Welcome to Under the Radar, a show about independent iOS app development. I'm Mark O'Arment. And I'm David Smith. Under the radar is usually not longer than 30 minutes, so let's get started.
So today, I think we wanted to dive into, was the topic of pricing. And specifically arriving at that price, how do you determine what is a good price for your product, your app, your subscription, and then also dealing with some of the topics that I think are more relevant for you, Margo, recently, in terms of the concept of... If you decide you want to change your price, how do you do that? What are some things, things and considerations to go around that?
Because I think ultimately it's a very important thing to give great thought to, because if you're trying to run a business, the amount of money you generate on the in-cut, on the front of your business is, what are you selling and how are you selling it for?
And the amount you sell it for, multiplied by the amount of times you're able to sell it, will be the revenue that your business receives very straightforwardly. But it is not straightforward, I think, to determine what the price of any given thing could be, because there's lots of different things that you're doing to balance out in that process.
Because the price you said for something will also have a direct effect on many other aspects in terms of the way that your subscription is viewed, is it a premium experience, is it not a premium experience? Are you trying to structure your business to maximize short-term revenue, long-term revenue?
Are you not even trying to maximize revenue? That can be something that you could be very reasonably trying to do, that you're just trying to cover the costs, especially if this is more of a hobby project or something that the intention is not for it to get large incentives from revenue, but potentially you would love it if it had was large in terms of customers.
Like that would be a perfectly reasonable and rational way to price something, but the first step, I think, as with many of these things, is to think about and understand for yourself what it is you're trying to optimize for. Are you setting your price for which of those dimensions? Short-term revenue, long-term revenue, size of subscriber base, or you're just trying to follow the market, maybe those less like the fourth thing you could be trying to do.
And think which of those makes is a better fit for you. And some of these decisions will be sort of be made for you automatically, especially if you have run a system that has a particular fixed cost associated with it.
So the classic one for this is you make a weather app, weather apps have costs associated with gathering the data for them. You can't price your your app below what your costs are because you will just gradually run yourself out of money, which is something that I did years ago with I used to make a weather app called Check the Weather, which was at the time there was no subscription pricing.
And so it was an upfront price. I thought I was charging enough and it turned out essentially I charged enough to cover like a couple of years of data for each user. And what ended up happening is after the app was around for longer than that, like four or five years, and I had no new revenue, I was essentially just paying putting money into this app and losing money every every month in terms of paying for data costs and eventually I had to shut down the app.
So you have to be careful about this. You have to make sure that you're you're you're setting your pricing up front to cover whatever your costs are, but then beyond that, it's a question of, you know, which of these dimensions are you trying to optimize for? Yeah, I had a similar problem with Insta paper back in the day, you know, Insta paper, I never had a good subscription revenue model for it during my ownership of it.
I for the most part, it was a it was a free app and a paid app and you would you would buy the paid app as a one time purchase if you wanted to. And and that setup was good for a while. It was great for a while. But the problem with that kind of thing is like, you know, it's spiked up in revenue had a few great years and then we're just going down, down, down once once I couldn't count on the growth of the user base.
Because you know, back then, you know, Insta paper was in the app store, you know, on like day three or whatever in 2008. And then I had a great sale spike with the growth of the iPad in 2010. And if you and like a pay once model works just fine if new possible customers are constantly coming in the door.
So it worked great back then because the you know, the iPhone and the iPad were still growing substantially over time. Like that's that's one of the reasons why even though Insta paper had very little to do with Christmas.
My sales would always spike on Christmas because a lot of people were unwrapping their first iOS device on Christmas every year for a while. And then every year that effect got a little bit less, a little bit less, a little bit less as the market kept growing and kept getting more saturated. And as more people kept getting replacement devices over time instead of their first iOS device.
And so what I should have done and failed to do then was change to recurring finance model of some form some kind of subscription or something like that or ads, some kind of recurring income. I should have converted to it back then once it was clear that the growth of the market and the growth of the potential user base was slowing down.
I didn't and therefore my income just went down over time. And that's part of why ended up having to sell it because it just you know, financially just was not performing well towards the end. And so with overcast I've gone through a number of these different types of phases but it was really only the very first year that I tried the pay once model.
