How To Calculate The Average Price Of Something In Math Free Apps Vs Paid Apps

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Free Apps Vs Paid Apps

When you have an app idea and build it with the intention of making money, you have a few options. You can create an app, sell it for a fixed price in any of the many app stores, or you can create a free app with ads that will make you money whenever one of your customers uses the app and sees the ads. When you look at these two options, it’s pretty hard to know right away which one will make you more money. If you go with paid apps, you may miss out on potential revenue from long-term repeat use of your apps. However, if you go with free apps, you may end up losing an initial burst of capital from the original sale of each app. There’s only one way to tell if free or paid apps are better for your business, and that’s to look at how most people use the apps and which advertisers are willing to pay for ads.

So how do most people use apps? Pinch Media did a study on this topic and pulled out some useful data. According to their research, the average free app is used 6.6 times more than its paid counterpart. While that sounds like a strong reason to look for a free app that sells ad space, the math doesn’t work that way. Here’s why. Let’s say our payment app sells for 99 cents. In this case, Apple will take their 30%, giving us a net profit of approximately 70 cents per sale. The free app then has to make up that 70 cents per download difference through advertising in order to be as good as the cheaper paid app.

Pinch Media says the average app runs 12 times. When an app goes free, that number is multiplied by a factor of 6.6 to give it an average total usage of about 80 sessions. Now the answer to whether it is a good idea to make a paid app or a free app boils down to the following question. Can a free app generate 70 cents in ad revenue in 80 usage sessions?

Greg Yardley, CEO of Pinch Media, confidently states, “Hell No” as the answer to this question in his research presentation. The only way a free app could make that kind of money is if it could somehow get $8.75 per thousand ad views (known as CPM in the trade). Here is the logic. Your app will only be able to serve one or two ads per session. If your app can serve one ad per session and it’s used eighty times, you’ll get 80 impressions. At $8.75 per thousand impressions, you’ll have made your 70 cents.

Of course, no advertiser in their right mind will offer such a huge fee for smartphone app development, especially one that has just entered the scene. Most companies offer between $0.50 and $2.00 per thousand views. That’s at least four times less than your app will need to make up the seventy cents.

After all that math, Pinch Media concludes that the best plan for any app is to start it as a paid app, install software to determine how it’s used, and then go for it. The company claims that less than 5% of top-performing apps are “sticky” enough to make money from ads. What would be a good example of a sticky app? Well, Pandora makes people listen with their ears covered and is used over and over again. From $0.5 to $2.00 per thousand ad views, Pandora can keep its operation running solely through the volume of user views.

To make money from advertising, your app must earn a lot of money per ad view (CPM) or beat the relatively low usage rate of the average smartphone app. Since everyone starts with zero information about the usage rate of their apps and most advertisers are not willing to offer very high CPM rates, the wisest decision is to make your app a paid app. If you have more questions about your new app idea and whether it will be a good idea to make it free, Appiction, one of the leading iPhone app development companies, has a team of marketing consultants to guide you in the correct direction. We’ll help you use the analytical tools that will give you the information you need. Here’s to the success of your new app!

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