All business survives on net profit.
In accounting terms, here is how you calculate Net Profit. i.e. (Total Business Revenue) – (Total Business Expenditure) = Net Profit
In the business world, there are two types of industries Service and Product.
So if you are in the service industry, you survive on a paycheck by paycheck or hourly charges to the client. You have to work every hour of every day to make ends meet.
But if you are a product company, you create a product based on your market and user research. You find consumer problems/requirements/gaps in the market and then try to solve them by creating your product in that category. So building a product is based on solving problems that your users are having.
In my case, I was a designer by profession. I graduated with a BFA (Bachelor of Applied Arts) in Advertising. After my first two jobs, I tried freelancing in the web, UX, print, branding and animation film industries. I was the lone proprietor of my business. I was doing everything talking to clients, executing a project, delivering it and then waiting for the final payment to be released. It was too much for me at that time.
That time was when Apple released iPhone, App Store, and iPad.
What I learned about Apple App Ecosystem was:
- Apple app store is an app distribution platform that releases and makes available your app to every iPhone/iPad/Mac owner without you worrying about packaging, real-world distribution strategy, printing your boxes etc.
- Apple provided the payment gateway.
- Apple gives App Analytics on App Store Connect.
- Apple manages monthly payments & payments cycles on App Store Connect.
- All apps were sandboxed and notarised by Apple itself
- All App Store Connect portal was integrated within Apple’s IDE Xcode for better app release cycle management.
- For all of this, Apple was taking a 30% Commission. They were not charging a commission for free apps.
Benefits of building a product for businesses:
- When building the product, you study your user’s needs, wants, age, sex, purchasing power, education, location, and profession.
- Then you decide on the monetisation strategy of your product. Can it be one time buy, paid, freemium with in-app ads, premium, or subscription?
- Then you choose the excellent prices for the offerings. It should be more than the cost of building the product and making it profitable.
- One benefit of selling products is earning money even if you sleep, walk on the road or vacation. It is mainly possible if it’s a digital product.
- Business methodologies say it should be a Win-Win situation for you and your consumer/user.
- The price should be low for the user as he doesn’t have to think twice about it, and profitable for you simultaneously.
- External forces like competitors also determine the price. I will give you an example. I used Adobe Systems’ Creative Cloud App offerings, which are subscription-based for most creative and development communities. But it costs a mountain to use it. It’s subscription-based, so you lose access to applications if you the stopped subscription. Their apps are their proprietary offerings, so their files are incompatible with other apps. You are a lockin customer. All Adobe Creative Cloud apps are heavy on file size and processor, and RAM utilised.
- A single Adobe CC app costs INR 2,000.00 to pocket, and all apps cost INR 4,000.00. So you are paying for 20 other apps bundled in Creative Cloud which you may never use.
- Now, new apps are available, mainly on the Mac, which are cheaper, faster, and easy to compute and save energy. I use Pixelmator Pro, which costs 3 to 4 thousand for a lifetime (i.e. Paid Business Model) and 700 MB on app file size.
- So what you are changing and what customer is taking out of that product is the main thing to be considered when planning your product’s monetisation strategy. e.g. If I use a Creative Cloud INR 4,000.00 subscription and as a freelancer, I am charging INR 5,000.00 per project, which takes five days to complete. So I can only do four such projects monthly to recover the cost of buying an Adobe CC Subscription. Keep in mind I am taking Saturday and Sunday off every week. To become profitable while subscribing to Adobe CC, I must increase the hourly rate/project cost, considering I am dealing in Indian Rupees and freelancing in India. Using Adobe CC apps is costly for me, and I should change my apps to Pixelmator, which will help improve my net profit and reduce my bill to clients.
I hope this information helps you ideate the correct product pricing.
Thanks & Regards