Psychology of iPhone Pricing

When I started in this business 12 years ago, there was tried-and-true consumer price points: $9.99, $19.99, $29.99, $49.99, $99.99. Only a few apps — Microsoft Office, Adobe Photo suites come to mind — were able to price above those levels. Anything under $19.99 was considered an impulse buy and anything above $49.99 was considered professional quality.

This never was in the mobile/smartphone/PDA world. In this world pricing seemed to break down as $10, $15, $20, $29.99, and $39.99. Only the rare app was able to get more. We charged $59.99 for powerOne Finance but bundled both the Palm OS and Windows Mobile version together for that price. If we had been in the old model of consumer pricing, we would have been between $100 and $200 (with slightly different presentation and functionality). Impulse buy was anything less than $15; professional apps were at $29.99 and above.

Now those prices have morphed again, at least for iPhone. For whatever reason — first products in the AppStore, lack of trials, single purchasing location, Apple’s devious plan, natural laws of commoditization, Chris Anderson (just kidding) — all pricing have depressed even further. It seems that the new scale is $0.99, $1.99, $2.99, $3.99 and $4.99. Only the rare app can charge more.

The interesting thing to me is that the mentality hasn’t changed. Now, $0.99 is an impulse buy and $4.99 denotes professional quality.

Case in point: In April, a competitor was at $5.99 then $4.99 then $3.99. Never really impacted FastFigures’ sales, but we could never catch up with him, either. For a week, he went free. When he went free our sales shot through the roof. When he came back to the paid side at $3.99 he made no headway. It didn’t impact my sales at all (I was way ahead of him in Top Paid) and the same was true when he dropped to $0.99. He sold a lot more, catapulted above me in Top Paid, but it didn’t impact my sales. Only when he went back to $3.99 did my sales start to fall off as I was clearly losing units to him and he was able to stay ahead of me in Top Paid.

One conclusion: Top Paid position has a clear impact on sales. I think most people try the 1) cheapest and 2) first found product that they were looking for.

Price, though, also impacts sales. So where’s this cut-off point that attracts the alternative, professional customer we were looking for? Is the connotation that anything under $0.99 is a throw-away app? Or is that point $1.99 or $2.99? Clearly, $3.99 has a different connotation but I’m curious if that “professional level” actually falls in somewhere lower.

Or is my entire theory flawed, and the reality is that software is diving toward $0 price points, as my Building an iPhone Business surmises? I can definitely say the market is shifting. And I don’t believe, unlike other developers, that it’s Apple’s fault. I think they are just accelerating the curve.

Building an iPhone Business


A week ago I was asked to give a presentation to a local meet-up mobile group called Mobile Portland about my 12 years in mobile and how that relates to the iPhone App Store. I decided to focus this on some conclusions I came to regarding building an iPhone business instead of being specific to Infinity Softworks.

I then gave the same presentation earlier this week at OTBC, a local tech incubator that I’ve been involved with the past few years, for a Lunch-and-Learn. In total over 100 saw my presentation in person or streamed across the web.

I’ve included both the slides and video here for your review. I think I’m taking a very realistic look at the challenges. Most of the popular press and blogs have been so overwhelmingly positive about the App Store and its impact for developers. But the make-up of the App Store is far more complicated than that for the vast majority of us, and the opportunities have morphed substantially over the last nine months.

I hope this helps you with your business decisions, giving you a little more insight into the opportunities and challenges with Apple’s App Store itself. My goal was to analyze this from a business perspective. Obviously my own experiences influence the slides but feel that the presentation is broader than any one company’s experience.


This video was shot with the second presentation at OTBC. The first half, 27 minutes, is my presentation. The second half is Q&A.

You can see it here if you can’t see the embedded video:


If you’d prefer to peruse the slides instead, please keep in mind that the video tells a much fuller story than the slides do:

At Apple’s Mercy

In 2003-4, at the peak of our move into math education, we were at the mercy of the College Board. Everyone was waiting on their decision. We had the states of Georgia and Michigan interested in putting us on approval lists. We had middle schools and high schools across the country ready to shift from traditional calculators to Palm devices. We knew at the time that if the College Board rejected us from trials for the AP Calculus exam, we were pretty much done in education.

Literally millions of dollars were riding on the College Board’s decision.

And we got in. The College Board agreed to do first year trials in a bunch of school districts across the country.

But then the unexpected happened. Palm fired their education team as they shifted focus from handheld computers to smartphones and the College Board decided to not do the trials.

We were done in education.

A similar, deja vu feeling crept over me in the past 48 hours as Apple changed some search criteria, we disappeared from a number of key searches, and our sales plummeted. We are once again beholden to a single company.

