already have, probably your utilities, rent and insurance, too. However, if you are looking to switch to mobile app development on a fulltime basis, you will want to track your relative performance on a reliable basis (say 3 to 6 months of your app-based income) before making a transition. That is, you may have a day job but develop apps in the evenings as a sort of second job.

Several surveys indicate that the cost of developing a relatively basic app runs up to $10,000 over 3 months. As mentioned previously, you don’t want to be in a position of relying upon a single idea for a mobile app. You want several apps to evaluate – examining each relative to your means (programming skills, graphics, marketing capabilities, time, possible difficulties, etc.) and the app’s potential (what others think of the idea, compatibility, target market demographics, etc.).

Revenue Model

Before we get into defining your marketing budget, you need to define your revenue model/s. Will your app be free to play and rely upon in-app advertising? Maybe freemium with in-app purchases and upgrades? Premium? Subscription model?   Do you have any B2B components or sponsors? Will your app have other possibilities for monetization (i.e. survey capabilities, promotion of other apps, prominently focus on email and newsletter marketing)?

Target Market

We also want to take exceptional care in defining your target market. There are two parts to your target market. The first part is the largest and includes your end users, the people who will play your game, use your utility, etc. The second part considers what businesses, products and services your end-users will be interested in – thereby opening doors for business to business possibilities, as referenced above. If you are able to reach people specifically interested in one thing, your app will be of interest to others trying to reach those end users, too.

App Pricing

This deserves an entire article (or five) unto itself. Your app pricing ties into both your target market/s and your revenue model/s. Of particular interest on defining price for your target market, if you are marketing on an international basis, you will want to include price segmentation for end users in different countries with widely varying incomes.

  1. Free with CPM Advertising – If you are going with a free app wherein all of your revenue is derived from advertising directed to your end users, you have the complex job of determining the average value of that advertising relative to the average lifespan of your app. How many hours will your end users play? How many ads will they see per hour?   What do you receive on a CPM basis?
  2. Free with Commission Advertising – Alternatively, if you can set up with an affiliate system to get paid on a commission basis for all referrals your app generates who make an order – you need to get an idea of your conversion rate, their average order, your commission rate, duration of any cookies and potential for subsequent orders. Many affiliate programs offer bonuses on volume using a tier system, so this is another factor to evaluate.
  3. Freemium – If selling in-app upgrades, vanity items, or other in-app purchases, you have the hard task of defining the lifetime value of your app. If your app is like many MMO-style games, you may have to factor that 80% of your users will spend little to no money and rely upon your 20% super user group (which includes about a 4% hardcore user group). Each app is different, which is to say that there is likely way for the same app to be structured in several different ways depending upon your programming ability.
  4. Premium – Just because you go with a premium app does not preclude you from offering in-app upgrades and other in-app purchasable items. An app needs to be quite distinctive to compete in the premium market, suffice that it does provide some greater ease in calculating your advertising budget requirements as you are mainly looking at conversion rates.
  5. Service-based Subscription – For those licensing an app on a periodic (monthly) basis, you need to know your conversion rates and average subscription lifetime.
  6. Third-party Premium Subscription Plans – This includes models like the Opera Mobile Store Subscription Service which is offered to end users via participating mobile carriers. This requires some time participating in a program to assess, suffice that conversion rates are typically higher while revenue per download is lower than a premium offering.  Three advantages apply –
    • Economy of Scale with
    • built-in localized price segmentation and
    • essentially free (if basic) advertising.

Your earnings are based on the number of downloads your apps receive compared to total number of downloads relative to total subscription revenue per pay period.

This is the one model where you don’t need to budget any advertising costs unless you want to reinforce this program, probably focusing on social networking methods.

With this, I will cut it short and aim to provide some specific examples on Wednesday drawing upon the points here.   It seems worthwhile to go through the full breakeven analysis process, too – so we may do that on Friday.   The most important components here are delineating approaches to doing the critical thinking on your own to apply to your own apps.

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Project Manager at the Opera Mobile Store providing Sales-Marketing support. Content development and research.

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