Make an App - Business Profitable

Disclaimer: This is not advice on How to make a Profitable App Development Business. This is an article that outlines some thoughts on App Business and co-relates the factors that are relevant in the development of apps.
I have had my share of queries from people that want to make an app and if you have been in the app development business long enough, you would have had a local version of these clients querying you with similar queries.

App Business - The reality

There are three type of developers in the App development
1. The large corporations and Digital Agencies
2. The Little Boutiques / Indie
3. The Hobbyist developers

Type #1 does not require any introduction, they are the ones that have contacts and contracts and *gasp* employees :)

The second type is the large majority of developers that start their own setups either solo or with a co-founder. This is not the same as a Start-up venture, because start-ups are developing an app to solve a problem, raise capital to fund the development and then sell it for a profit. Where as the Little Boutiques are not solving any problems, they are facilitating the development process for those that want an app. These are in the business of making apps as a full time job, i.e. this is their bread and butter.

Lastly are the hobbyist developers, these are the developers that are generally moonlighting, they have a job (in most cases Cushy) and they are either dabbling to learn or make some pocket money on the side. These could shut shop and move in comparison to the first two as this is not their primary trade.


The Corporation/Digital Agency has the cash flow and deep pockets to house multiple developers and additional staff. Generally the composition of these are heavier on the Wed Developers/Designers as these are usually the founders of these type of organisations. There is a huge overhead as there is an inherent need of an office, the latest and greatest machines, facilities, ergonomic chairs and the works to keep the talent retained.

The Little Boutiques or Indies are generally a one-man army or might have two, where the dominance is generally a Developer and the second person then is either a developer or a web-developer. In some cases (more often these days than in the past couple of years) there is a slight tilt and Web developers are now moving into the App development. Clients in many places have already explored the web options and are now contemplating an App.
These have the pressure to keep up and have at least one of the latest/greatest up-to-date devices and the overheads are limited in comparison and could be functioning out of their home offices or co-working spaces till they make it big to move into their own office.

The Hobbyist is generally a lone-ranger and would have literally no overheads, the equipment and software is all available as part of work and could well be working from their dinner tables or bed.

Client Types

The clients also differ and it is interesting to note the expectations and budgets of clients.

The Corporate/Digital Agency generally has clients that have a budget that is on an average above the $100K mark. The client wants this app to brand/supplement their product in the market (thereby generally Free). For the client this is not an investment, but a Marketing expenditure which can be written off if it does not work. Like an AD in a magazine and then forgotten the next month when the new issues comes to the stands. In some ways the approach towards the funds allocated by the Marketing Department may seem callous, but at the end of the day, for marketing it is just another medium, like Mupi, Billboard, Print, etc. They are interested in the outreach and numbers. The Corporate/Digital Agency type setup are usually mates, friends, ex-colleagues with the marketing departments of the clients. In addition to that, though it might seem that they can write off the costs, it is still a gamble and in some cases heads do roll or bonuses do get affected. So to ensure that they have a successful outcome, the other two type of developers are avoided and thereby creating a void or demarcating line.

The clients that approach the Boutique developers are generally those that have limited access to funds and they have not gone to the Corporate/Digital Agency because they do not qualify to be considered a client. In many cases, their budgets are in the range of what the Corporate/Digital Agencies might charge them for just initial consultation and a wire-frame. For these clients it is really important as to the outcomes with the app. They cannot write off the app and call it a day. The funds could have come from savings, loans, etc and the app is not a branding/supplement, but one that would run/support their business. In some cases it would be the replacement to their customer support/client interaction in others it could be a paid app that they have their hopes on to reach the Top Charts and make them passive incomes and then Millionaires. It is difficult to comment on the pricing for this category of developers because they can go as low as circumstances dictate but on the higher side, they would like to charge as much or more than the first category. Still, to quote an average based on the range set for the category above, this would be in the range of $10K - $30K

