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 the Product industry.
So if you are in the service industry you survive on paycheck by paycheck or hourly charges to the client. You have to work every hour of every day to get ends meet.
But if you are a product company you create a product based on your market research and user research. You find consumer problems/requirements/gaps in the market and then you 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 then App Store and then 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.
- The payment gateway was provided by apple
- App Analytics is given by Apple on App Store Connect
- Monthly payments & payments cycles are managed by Apple 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 monetization strategy of your product. Can it be one time buy, paid, freemium with in-app ads, premium, or subscription?
- Then you choose the perfect prices for the offerings. It should be more than the cost of building the product and making it a profitable business.
- One benefit of selling products you are earning money even if you are sleeping, walking on the road or vacationing. It is mainly possible if it’s a digital product.
- As business methodologies say it should be a Win-Win situation for you and your consumer/user.
- The price should be cheap for the user as he doesn’t have to think twice about it and profitable for you at the same time.
- Price is also determined by external forces like competitors. I give you an example. I was using Adobe Systems’ Creative Cloud App offerings. Which are subscription based for most creative and development communities. But it costs a mountain just 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 app files are not compatible with other apps. You are a lockin customer. All Adobe Creative Cloud apps are heavy on file size and processor and RAM utilized.
- 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.
- There are now new apps available mainly on the Mac which are cheaper, faster and easy to compute and save energy. I use Pixelmator Pro which just cost 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 you are planning the monetisation strategy of your product. 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 5 days to complete. So I can only able to do 4 such projects per month 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 have to increase the hourly rate/project cost at the end considering I am dealing in Indian Rupees and freelancing in India. Using Adobe CC apps is costly to deal for me and I should change my apps to Pixelmator which help improve my net profit and reduce my bill to clients.
I hope this information helps you to ideate the correct pricing for your product.
Thanks & Regards