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:
- The type of app you will develop
- The app’s USP
- Market analysis
- Estimated marketing costs
- Revenue projections
- Marketing plan
- Projected profit and loss statements
- Break even analysis
- Cash flow projection
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.
Why build an 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.
Validating Your App and Sizing Up the Market
There are multiple ways to validate whether people will use your app. Here are a few:
1. Use Google/Facebook ads
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.
2. Check Google Trends
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.
3. Survey App Store Data
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)
- Why is this app successful?
- What is its rank and has it been consistent?
- Why do people want this app? (Look at the reviews, blog posts, etc.)
- Has this app made the customer a raving fan?
- Does this app provoke an impulse buy?
- Does this app meet any of my needs?
- Did I become a raving fan after trying it?
- Will the customer use it again?
- How are they marketing to their customers? (Check out the screenshots, icon design, and descriptions.)
- What is the competitive advantage of this app?
- What does this app cost? Are there in-app purchases?
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.
4. Use App Annie and Sensor Tower
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.
5. Run Surveys and Questionnaires
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.
Building A Bulletproof Marketing Plan
Your marketing plan has to address, at the least, the following points:
1. Your USP
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.
2. User persona
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:
- Marital status
Along with this statistical information, get psychographic data on potential users including:
- Context of app usage
- Attitudes towards money (price sensitive or value shoppers?)
- Personal/professional goals
- Pop culture influences
- Favorite sites/apps
- Tech savviness
- Frustrations and challenges.
A user persona will look like this.
The more detailed you go, the better your marketing messages will resonate.
3. Marketing and Promotion Channels
Depending on your user preferences, you can use a wide range of channels for disseminating your marketing messages.
Some of these channels include:
- Incentivized user downloads
- Organic installs
- Social media (Facebook/Twitter/Instagram) ads
- Search engine marketing
- Retargeting campaigns
- App store optimization
- Push and in app notifications
- TV advertising
- Mobile site redirection
- Mobile app wall ads
- Content marketing
- Email marketing
- Event marketing
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:
- The factors responsible for the massive growth of apps like Snapchat and Uber
- The innovative, game-changing techniques used by over a dozen of the world’s fastest-growing apps.
- The one word mindset change which took YouTube from a small-scale dating app to the most powerful video-hosting platform on the planet
- How piggybacking transformed several struggling startups into some of the best known app brands in the world.
- What makes Candy Crush so fiendishly addictive as it scooped up $1.3 billion in 2014, and how you can deploy the same insights in your app.
- A company which hit 100 million users and $1 billion in valuation without spending a dollar in marketing.
- The viral elements behind 14 super successful app startups.
Once you have a handle on your app marketing strategy you will need to lay out a financial plan.
Mobile App Business Plan Financials
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:
1. Customer Acquisition Cost
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.
2. Lifetime Value
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.
3. Burn Rate, Runway, and Cash Flow
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.
4. Business Model and 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:
- In-app advertising, where apps are free to use but serve ads to subsidize the costs. E.g. Facebook, Youtube
- Freemium, where apps like Spotify and LinkedIn give away some features for free and charge for other features.
- Incentivized advertising, where apps like Runkeeper tie with partners and provide users rewards for certain in-app actions.
- In-app purchases, where apps like Tinder and Candy Crush sell physical or virtual goods to users.
- Subscription, where apps like Netflix charge a monthly or yearly subscription.
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.
5. Profit and Loss Statement
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.