The hobbyist developer is by no means an insignificant part of this app ecosystem. Some of them have very intelligent Alter Egos (day jobs) and can deliver some amazing apps. However the point is that there are less of this variety. The majority of hobbyists are either students learning to create a portfolio or say a professional wanting to diversify from their primary development to add a new aspect to their resume. Since this category has their bills paid either by parents or their day jobs, their reliance on outcomes/clients is greatly reduces. The only reason they would need clients is to say that they have done some commercial development not hobbyist. In many western countries (including here in Australia) it is suggested that you can take up volunteer positions if you want to change streams, i.e. work for free. This gives them the opportunity to work for a fee.

Cost of Development

We just had a look at the budget ranges for app development. The numbers do not simply come out of a hat, but are based on very simple mathematics. One that you would not consider when you are employed but could when you are in business or self-employed. Say you were looking at hiring a developer to make an app for you, your costs would first include setting up a workplace for them, the hardware (iMac/Macbook) the mobile devices, software, etc in addition to a table/chair in your office. Then you would pay them a salary and as an employee, they would be entitled to holidays and other benefits that employees are entitled to. With an average salary of 60-80K per employee. If they had experience and could deliver better, they would be expecting a slightly better salary around the 90-120K mark.

This is the reason why outsourcing is gaining popularity and eating away at the market, for the client the savings are significant and for the developers, the cost of living determine the viability. Not many might be aware that in Australia, for example the cost of owning a car is not just the price the car when you purchase it, but you have registration which is an annual cost in the range of $500-1000 and then insurance which is similar, so your car might cost you an additional $2000 annually in comparison to other countries. You might have something similar in your country that hikes up the cost of living and thereby making it difficult to compete with the outsourcing pricing.

The third factor to consider is the person face to face. If the dollar value is your only consideration, then this is of no significance to you. I have heard a speaker (who runs a development business here in Australia and outsources to Nepal) but his major crib was the lingual abilities and the quality of code. His consolation is that they can get something put together quick and dirty for 10 hours of work that they would have to pay for 1 hour onshore. He has a core team here on shore that work on simply cleaning up the code and fixing the language. Another speaker that has a successful startup in Australia and the US was appealing to the businesses in the Audience to consider the local city for tech start-ups BUT he had his own spin, rather than outsource and lose quality, his scheme involved using first year students from University that would be interested in funding their studies and pocket money while being available at a lower rate.

This is a classic example of the first category creating the hobbyist developers. The unfortunate results from this is that once they graduate, they are absorbed into the main stream (which is good) but as experts or influencers or decision makers that have a limited view of the ecosystem. This is also one of the reason that many of the Job sites are laden with positions and the key criteria of choosing candidates being "Cultural Fit" which is another way of saying either a. "Are you mold-able by us to our way of working" or b. "Are you one of us? We should stick together"

You can well imagine that the cost of development is not just the dollars paid for coding, but go beyond that into all associated tasks. In the worst case scenario, the cost to FIX things is higher than to create it in the first place, something that a lot of clients do not consider when choosing a developer to work with.

Impacts of not Achieving Outcomes

When an app is released into the market there are different indicators that determine the success or failure of the app. These are different for every client but these do impact the three categories of developers that we are looking at.

When an app is released by a large corporation, it is generally never about making dollars from it. The Core business of that organisation is say selling Cars, sugary carbonated drinks, sugar/salt laden snacks, etc. They do not want to add another line item for income and manage that. Thereby they are able to easily shrug a failed launch of an app and remove it from the app store. If it succeeds, then that is a better outcome than print media because the app remains in front of their audience every time the user looks at their mobile device.
To provide an example, In Australia KFC and McDonald's released their apps, they were actually games and depending on how well you played, you would get a coupon at the end rewarding you for your skills. These coupons were either a discount or a free item from their stores. The app is still active but am not sure how popular it still is, KFC had the app, tried to create a buzz around it but the staff at the outlets had no idea on how to redeem the coupons. I think it did not work out as expected. The KFC app had a game that involved skills like in Angry Birds, Aim-Pull-Release where as the McDonald game was a free fall parachuter, collecting stuff on the way down and not crash into anything (a reverse doodle jump without the jump, just fall)

