Are the benefits of Apple’s App Store worth 30% of your revenue?
Calculation of how much benefit you really get for 30% of your revenue
What are you really getting from Apple’s Platform?
Apple positions the value of its marketplace around afew key benefits: multiple platforms — including Apple Watch, Apple TV, iOS, iPad, and Mac—access to a worldwide audience, app and revenue analytics, no hosting fees, and Apple will handle all the payment processing.
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According to Apple’s latest numbers, this combination of platforms and audience spent aroundhalf a trillion dollars in 2019. There’s plenty of money to be made, and yet in 2018 fewer than 3,000 apps were makingmore than $1 million a yearin revenue according to App Annie.
If you are running a subscription business, Apple also says ithas the tools needed to help you succeed, including churn mitigation, price increases, intro-offers, and other tools that are important in growing and maintaining a paid base of subscribers.
Do the benefits for subscription businesses justify the costs?
Let’s take a more careful look at some of the benefits for subscription businesses selling digital products on Apple’s App Store and make some simple estimates to see how much money Apple may help us make on their platform.
First, how can you leverage Apple’s large international audience? Selling products in multiple foreign jurisdictions comes with a slew of challenges including currency conversion, taxes, and other legal requirements. Every developer will need some platform to tackle these challenges so they do not have to take them on themselves.
Of course, selling your app in multiple countries is not as simple as flipping a switch and going live, but for the sake of simplicity, we’ll assume that our app is already good to go.
For an app currently selling in the United States, there’s a 40% growth in the potential audience just in moving into other countries with English as their official language.
Involuntary churn is another area where Apple offers tools that can have a big impact on your app revenue. There aremany reasons involuntary churncan occur including expired credit cards, fraud, and card limits. If you did nothing to address these issues, you could lose around3% of your subscribers a month, while using a platform like the App Store may drop that toaround 1%.
Building a simple subscription revenue model
Let’s plug these benefits into a very simple subscription model for a small app. You start the year with 1,000 paying customers who pay $4.99 a month. You currently acquire on average 100 new paying customers a month, with no involuntary churn mitigation and a6% subscription cancelation rate.
At the end of the year, your app has made about $62,500.
Let’s add in the type of involuntary churn mitigation provided by the App Store, reducing the monthly rate from 3% to 1%. That brings our annual revenue to $67,600.
Now let’s say at the beginning of this year we went from selling in the US only to other English speaking countries, gaining 40% growth in our audience. Now we’ve made $78,500 this year.
So where did we end up? That’s just about a 25% increase in annual revenue.
Did we beat Apple’s 30% take? Not quite, but we are healthily over the 15% revenue cut Apple takes starting after you’ve had a subscriber for 12 months.
Since the launch of the App Store in 2008 and Apple’s StoreKit framework in 2009 for selling in-app purchases, a lot has changed in the world of payments and subscription management. The growth of platforms likeStripeandShopifyhave certainlychanged the landscapefrom when Apple landed on its 30% number.
Is Apple’s App Store cut worth it? They definitely offer a lot of benefits, but with a rapidly changing SaaS landscape, it may come down to a question of how many resources you have available to tackle these challenges yourself to grow your revenue.
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The cost versus benefit analysis of a subscription on the Apple App Store is a summary of a more detailed article on building a subscriptionrevenue model for your app. The analysis includes a spreadsheet where you can plug in values for your app and subscriber base and approximate your benefit from using Apple’s platform.
Story byAlejandro Cantarero
Alejandro has been working at the intersection of data and technology for the last decade at startups and large media companies. He built t(show all)Alejandro has been working at the intersection of data and technology for the last decade at startups and large media companies. He built the data groups and platforms at Tribune Publishing and the Los Angeles Times and is currently the CTO at Nami ML, a platform to help app publishers grow their revenue with data and machine learning. He has a Ph.D. in Mathematics from UCLA.
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