A high quality mobile app doesn’t come cheap.
Depending on your exact requirements, you should budget anywhere from $10,000 and above for a simple app like a calculator, and up to $250,000 for a game.
A survey of 12 app developers estimated $171,450 to be the median cost of building an app. Enterprise apps are much more expensive: a 2016 survey found that corporates will allocate $250,000 to $500,000 in the next 15-18 months for app development.
With these substantial amounts in play, you need a business plan, even if you plan on bootstrapping the app development and marketing.
Among other things this plan should talk about:
This post will take a deep dive into how to create a business plan for your app so that you don’t have to fly blind.
Let’s start with the why of the app.
The iOS App Store has more than 2 million apps.
Google Play Store has around 2.5 million apps.
Every app category has hundreds of nearly identical apps, with the vast majority free for use.
So why should a user download your app?
Here’s what Chad Mureta, a millionaire app entrepreneur and the man behind multiple hits on the app store has to say:
At the core, it’s about how consumers are using this technology to connect with the world. The more you are aware of this, the more money you can make with apps. You have to think like the customer if you’re going to build your own app empire.
A great way to unravel the why of your app is to address unsolved problems that you face. Another “why” could be addressing the deficiencies of the apps you currently use.
But nailing the why is just the first step. You need to validate whether there is a market for your app, and also guesstimate the size of the market.
There are multiple ways to validate whether people will use your app. Here are a few:
One of the cheapest and most effective market research tactics is PPC ads on Google and Facebook. Allocate a budget of $100, play around with the creative and the audience, send the traffic to a landing page, and evaluate the response.
Check out Google trends for keywords related to your app idea. Ideally, you app should target a problem and a growing market, and Google Trends can give you a fair idea about your prospects.
Keep in mind though that if you are working on an app idea which doesn’t have any traction yet (think of pioneers like Uber) Google Trends won’t help.
Check out the featured apps on the app store, especially the top apps in your category for both free and paid versions. Use the apps, and buy the paid ones and figure out what they do best. Read the reviews and find out why people love, and more importantly what they hate about the apps.
When you are evaluating a competing app, use these questions to get more clarity (h/t to Chad Mureta)
This evaluation isn’t to be done in a day. You should track competing apps over a period of time, and also look at historical data to add more data to your conclusions.
You can also use TopAppCharts to track the top ranking iOS apps.
You can also use third party app analytics platforms like App Annie and Sensor Tower to get more details about the size of the market and understand what you’re up against.
If done well surveys and questionnaires can give you unmatched insights about customer behavior which would add more weight to your mobile application business plan.
If you already have an audience (email list, Facebook group, Slack group), it’s relatively easy to ask questions about usage patterns and user behavior.
If you don’t have a following you could still run Twitter polls, send traffic to a survey from a Facebook ad, or post a poll in one of the many Facebook groups.
Pro tip: When you run a survey, ask what should you do to make it a no-brainer for the user to download the app. This question will cut out the fluff and give you actionable information on what your minimum viable product should look like.
Check out our Gordian Validation whitepaper for a framework which will help you validate your app assumptions. You can also fill up our Idea Grader questionnaire and grade your app idea against different startup frameworks like Unicorn Theory, Monopoly Theory, and Circles Framework.
Using the framework and the data gleaned from the 4 steps should be enough to get a feel for the market and for the competition.
Let’s address your marketing plan.
Your marketing plan has to address, at the least, the following points:
What’s the unique selling proposition of your app? This point is related to the why of your app, but succinctly tells users why your app is better than the others.
Your USP will inform how you approach your market, how you deliver the messaging, and how you deliver customer support.
Your USP will also help you position the app versus your competition.
The previous phase where you validate your idea will uncover a wealth of information about your users. It’s possible for an app to have multiple user personas, and the more detailed you get in this phase the more valuable your mobile app business plan will be.
Collate information on:
Along with this statistical information, get psychographic data on potential users including:
A user persona will look like this.
The more detailed you go, the better your marketing messages will resonate.
Depending on your user preferences, you can use a wide range of channels for disseminating your marketing messages.
Some of these channels include:
These channels will give you varying ROI and you will have to keep testing against multiple metrics like CPM and CPI until you find the channel which delivers the best results.
Your go-to market strategy will also depend on the mix of marketing channels that you have chosen.
At this stage of drafting your marketing plan it’s also helpful to analyze the stories of apps who used smart tactics and out of the box strategies to market themselves and grow exponentially. Check out our whitepaper on viral growth strategies for apps where we talk about:
Once you have a handle on your app marketing strategy you will need to lay out a financial plan.
Because your app is still not launched, you won’t have access to financial numbers which apps with users already have.
But that shouldn’t stop you from making informed guesses about some key metrics. You should talk about:
Customer acquisition cost is a critical metric for any business.
In the context of mobile apps you will want to look at cost per app install or CPI. If you want to go one level deeper and be more exact, find out the cost per activation, keeping in mind that there will be a percentage of users who might install the app, and then uninstall it without engaging with the app.
While established companies will have exact CPI data, you will have to use industry benchmarks to arrive at a target CPI using a service like Fiksu. For example, this graph on how cost per purchaser (cost of users who make a purchase in app) can give you an idea of how much you can expect to spend as you go after high value users.
This number can go in your financial plan.
You can also use third party reports to find out estimated CPIs.
Customer lifetime value will tell you how much money you can expect to make on average from a single customer.
This number will signal the financial viability of your app. A low LTV and a high CAC can be the death of your app, as you would never be able to break even and make a profit.
Fiksu has an LTV calculator where you can plug in estimated monthly revenue and number of users to get your LTV. As long as you can back up your assumptions about these numbers, you are covered as far as LTV is concerned.
How much money do you expect to be spending per month? Include everything, from salaries to freelancer fees to hosting charges and other overheads.
That’s your burn rate, and you will want to keep it as low as possible.
This section should also include the runway you are working with, which is calculated using the following formula:
Runway= (Total funds)/ (Burn Rate)
Also worth considering is your cash flow. You can predict the cash flow of your app based on your monetization strategy.
How are you going to make money from your app? Most apps focus on user growth over revenue and monetize the user base much later down the line. While that’s a valid approach, you can also utilize other options like:
If you want to charge users using one the these models you will need to test your pricing by figuring out how much users are paying for a similar service, or the amount of money they are paying to solve the problem your app seeks to address.
Your business plan should have a projected profit and loss statement which lays out the various liabilities and assets you will amass, ideally over a period of a year.
At this stage, when you don’t have an app in hand, you should not take too much time on the business plan. As you work on launching the app and taking it to the market you will have to revisit multiple assumptions.
But if you follow this process and create a business plan you will be able to work off a ready made asset and won’t waste valuable time.
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