According to various reports I have found, Apple decided that there was too much cross-selling going on. For instance, if I wanted people who used iFart to find my application, all I had to do was add the text “iFart” into my application description and I’d show up in the searches for iFart. I completely understand why Apple would want to stop this behavior. It’s too easy to game the system by referencing a completely unrelated — but albeit highly popular — application to raise awareness for your own product.

But this change eliminated a lot of good uses of terms as well. For instance, FastFigures is a financial calculator with innovative template format to make calculation a lot faster, easier and accurate. We include the phrase “financial calculator” in our description so people searching on that term can find us. (We also include “Finance Calculator” in the title but words in the title are exempt from Apple’s new search criteria.)

What happened? Because someone named their application “Financial Calculator” we are now removed from every search that includes that phrase. We are also eliminated from every search that doesn’t include that phrase but where that application appears without using those terms. So we have also been removed from searches for “IRR” and “Time Value of Money”, for instance, because the application titled “Financial Calculator” is there as well.

The effect (and if you were wondering the impact of search), our sales plummeted 80%.

I’m hoping Apple will fix the problem. In the meantime I re-worked the description to make sure that the words “financial” and “calculator” never appear back-to-back, hoping this gets me back into the searches. (I’ll find out tomorrow.)

The queasy feeling in my gizzard, though, is still there. I’m completely beholden to Apple to make my business happen. I vowed I’d never get in a situation again where I am beholden to a single company for my success. It didn’t even take me five years to break that vow.

Update: It looks like Apple fixed the problem this afternoon. My fix didn’t work but that’s fine. Just want to be back in the searches!

Lessons Learned: One Month in the iPhone AppStore

My article here is the story leading up to and including FastFigures finance calculator’s first month in the iTunes AppStore. If you’re not interested in the story, feel free to jump to my conclusions at the bottom.


We started developing FastFigures Financial Calculator for iPhone and iPod Touch in November of 2008 with a team of two people. I developed the UI; Rick developed the engine and back-end. We spent some time through the summer reading and learning Objective-C (which would have gone a lot faster if the NDA wasn’t in place), but real development started in November after a contract job we were working on ended.

My intention was to develop an offline companion to our online version of FastFigures. I started with a list of about 100 of my current customers that requested the product for iPhone. By the time we shipped, that list grew to 250. I emailed with this community about every two weeks, soliciting feedback, getting input, learning how they have used our products so I could make FastFigures better than they expected and, hopefully, have a bunch of customers ready to go at launch.


In retrospect the smartest thing I did before launch was start a dialog with my customers. As mentioned we had about 250 people requesting our products for iPhone. This community gave me endless feedback regarding their most important calculator templates, the structure of the application and features that they needed to have. My goal was to never accept just a feature request but instead to always ask why they wanted that feature as well. In the process, I learned more in three months of development than I did in the first 12 years of running Infinity Softworks about my customers and how they use the product.

The second smartest thing I did was hire a designer. Kelly Beile (web site here) did a tremendous job of adding a professional look to both the application and our web site. This, I believe, is more important on iPhone that it has ever been on any other mobile device before.

One of the major pre-release issues was pricing. We have demanded and received upwards of $50 to $150 for our applications in the past and price sensitivity tests had shown dropping the price didn’t increase sales significantly. I knew we were going to have to re-think pricing for iPhone as  $10 is considered expensive in the AppStore. Again, we conducted a survey of these pre-release customers using a method perfected by Mark Paul at Synergy Consulting. (While nothing replaces hiring him, his books are here and here.)

The price sensitivity data showed a starting price of $9.99 maximized revenue but I was concerned that these customers were too familiar with our products and wouldn’t represent the broader world of iPhone users. After agonizing over this for over a week, I decided to adjust the pricing based on some additional factors and settled on $5.99. This decision is proving to be both a good one and a bad one, and I struggle with selling our applications so inexpensively to this day.

One mistake I did make in these early days was not spending enough time making sure the paperwork was in order. This cost us two days in the end — two critical days when we would be high on the What’s New list of applications.


As mentioned before, I planned on launching two versions of FastFigures, a web-based version called FastFigures Online and a version that runs without an Internet connection for iPhone and iPod Touch called FastFigures Mobile. Each product would work for a wide variety of potential customers: real estate, finance, investing, science and engineering, math, medical and more. I wrote the copy with our part-time marketer, Janet Lee Johnson based here in Portland, and got everything set up in the AppStore. We submitted to Apple on February 13, hoping for a February 18 release date but was rejected on February 17 with a very minor issue. It went back into review that same day and Apple signed off on February 22.

