Every couple of years, a particular type of startup business becomes really trendy. About a decade ago, everyone wanted a “dot com” business. After that, everyone wanted a blog. Now, with the sale of OMGPOP and the huge valuations being put on companies like Zynga, lots of people are pursuing “iPhone apps” or “iPad apps” as a new business idea.
And, lots of people should. There’s a lot of money to be made creating applications for the masses or even for specific niches of users. But, that doesn’t mean that everyone should be in the app business. If you want to build an iPhone app or an app for any smart phone, be sure to think it through as a business, not just as a “get rich quick” idea. This means:
- Define your goals for the project
- Develop a good estimate of up-front development costs and ongoing operating costs
- Construct a revenue model which makes sense, given points 1-2 above
- Set specific criteria which define your customer
- Craft a marketing program to go after your target customer
Define the goals of your iPhone app project
Think about what is it that you want your iPhone app to do, (note: “make me a millionaire” isn’t a complete answer!). Think of project goals such as:
- Customer goals: Why does your customer want your application? Does is fill a need or address a particular pain point? Why is this particular product “better” than alternatives?
- Producer goals: What do you want your app to accomplish for you? Are you looking to build a mailing list/referral list? Do you want your app to drive views on your website? Are you selling the app and trying to drive revenue through sales of the app? Are you trying to increase viewership of advertisements? Do you have “in-app” products to sell?
What are the costs of developing an application?
The next step is in understanding the costs which go into developing an iPhone app. If you have technical skills and design skills, your major investment here might be time. For those who wish to outsource parts or all of the development and design work, then there are real cash costs which will be incurred, in addition to time, including:
- Identifying a developer / designer
- Defining the project scope
- Initial development
- Initial design
- Final testing
Basic applications might take several thousand dollars of investment and several weeks of work. More complex applications can easily run into the tens of thousands of dollars and months of work. These aren’t sums to be taken lightly.
There are also ongoing costs in the delivery of your app to the market, most notably that most “app stores” like the Apple App Store charge a percentage of sales to host and deliver an iPhone or iPad app to the customer.
How much can I make?
Here’s the big payoff… if your iPhone app costs $10,000 to develop and you sell 25,000 units your first week on the market at $1 per copy, then even if Apple charges you 30% of your revenue, you’d still make $7,500 ($25,000 * 70%) – $10,000. Plus, you’d have opportunities to continue making money in future weeks. So, how can you make money with an iPhone app? Well, there are several methods, many of which may be combined.
- Sell the application – this is an up-front fee paid by customers to download your app. In Apple’s App Store, this is typically referred to as a premium application.
- Sell advertising on a “pay per click” basis – this requires your customers to click on an advertisement for you to be paid a commission. Commission rates will vary.
- Sell advertising on a “pay per impression” basis – this requires that your customers use a your application in such a way that they see advertising. Typically, you’re paid on a “per 1000 impressions” basis, which means that your application has shown the advertisement 1000 times.
- Sell products, services, or upgrades “in app” – this type of revenue typically requires that some percentage of your users upgrade to a premium version (from a free version), purchase add-on products or services, or otherwise spend money on options that you provide.
- Sell products or services “outside the app” – this requires you sell some other type of product to your app customers, such as a new app or some other product or service which isn’t directly linked to the application currently in use. An example might be that Rovio sells “Angry Birds” books on their website.
Once you have some better ideas about your goals for the project, the costs you might incur, and the payoff you might achieve, it’s critical to make sure that you understand the customer and have crafted an appropriate marketing strategy to acquire those customers and achieve your goals.
If you’re considering developing an app, be sure to download our “Application Model”
which you can use as a template in developing your specific business model. We’ve included estimates of common costs to give you an idea of some of the expenses which you may have in developing your application, various methods to collect revenue (app sales, in-app purchases, CPC and CPM type models), and other great financial and operating metrics.
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