And then in year two I tried some kind of like patronage kind of model like kind of let's volunteer to maybe give me some money if you like me. And that didn't work very well. So starting in year three of overcast I just had ads plus subscription. That was it. That was that that became the model. And that was 2016. I was eight years ago.
And so I back then obviously things were a little bit different in the App Store and in the landscape. I set a price back then of nine ninety nine a year US so 10 bucks a year. And what are and similar equivalents at most other currencies. And that was it. And I have been sitting at 10 bucks a year since then I've never changed the price 2016 eight years ago.
So as a result now things are you know I make good money from it but when I look around the market. I'm starting to see like I am dramatically under pricing myself here because I looked around a lot has changed in both the podcast app market and in just the overall app market in the last eight years.
Subscription pricing back then was a risk now it's the norm back then 10 bucks a year was considered like decently mid range price now I have a hard time finding any like decently popular app in the App Store or decently featured app in the App Store that has a subscription that is in that range like usually they're either free totally and they make their money some other way.
And so I'm finding myself now like you know I have to I think revisit this pricing I even looked like all of my competitors like I I did kind of an audit of whatever podcast apps I could find that had so much in pricing and podcast again podcasts are also weird now but for the most part and there's not that many left that are like this but for the most part they're either free as part of some big service like Spotify or YouTube or Apple podcasts or they are
so Christian priced and those prices you know I'm at 10 bucks a year all of my competitors are like between 25 and 40 a year so they're way higher than what I'm charging so I reach the point now you were you know I realize like I am leaving a lot of money on the table and you know not only does that kind of feel crappy from from that point of view and I'm trying not to do the math in my head of like how much I'm losing per month potentially by not raising the price because that's just a recipe for sadness but.
I am I am now thinking like okay I'm going to raise the price it's just a matter of to what and how because it's clear to me that like you know pricing not only am I leaving money on the table by being like a third to a quarter the price of most of my competitors but that also sends a signal marketing wise and value wise that's in the signal that I think I'm only worth a quarter of their price or for some reason I'm doing this where I'm getting
like four times the paying users as they are more and so it's worth it and I don't think either of those are true I really don't think I'm getting that many more paying users at 10 dollars a year that I would get a 20 because when I look at who my users are and like you know how how they've stuck around over time for so long and I actually have a pretty
decently high percentage of the user base as paying subscribers so that tells me these people love my app like they're they're really dedicated and so I look at that and I also see like am I actually you know am I delivering a quarter the value of other competitors no we have very similar features very similar apps like you know for the most part I'm actually maybe I'm giving away too much even in my free tier so it's very clear to me that I need to raise
this price and so I'm going to do it and so now just again the question becomes how and when and how much yeah and I think starting maybe with how much question is the interesting one for like in your case you have the benefit of a market that you can compare
yourself to and in a weird way sometimes I appreciate that when I have a competitor who seems very like well funded and big compared to me where I have this vague expectation whether it's true or not that they've done lots of the A B testing and experimentation and research and all of the things that I probably
should do but have not done and then you look at them and say okay well what are they doing as a result because I don't think they are doing it out of foolishness they're doing it out of some other you know sort of value and thing that they're trying to accomplish and having some success with it otherwise they would have changed the price and so it is useful in your case to have that sense of it's like okay this is a
reasonably sort of like fair market value for what value you're providing to someone and so you have that as like an anchoring point I think you have the other kind of anchoring points of just there's an essence of like I don't even know there's I feel like there's a certain intuition that I have for these things that I know I should be I should probably pay less attention to this than I do but it's
certainly a something that I think about of the how would I feel if I was being asked to buy for this you know buy by this service this product whatever it is what I think that's a lot of money what I think that's not a lot of money and that one's a dangerous one because I'm not necessarily my average user I'm not my typical user I'm me and I'm just one data point you know in a wide range of things and the way pricing works is and in some ways you can get into price
segmentation we're trying to price for different types of users and charging them different amounts and like in theory that would be the maximum way to kind of optimize because naturally as you for most goods if you increase the price of a good fewer people will be
willing to pay that amount and so you're trying to find this sweet spot where though you know the number times the price is the highest unless you can segment further but it's like where I am on that and if I optimize for that which is what I would be more importantly probably what I often do is I'm choosing one data point and that just happens to be where I am rather than where the number the largest number of paying users if for my app would be