And this is where not understanding the process hurt us. First, I didn’t realize that there was some additional paperwork that needed to be completed. That was completed on the 23rd. Then, once everything is signed off, it takes 24 hours to show up in the AppStore. Finally on the 24th, I’m looking for the application in What’s New and can’t find it! Panic struck until I went to the second page of applications and saw it listed as released on February 18.

Apple launches your app on the earlier of their sign-off date (Feb 22 in this case) or our requested launch date (Feb 18). I didn’t think to change the desired launch date, figuring the date would be the date it actually appeared in the Store. Once I figured this out, I was able to adjust the date back to Feb 22 but by then it cost us two days of coverage on the front page of Apple’s iTunes AppStore.

The good news was we had these 250 people ready to go (not all of which purchased). This got us off to a great start and gave us product reviews and sales we wouldn’t have had otherwise. We started out at number 22 Top Paid Finance apps and stayed in the Top 25 for our first week. But once sales slowed down, it became apparent quickly that we would not be found in the AppStore. Adjustments needed to be made.

Month One

We were quickly learning that the noise level for iPhone applications was very loud. Janet was doing outreach to iPhone bloggers and others. We weren’t getting much of anywhere. In the meantime, it was clear that if I didn’t fix our search issues in the AppStore, we would just disappear. The free fall started the first week of March, just as we left the What’s New listing. On March 3, we were at 30 in Top Paid Finance apps. Four days later we were at #40; two days after that #45. We bottomed out at #50 on the 14th of March.

I was also watching a few search terms. For us, specifically, that was “calculator”, “finance calculator”, and “financial calculator”. We didn’t show up for any of these terms on March 2, when I made the first description change. Realizing that we needed to be less generic in description and capability, I renamed the application to FastFigures Financial Calculator. We showed up on all three the next day: #59, 19 and 6, respectively. A week later we had slipped to oblivion levels, however, at #74, 26 and 8. At this point, I changed the description again, to FastFigures Finance Calculator (finance calculator is searched for in Google far more often than financial calculator), which caused us to disappear from “calculator” and “financial calculator” searches. I made the last (and final) changes two days later, peppering the first description paragraph with the term “financial calculator”. That finally did it, getting us back on the list for all three and starting to see a climb up the ranks.

The beauty of low sales numbers is that I felt more comfortable experimenting. If we were doing great sales, I would have been hesitant to play with the search positions. We bottomed out on March 14, 1/3 of our original projections, and stayed close to this bottom per day until the 19th.

Meanwhile, those who purchased LOVED FastFigures. We had great reviews. On March 19, we passed 20 reviews in the U.S. Store, receiving 18-5 stars, 2-4 stars and a 2-star from reviewers.

Two things happened around March 19th that changed our fortunes. For one, we hit that magical 20 review level I’ve talked about before (link). Second, one of the products in the Finance category most similar to ours went free. There has been a lot of discussion on the web about free applications versus paid applications and that the two customers aren’t the same. And this competitive application proved that. It didn’t take the developer long to realize he made a mistake, changed back to paid but disappeared from the Top Paid list, surfacing down in the 70s. (He’s since recovered and is back in the Top 20 but with a price at $.99 instead of $5.99.)

Meanwhile, our sales started to grow. Was it a better search position? The reviews? This other app disappearing? Increased sales increasing our Top Paid Finance App position that made us more findable and thus increased our sales? I have no idea which factor but the combination was working for us.

From March 19 to March  27 we quadrupled our daily sales and went from Top Paid Finance position #40 to our highest position at #18. Since then we have stayed between 20 and 23 Top Paid Finance Apps and our search positions kept getting better. FastFigures Finance Calculator is now at #25 for “calculator”, #6 for “finance calculator” and #4 for “financial calculator”. Best yet, we seem to have leveled out at a new baseline for sales and can work to increase them from here with outreach to our potential vertical market customers in finance, investment, business and real estate.


Road Ahead

Obviously, we want to continue increasing sales as we are still 1/3 of breakeven. I now have enough data to predict the unit sales for a particular position in the Top Paid Finance apps. I can even tell what my competitors are selling every day. I do know that my daily targets for FastFigures Finance Calculator are attainable.

I do feel hemmed in on price, though. When I decided to release at $5.99, Mark Paul advised me to release at $9.99 as the data indicated. He argued that it would be hard to raise the price. He’s right but not for the reason he said. Now that I’m happy with our sales baseline, I don’t want to raise the price because I’m concerned about how it will negatively impact sales. (Reports I’ve read say any price increase will drop sales at least 25%). This issue — and the low AppStore prices in general — have forced me to re-think how we deliver the product. I decided to keep the existing, low $5.99 price and offer additional capabilities and power user features a la carte.

