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A Money Making Model for Apps

We recently provided a quote to the owner of a small business. Like many people, he thought making an app would be quite cheap. He reasoned that because most apps are free or cost 99p to download,  they wouldn’t cost much to develop. Our quote (which was around £4000) surprised him. So we decided to show him the bigger picture.

What we did was show him how much money he could actually make from his app, and how by investing in an app he could make more than a 100% return on his investment, and turn it into another profit centre for his business.

What you need to make money from an app

The thing you need is content. Content that:

  • Adds value to a person or a business (hypnosis tapes, property investment guides for example)
  • Educates people (exercise videos for example)
  • Provides them with enjoyment (comedy videos for example)

Your content can be delivered in a number of forms, such as:

  • Videos
  • Audios files
  • Documents

 

In order to make money from your app, you have to have a lot of content. This is key. You need to be continually adding new content to the app, at least on a monthly basis. I’ll show you why this is important later.

The money making model

Apps provide the ability for users to purchase content from within your app, a term called “in-app purchase”. By offering your content up for in-app purchasing, you immediately monitise it.

Let’s take an example.

  • Let’s assume that you have just 100 users who have downloaded your app
  • Let’s say you charge 99p for them to buy a 5-10 min instructional video.
  • Let’s then say that every fortnight for 1 year you add a new video package, meaning you release 26 video packages throughout the year.
  • Let’s assume it costs £2500 to develop the app (we can do it for this price, but you will find costs far, far higher than this!)

Now you have 100 users, paying you 99p, 26 times a year.

That equals:

100 users * 99p * 26 = £2574 per year in total sales.

Now Apple will keep 30% of all in-app purchase revenues, leaving you with:

£2574 * 70% =  £1801 yearly revenue.

Return on Investment

Return on investment = Revenue/Development cost = £1801/£2500 = 72% return on developing the app – much better than the bank.

Now these projections are based on you having just 100 users of your app worldwide.

If you doubled that to 200 active users, look at the numbers now:

200 users * 99p * 26 = £5148 per year in total sales.

Now Apple will keep 30% of this, leaving you with £3603 revenue.

Now look at the Return on investment:

Return on investment = Revenue/Development cost = £3603/£2500 = 144% return

In fact, you would have made £1103 profit from developing the app

£3603 Revenue – £2500 development cost = £1103 profit

Taking It Further

The above analysis does not take into account the following things that could further increase your profits…

  • You get more than 200 users
  • This analysis is only for 1 year…imagine if you kept this app going for 2, 3, 4 years
  • You release more than 26 videos in a year
  • You charge more than £0.99 for a video

 

Taking It Further Still

Let’s assume the following:

  • You have 500 users
  • You release just 20 pieces of content per year
  • You keep the app going for 2 years
  • You charge £0.99 per item

 

Over 2 years, you make:

500 users *40 items * £0.99 = £19,800 revenue

You keep 70% * £19,800 = £13,860 in total revenue.

Now look at the return:

£13,860/£2,500 = 554% over 2 years

Profit = £13,860 – £2,500 = £11,360

If you can make content that adds value, if you have content already that you’re selling via a different format, it may be time for you to consider selling it via an app.

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2 comments

  1. Very nicely put, and a great way to show the ROI of a content-based application – thank you for this.

    In all fairness, however, I just thought it worth mentioning that the app will likely have some additional costs associated with it for maintenance and updates, especially when you look at a horizon of more than one year.

    That being said, those costs should be a fraction of your initial development costs, and not eat up all your profits.

    • admin

      Jean, thanks for your feedback. That is a very valid point.

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