and so I think that's certainly something also to keep in mind that it's you know and it's nice I think like I love it when apps have low prices in some ways because that's better for me that isn't necessarily better in the long term you know longevity of something like in the example your save of Insta paper right it's the if if you want to have a fast subscription was say two or three times more than it is now it was 20 or 30 or even $40 a year
would that make it more likely that the app sees faster stronger longer lived development like maybe and like that's in some ways what a lot of users are paying for once you're sort of past the costs version of this that once your server costs or even if you say like if you paid yourself a basic development you know in terms of is this if I was just a regular Swift developer what would I salary what I make you're kind of reaching that point
the excess you're getting beyond that is almost just like generating excitement interest motivation to keep going because money is a useful motivator it is a useful tool by which we often measure our success and the usefulness and the value of the time that we're putting into something and so in some ways what they're buying you know is your attention there and I think in this case I
completely agree $10 a year seems very low and see something that could be increased and I think straight forwardly it's like because you're starting from such an initial low point you have a lot of space to play with in terms of even doubling your price still it would not be particularly expensive you know all of the solutions that I have right now in my apps are $2 a month or $20 a year which increasingly I'm starting to feel a bit of like
you know those prices especially given what inflation has been in the last four or five years it's like I think overall inflation since 2020 is something like 20% or 21% in the US it's like that's a pretty substantial amount and so I should potentially be looking at making my you know my pricing more like maybe $3 a month 25 dollars a year something like that like if I was just trying to keep up with inflation and not be sort of losing money in real terms.
I think that's an interesting place to be but I think a lot of us it's it's hard to want to change something because whenever you change something you have the fear that you're going to like just ruin everything it's all going to burn to the ground and terrible things are going to happen and so I find it very scary to actually go in
to abstract connect and you know sort of make a change like that and that that's why I never have I mean and you know like I also I did the inflation calculation myself and like you know if I it really because I have not read like any price that you've had for a few years that you have not raised you're basically discounting yourself from from the past because of the inflation has been so strong so like you know right now like you know I if I do like the
calculation like if I you know what what is 10 bucks a year now worth eight years ago it's actually $7.60 so or like you know if I had been if I had been raising my price with inflation and started at 10 bucks eight years ago then this year it should be $13 a year so that's a substantial difference you know that's so I'm basically offering a price drop every
year I don't raise the price and and also in during that time you look at the app store as a whole and a few things have happened number one the move toward subscription has gotten even more aggressive you know back then not every app was description priced now almost every app that has a way to pay for it at all is a
subscription payment you know again many apps are just free with ads or through other business models through their you know backing services or whatever but if the app processes your money at all usually it's a description based now and like this was also enlightening you know I went on a little exploration and over the last couple weeks trying to find apps offering me certain features
for sleep tracking was looking at all these different sleep tracking apps and there they all are like 40 bucks a year and so any when you start looking around the app store again look around at at full featured apps that are established that have you know good good features good reviews good user bases they're all in that range now it's very hard to find one that's not and also Apple seems to have relaxed the rule that it used to be that if you had an
internet purchase then with if you didn't purchase the net purchase the app had to offer some kind of minimum functionality for you that seems no longer be the case policy wise so now it is it seems to be totally okay with policy as I found a few that did this that you can as part of your onboarding flow into your app just put up the subscription thing and you can require the user to start a free trial for the subscription to actually go through the purchase with a free trial for any
functionality in the app so what we effectively have now is trials plus subscription like as as a required business model that you can use in your app so what this has done it and you look around like this is push prices up so much for apps that that have a reputation on user base so that has happened and then what is also happened in the in the intervening eight years is Apple has added the ability to change the price of a subscription without losing all of your subscribers.
There are certain bounds on this and this is you see this I believe they did it for Disney plus a couple years ago when I read that Christmas price raise but now every streaming service is doing this where I'm getting an email I can tell you exactly it happens about once a year and there's a reason for that you know I got an email once a year saying like oh you know who is raising the price of your subscription by a dollar or whatever.
So the current policy on the app store is you can raise the price of a subscription to whatever you want but if you raise it by more than $5 or 50% more than once a year you the everyone gets opted out but if you raise it under that cap if you raise it by $5 or less and it's only once a year or less people get opted in by default.