A second change is that it has become clear that we needed to separate scientific from finance from medical versions of the product. (My customers advised me of this, by the way, and I initially ignored them.) It is just too hard to be found in the AppStore with a broad product. So we’ll go niche and give our customers an alternative way to get the all-inclusive calculator.


A few conclusions based on my first month in the AppStore:

  • Reviews: If you don’t have 20 people ready to buy and review when you launch in a single AppStore country, don’t bother. The reviews are critical to any application’s success.
  • Professionalism: Having a professional design and web site help make the sale. Also, producing a series of videos help make the case since there are no trial versions.
  • Quality: Hire a designer and go for a high-quality look. It’s expected.
  • Process: Get the paperwork done early. Make sure you understand the entire process.
  • Monetizing: Think more broadly about your application than just a single product. Can you develop similar products that the same customers will need and connect them somehow? Can you sell add-ons? Can you derive income from a web/mobile combination?
  • Saturation: The AppStore is saturated. Getting press for your application is very hard. There are very few instant-riches stories. They are clearly the exception to the rule.
  • Pricing: Certain prices are too cheap for certain customers. And free is always too cheap for customers that would normally pay. Do your pricing research and embrace the data.
  • Niches: Focus on doing well with a single product in an individual AppStore category. If you are making an application that appeals to students and to travelers, think about making it two apps: one that would do well in the Travel category and one that would do well in the Education category.

Some conclusions regarding Top Paid and Search:

  • Country-Specific: Top Paid and Search results are different for each country’s AppStore.
  • Getting Sales: When it comes to numbers, there are only three that will impact your customer’s purchase decision: Top Paid position for your respective category, ranking for Search terms, and the number of reviews. Figure out how to rank high in all three.
  • Top Paid Ranking: Top Paid position for a specific category is critical. In the iTunes Store it’s Top 20 (and it’s not obvious how to see more). In the AppStore on the iPhone, it’s Top 25 and easy to see another 25. If you are beyond 50, you won’t be found at all.
  • Top Paid Position: I believe — but can’t confirm — that Top Paid is based on more than just raw numbers of sales in a given country’s AppStore. Clearly there are other factors at work and maybe based on some rolling average.
  • Search Position: Search positioning is based on some combination of number of reviews, review star ratings, sales and search terms.
  • Search Terms: Search is word-based. The AppStore search does not know that “finance” and “financial” are the same.

Can you make money in the AppStore? Yes. But the competition is fearce and it’s very hard to differentiate your product from others. My suggestion: Spend plenty of time up-front figuring out how to get above the noise with factors you can control.

The User Review Tipping Point

I read a very interesting report recently on how user reviews act as a tipping point. (link is here) The long and short of it is that 20 reviews seemed to be the tipping point. When you get to around 20 reviews, it makes a big difference in people’s opinions.

We hit 20 reviews in the U.S. iPhone AppStore last week and have seen our sales go up every day since.  (Thanks to all of you who reviewed it. Here’s a press release on the topic.)

Watching sales of FastFigures Mobile has been a roller coaster. We started off strong but of course faded as we left the “What’s New” section and all of our faithful customers purchased. Then it was a matter of watching for bottom. It just kept getting a little worse every day. It was killing me!

The biggest saving grace during that time was the wonderful things people were saying about FastFigures. I still can’t believe it. (This is version 1 folks! If you think it’s good, wait to see what I have in mind next!)

As of this morning, we have 27 reviews, 26 of which are 4 or 5 stars! We had one 2 star rating and to be honest, I’m quite thankful for it. It was starting to look like I paid people to say nice things about us! (If you are someone who has tried it and don’t like it, it’s okay if you don’t review it at the AppStore, though. I’d rather you email me and tell me what you don’t like so I can fix it.)

It took a week but we found bottom. I spent a bunch of time trying to figure out how people would find us and played with language to learn about the AppStore’s search mechanism. We made strategic decisions to change the way we were delivering the application, changing the name from FastFigures Mobile to FastFigures Finance Calculator in the process.

And then these changes started to take affect. And sales steadied out. And it became clear that we had found a nice, steady bottom (and one I could live with). And — the best part — the anxiety subsided and I slept again.

But then a funny thing happened. We hit 20 reviews in the U.S. version of the AppStore. Since then our sales have gone up EVERY DAY! And visions of actually making a living wage have returned! Let’s hope it isn’t just more bumps on this roller coaster. I could use a nice, steady uphill climb.