A common question when developing mobile apps is how to price an app. Should it be free or paid, or even both? In this post, we will look at what the most successful apps are doing and see if that gives us any clues as to the best practice when it comes to pricing an app.
Since the initial pricing of an app is essentially a monetization question, we will also look at the available data when it comes to successful apps that use in-app purchases. As you know, apps can also make money with ads or indirect monetization (like in the case of Amazon.com, where selling products is more important), but getting accurate data is tricky and only complicates answering the "free or paid" question, so it will not be included.
Our Leaderboard tracks the App Worth of every app on the App Store, based on our proprietary algorithm. It is a good indication of how well an app is doing when it comes to recent download trend, ratings and other indicators that we factor into the Secret Sauce.
Note: Since this post was first published, we have deprecated the Estimate App Worth feature in favor of our Store Intelligence product.
We will be using the Leaderboard as an indicator of top app performance because it takes into account many other factors, and not just downloads, like the App Store algorithm does. If we look at the overall top 100 apps on the Leaderboard, here is how their apps are priced (as of today):
Totally Free: 55%
Free With In-App Purchases: 43%
Paid and In-App Purchases: 0%
Paid Only: 2%
Just by looking at those numbers, the answer seems clear. A staggering 98% of the apps on the list are free. This might lead you to believe that your app should be free too.
But is this really the case? Looking at the top 100 apps in individual categories can give us more insight.
Now, let's break it down and apply the same analysis to other categories, to see what might be the best pricing strategy in these areas. This graph will make it easy to visualize. One thing to note is that the Games and Newsstand categories have numerous sub categories, but for the sake of simplicity, we will only look at the overall category.
Over 50% of all of the top 100 apps in each category are free, using in-app purchases, or an alternative monetization model. However there are some interesting nuances with regard to some of the categories, that does deserve a closer look.
In the Newsstand category, an app absolutely has to be free to succeed…or so the data tells us. When it comes to Social Networking, Lifestyle, Entertainment or News categories, free is also by far, the best way to go.
But in other categories such as Weather and Navigation, there is much more latitude when it comes to having paid apps. In fact, in Navigation, it is much more acceptable to have an app that is priced at around $50, than in any other category. Buyers of Navigation apps are also the most tolerant of in-app purchases after the initial purchase.
Other categories are also much more skewed towards free apps, but there is some to opportunity to succeed, even if you are charging money up front.
To take it one step further, if you do choose to experiment with a paid pricing model, is cheaper always better? We looked at the number of all paid apps that were priced under and over $5. We chose $5 because it seems like the point where a potential buyer would draw the line at an app being expensive. This is completely relative and subjective, but it is sufficient to serve as a price reference point.
One thing that we can take away from this graph is the fact that in some of the categories, all or most of the apps are under the threshold price. If this is the case for your category, you may want to experiment with a free with in-app purchases model to get more lifetime income value out your app, as opposed to just getting a small one time payment.
If you are in the Business, Travel or Navigation categories, you may want to test higher pricing. People buying apps in these categories seem willing to pay the higher prices.
By looking at the data, we can conclude that making your app free and monetizing it through in-app purchases, ads, or indirect means is still generally the best way to go. But we have also seen that you need to discover what other successful apps in your category are doing because there are also other opportunities to charge higher prices for your app and even have an app that is paid and has in-app purchases. As with anything else in app development, test different options and see what works best for you, but if you are stuck, starting with free is the best way to go.
Which pricing model has worked best for you? Leave a comment below and let us know.