So they'll get an email the ones like the ones I get for my streaming services the look at the email saying hey next time you renew this is going to be this new price and you can cancel if you want but if you don't do anything you don't cancel.
So I do have a very strong incentive now to raise my price by $5 a year until I reach whatever I want it to be and that's you know so I have some time to you know to to dabble on other things but that's I that's probably what I'm going to do starting pretty shortly but before we get to that.
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So I think absolutely we're going to change our prices I think we're talking ourselves into this. And I think the next question is sort of like the actual mechanics of doing that and finding the best price and you know taking advantage of the mechanisms that apple has there I think makes a lot of sense.
And I think when I've been trying to think through this through for myself I think something that I've sort of hit on is one of the advantages of a subscription model is that you have both a kind of you have this archive of users or this kind of like you have this large base of users who are subscribed to your app and that is like the magic of the subscription system is that you have a group of people who have agreed to pay you money in the future awesome.
Also every day you present users with the opportunity to become new subscribers. And I think what is really interesting to me and this is something that I'm just starting to explore myself is the sense of you can use the new users as a way to discover price sensitivity price value how valuable your app is to people because you aren't don't have the baggage of trying to change something from their expectations you know this is if this is a brand new user who's never.
Senior app before the first time they open your paywall and they see the prices twenty dollars a year if you're you can look at that and you can look at the conversion rate of that and you can very easily to some degree like mathematically work out okay at twenty dollars a year how many users to what what would I get at fifteen dollars a year how many uses what I get at forty five dollars a year how many uses what I get and I think what's interesting to me is starting to explore and experiment.
And I know there's a bunch of tools that people do I think I know revenue can't I think has a whole tool set up for this but there's a lot of ways you could approach that you know in terms of whatever made sense for your.
Your approach but I think it is useful to then use the opportunity of having new customers as a way to gauge what is a good number and then when you go to the place where potentially you're up you know increasing the price on existing users which will naturally be something that.
Increases your churn rate I would expect you know if you any time you were raised the price some number of people are going to go away but at least you're not doing that blindly where if you've done a bit of research with your new subscribers and it seems like. Say you're you know it's like going from ten to fifteen dollars you know fifteen dollars has almost the same subscription rate as the ten dollars did in your in overcast for example.
You could have some confidence that if you go from ten to fifteen your churn rate is not going to be ninety percent that you're not going to suddenly lose all of these people you're going to lose some you're in that's just the nature of what's happening there and hopefully you know you lose fewer than the number of the increase and so you overall come out ahead which would obviously be the long term hope that you raise your in that case if you raise your price 50% and you only lost 20% of users you probably come out ahead.
But it's I think it's an interesting way to view this in the way that I'm expecting to start approaching and starting to think about pricing is you know doing my experimentation. On my new customers to understand where the best price would be like to sort of you have a bit more of a range there that you could you're not the in terms of apples rules you can set whatever price you want to some degree.
I know there's some complicated mechanics in terms of the actual like up store connectedness of that like are you creating a new product that you're showing people inside of your existing subscription group and it's like it's complicated but broadly you're able to I think experiment a bit with understanding what you price you want and then you can move towards that within the bounds of what apple lets you know so you can only increase by certain amounts and but if you do you you know if you in overcast case if you find that really the best price for overcast is twenty five dollars you can feel pretty good about increase.
So pretty good about increasing your price by within the rules that apple has and not feel nearly as worried I would think. Yeah and I think that's that's what I'm probably going to do over the next coming months like you know I do want to work on some features to add to premium so that I'm not just raising the price with no new features being added that that's probably not a great recipe for good sentiment among users.
So I am working on new features for it but ultimately it's not going to be anything like you know massively mind blown it's going to be basically the same thing just you're doing it mostly to support the app and maybe to get rid of the ad on the now playing screen like a couple of features that that kind of thing.
But you know I do intend to do a lot of experimentation over the coming months and things like trying at different price points on new subscribers to see like you can I can I you know create a new subscription within the same subscription group or however that's going to work. You know only show it to new users let let existing users keep buying the current one like you know that kind of thing like all sorts of room for that kind of experimentation and.
