A new report from Liftoff, a Silicon Valley-based mobile app marketing and retargeting firm, says that subscription-based apps may do better if developers charge a higher price for services, rather than setting prices too low to lure users in initially.
The Liftoff report, which analyzed data gathered between June 2016 and June 2017, categorized app subscriptions into low-cost monthly subs ($0.99 to $7), medium ($7 to $20), and high-cost subs ($20 to $50), while also factoring the cost of acquisition per customer. The company found that apps in the medium price range had the highest conversion rate — 7.16 percent — and the lowest cost to acquire a subscriber, at just over $106 dollars. This was five times higher than the rate of people who subscribed to apps when the apps were in the low-cost category.
This may partly be because streaming media apps, like Netflix and Spotify, have already conditioned people to pay around $10 a month for services. But it also might be attributable to the sunk cost fallacy, Liftoff says: the “cognitive bias people have that makes them stay the course because they have already spent time or resources on it.”
Apps in the medium price range had the highest conversion rate
The report also examines apps that fulfill “need states,” like dating apps or cloud services. These have the potential to offer services that customers are willing to pay for, again and again. But, according to Liftoff, utility apps have a much higher install-to-subscriber rate compared to dating apps. Blame those who eventually find love?
It’s been more than a year since Apple first announced significant changes to the way its App Store operates, changes that incentivized app makers to offer subscription services, introduced search ads to the App Store, and also sped up app reviewal processes. Most of these changes didn’t kick in until last fall, when Apple traditionally rolls out its new software to the public.
Since then, I’ve heard mixed reactions from iOS app developers. Smaller independent app makers have said it’s difficult to convince customers to pay a recurring fee for apps they don’t know much about, or apps made by a lesser-known developer; others have said that the new incentives translate into significant revenue for them. Overall, it’s still a little too soon to tell, since Apple’s new 85 / 15 percent revenue split only kicks in after subscription app makers have maintained those subscribers for a year or more.
To formulate this report, Liftoff analyzed its own internal data, which included more than 1 billion ad impressions across more than 14 million clicks, and 500,00 app installs across 45 key subscription-based apps, during the year-long period between June 2016 and June 2017. While the report is largely focused on conversion rates, it still provides some interesting insights into how subscription-based apps are actually doing. And it tracks cost and conversion rates across the Android platform as well, not just iOS.
It’s a lengthy report, so I’ve embedded it below for those who want to read more:
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