The apps that the second category of developers create are critical because that is where the hopes and dreams of many lie. The clients in this category are in the paradigm of the classes, the Middle class. Their hopes and dreams are pinned on the success of this app. The biggest problem here is that these clients do not ear-mark funds for advertising and hence reduce the outreach which could put a dampener in the expected outcomes. However there are plenty of success stories of some outstanding apps, but many of these are not client apps but personal apps that this category of developers created. This is an important thing to note because many clients look at this success story as an indicator of future success, but they miss the fact that Time is Money, and when working on their own pet project, developers have an open checkbook (with time) but when clients are supposed to pay, things are different depending on budgets.

The indicators of success with the hobbyist are in many cases entire different, the sheer fact that the app is released is in itself success for many. However the clients that look to validate an idea or not have the funds but try to dip their toes in the app pond consider these category of developers. Unfortunately there are lesser success stories in this category than one would expect. The developers that succeed in this category migrate to either of the above categories.

Bottom Line

So what do things look like? Given these scenarios and facts?
The answer is very simple, look up the job boards in your own country, there are heaps of job postings by the first category, looking for developers to fill positions to undertake/complete projects.

For the second category, type in the name of your city/state/country with the keyword app or developer, these would feature in the search results.

The third category are not generally found easily by websites or searches however you could come by them via a close contact that might have come across these either in a social or work environment.

If you are in the first category, I personally doubt that you would be reading this post, you would have your marketing team hash-tagging and posting your own articles with SEO content. It would also be possible that you might be having someone write your own article and generating some buzz and including your own apps in there to keep it very objective. Generally you would not be phased with the other two categories and if the Boutique developer does have any success, you would be giving them a position in your organisation. The clients are also not a concern as the other two developers would not have access to the contacts for those clients. With the burn-out and high pressures of the work place, many are gravitating towards this option (if not changing career tracks). Plus the gold rush of today are start-ups, with practically more popping up than zits on a teenager's face. The delays in securing funding or interest from potential supporters can sometimes push these to consider setting up shop in this category to keep their start-up afloat. This apart from being the largest category is further growing and quite fast. This is good news, but it is also drying up the pool of potential clients, despite many clients taking the plunge into adding apps as a strategy to further their business.

If you are a developer from the second category, you aspire to get a client or clients from the category of the Corporate/Digital Agencies, that is equivalent to the App store success. However the ground reality is that the hobbyist developers are encroaching the shrinking market. More so it is not about the shrinking opportunities than it is about the experience that the client has with a not so good outcome which could be at a cost discouraging them from considering it again or even making a positive recommendation.

In Summary

This article started off from a tweet that not only seemed funny, but ironically like most funny jokes is based on facts. The tweet was from NickLockwood the author of the book iOS Core Animation: Advanced Techniques by Addison-Wesley.

Having been involved in the APP Development since around 2008, I thought it would help others to understand this slightly better. There are quite a few responses to this tweet where some have been unable to relate or fully understand this simple but yet powerful tweet.

This article is not aimed at scaring new developers that want to join in but to educate both the clients and the developers on the situation. There is a big push for everyone to learn coding, which is a good thing and given that the salaries offered are increasing in the range of $100K even for those that have little to no experience in IT. You can read up (not sure how true these stories are) of a grocery check out clerk that learned to code and is now earning in excess of $120K/year and many other such *case studies*.

In closing, I can use the last line of Nick's Tweet and simply say, it is 2015 Hire Me :)
You can get in touch with me via my website or twitter on @ozapps and we can have a chat for working on your next project.


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