That's kind of what I have to do if you know model out you know this seems to be the charm rate when I raise the price by this and then so therefore what is worth it and that's. You know it's it's kind of unfortunate whenever the answer to to a question of in development is like well just try it and see because you know that's that's obviously quite a process it can have some downsides can have some costs.
And sometimes the answer is not clear cut until you try it but that's I think pricing is one of the things it's so it's so psychological it's so much based on perceptions and feelings you know because the reality is like it doesn't really matter if I.
Like for somebody who's using my app if they're paying ten bucks a year and I raise it to twenty five bucks a year that's probably not going to make a difference whether that person can afford it or not so it's not really about affordability in when you're in these kind of price ranges.
You know you know because usually somebody who can't afford a ten dollar a year purchase in your app probably also can't afford twenty five and vice versa so it's more about perception it's more about like people don't like to feel ripped off. They don't like to feel fooled they don't like to feel railroad it they like to support things that usually have some kind of exclusive content you know they and people value content differently than they value software.
So that there's all sorts of different perceptions and pricing psychology going on here that you have to consider and because of all that a lot of times really the only the only good answer to what should I charge is try it and see see how people react react in real life basically. Which again it's not a satisfying answer and it takes some time to really figure it out but then once you do the you know the payoff can be can be quite substantial.
Yeah and I think the other form of experimentation that I think this kind of pricing discussion think that makes me think about is the concept of discounting and having multiple price points for the same thing which is something that I don't think either of us particularly done and it's it just makes me think of if the you know it's like if the fair price of something is.
20 dollars a year and I show the price as being 25 dollars a year with a five dollar discount it feels weirdly this is just like pure psychology doesn't make any sort of sense rationally feels like you're getting a better deal.
And I think increasing pricing in a weird way also allows more space for that kind of thing that you can create these different price points or have different opportunities where you can have a sale on black Friday or whenever and it would make sense for your users in a way that you just if you are pricing initially at a much lower amount or closer to your costs or closer to the kind of like the minimum that you would feel good about.
You just don't have a lot of space for those kinds of things you don't have a lot of space to raise your you know to lower your price because your prices are ready as low as it can go and so that's the other aspect of this that when I think about my pricing that I'm starting to sort of lean towards is like it also creates that opportunity and it creates the ability to be more flexible in your price in some ways and I think there are some interesting options that and things that you could do as a result of that where you.
You can if you have a higher price you that doesn't mean that that is the price for everyone forever you also are creating more space to other for other forms of experimentation and I mean experimentation is one of these things that I both love and hate because it isn't it isn't development that's the thing that I enjoy the most I enjoy building features not experimenting and spreadsheets like I enjoy the spreadsheet parts like that that that's very enjoyable to me but the actual like building this building the infrastructure or incorporating the infrastructure to act.
Do the experiment and running the experiment feels like a certain kind of busy work to me that I don't enjoy but I mean the reality is if I want a viable business that has a sustainable future that is motivating for me to continue to work and grow like these are I think just like these are the tape heart of the table stakes of getting that done and I just need to lean into that a little bit and I get to stuck on just that you know the shiny next new feature and also I think my one of the biggest lessons I've learned here is
don't stay still in your business model thinking or your pricing thinking these are evolving things this and you know the market has changed so much in just the last five to 10 years you know any assumption you've made about pricing in the past or your perceptions about pricing in the past
probably need to be revisited and I've learned like I think what I'd like to get to is a point where maybe I'm increasing the price every year just like the way who it is maybe maybe I increase it you know once I get to a stable stable point maybe I increase it by a dollar a year that way everyone kind of use gets used to the fact yeah this goes up over time like so many other things
you know there's so many you know assumptions that you should challenge every every year every couple years about your app and about your business thinking because you know we're not we're not sitting in a vacuum here that this is everything around us is changing all time. Yeah and I think maybe last is understanding that what people are paying for is the value you provide to them and if the value continues then their desire to continue
paying continues and I think valuing yourself in that way is just an important aspect of this and saying that if you raise the price for it like my fear is always that everything is going to go away but the value I'm delivering has not gone away and so it is not I shouldn't be quite as scared as I naturally am as a result thanks listening everybody and we'll talk to you in two weeks fine.