Don’t leave it to a coin toss. Credit: Pauli Antero

Recently I was contacted by Peter Tanham asking if he could publish a guest post here on MAT.  At first I was hesitant but after reading his post, I definitely feel that it provides tremendous value to not only the MAT community but also to myself.

I will be starting to do a lot of testing for my app “SharePrayer” in the near future and testing the price is definitely one of them.  So hopefully in a future post I’ll be able to give you the results after using Peter’s techniques.

So with that being said, here’s Peter to explain more…

Picking the ideal price for your newest app can sometimes feel like guesswork.

99c? $1.99? $4.99?

You know you don’t want it to be too expensive to turn people away, but you also know that pricing it too cheap could be leaving money on the table that you could have earned.

Picking a price for your App doesn’t have to be a stab in the dark – There is a method to taking this art-form and turning it into a science.

It’s called micro-testing, and, if used correctly, it can help dramatically increase your app profits by finding the ideal price.

What Is Your Most Profitable Price Point?

I remember talking to one of our first clients about the price they would be setting for their upcoming app.

They were torn between Tier 1 ($0.99) and Tier 2 ($1.99).

I know the client said that I’m more likely to buy an App if it’s $0.99 rather than $1.99.

But how much more likely? I asked. Twice as likely? Three times as likely? Or 50% more likely?

Hmmm… I don’t know!

This is the key question any App Entrepreneur needs to answer before setting their prices. If I double my price from $0.99 to $1.99, will my sales fall by more or less than half?

If they fall by more than half, $0.99 will earn you the most money. If they fall by less than half, $1.99 will earn you more.

I’ll illustrate this with some examples:

If you sell 100 apps in a day at $0.99, you’ll earn $99.

So what happens when you increase your price to $1.99?

If sales drop to 70 per day, you will make $139

If sales drop to 55 per day, you will make $109

If sales drop below 50 (in half) to 45, you’ll only make $89

If I double price, how far with sales fall? Economists call the answer to this this question ‚elasticity‚ and knowing your App’s elasticity is vital for picking your most profitable price.

Use Micro-Testing To Find The Perfect App Price

So how do you get these figures? How do you find out if your app sales would fall to 70 or 7?

One way is to change the price in the app store and track the change. It’s quick and easy, but it doesn’t always present an accurate picture. I know some of my apps can have 50 sales one day and 15 the next when the price stays the same!

I like to use Micro-testing to find my most profitable app price. The process involves showing an app-store-like landing page to a group of people and tracking how many sales come from each price point.

This whole process can be done in 3 simple steps and it works for both new and existing apps.

Step 1: Create Your A/B Test

Step 2: Send Traffic to Your Test

Step 3: View Your Results

Create A Mobile Landing Page

A landing page is a single web page that will showcase your app, similar to the app details page in the iTunes store.

Even if this is a new App, you should create your landing page as if the app is available to purchase, with a main Call-to-Action (i.e. a big button) saying “Available on iTunes – Install Now.”

The goal here is to mimic the experience customers will have when they view your app in the app store and to test how willing they are to buy it at various price points.

Landing Page Resources

You have 3 main options for building your mobile landing page:

a) Custom code it or hire a developer on Elance or oDesk. This is the most time/cost intensive, but gives you good flexibility

b) Use a template from a site like Themeforest. They cost about $10, but would require some basic coding knowledge.

c) Use a mobile landing page builder like SparkPage. SparkPage will let you build a landing page in minutes with no coding required.

Set Up An A/B Test

Now that you have a landing page built, you want to create several variations to test the different price points.

A/B tests will randomly split traffic between these test pages to show what percentage of visitors click on “Install Now”.

This percentage is your Conversion Rate. It’s the key ingredient in finding your price point.

If you’ve custom built your landing page using a template or HTML, you can use a site like Optimizely or VWO to create your variations. Right now neither have mobile specific tools (Optimizely does, but only for Platinum customers paying $500+ per month) but their desktop tools can often work on mobile pages.

SparkPage has one click mobile A/B testing as standard in all their price plans. The platform will also automatically calculate your Conversion Rate as you run your test.

Send Traffic to Your Landing Page

Once your landing page is ready, you need to start sending traffic to it. You can do free promotion, such as sharing the link on Twitter, but we recommend a small ad campaign for a reliable, non-biased flow of visitors to test your price points agains.

By running a small ad campaign, even as low as $50, you can send hundreds of visitors to your landing pages.

You can use AdMob, Google Adwords or any other mobile ad network.

Making Sense of Your Results

As you start to send visitors to your landing page you should begin to get a sense of the conversion rate for each price point.

If you build the Landing Page with custom code or a template you will also need to use a service like Google Analytics, Optimizely or VWO to track the number of clicks on your “download” button. SparkPage will automatically track these for you.

When you have enough data you can start calculating your Conversion Rates and making comparisons.

Here’s the simple formula:

(Number of Clicks / Number of Visitors) x 100 = Conversion Rate

I’ll run through some example figures to demonstrate.

Let’s imagine you tested two price points, $0.99 and $1.99. Each page had 1,000 visitors.

Page A ($0.99) had 250 clicks on the download button. This gives us a conversion rate of 25%.

Page B ($1.99) had 150 clicks on the download button. This gives us a conversion rate of 15%

The simplest way to compare the two is now to multiply the price by the conversion rate and see which is bigger.

Page A: $0.99 x 25% = $0.24
Page B: $1.99 x 15% = $0.29

This tells us that every visitor to Page A earns us $0.24, but every visitor to Page B earns us $0.29.

It may seem small, but that’s an extra $51 for every 1,000 visitors that see your app. That difference can really add up over weeks and months in the app store.

This is how Micro-Testing method can help us discover our most profitable price point.

It Sure Beats Flipping A Coin!

Far too often app prices are picked based on gut feeling or guesstimation. This approach leaves you blind, not knowing which price could ultimately earn you the most profit.

Pricing an app is a science. If you treat it as an art you stand to leave a lot of cash on the table. (Click to tweet)

Do you think you’ll use Micro Testing to help price your apps in future? Or to test your current app pricing?

Peter Tanham is the co-founder of SparkPage, a platform for creating mobile-optimized landing pages with no coding required. At the time of publishing SparkPage is currently in private beta, testing their product with a small number of entrepreneurs. You can request an invite here.

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