How do mobile apps make money

liviubosbiciu

I have a strange yet interesting question, as the math shows me very little money are made from mobile apps, yet companies continue to prosper. Please help me understand where the numbers go wrong here or what additional revenues are generated. I will provide an example and please let me know if my estimates are wrong somewhere:

Let's say a company develops a freemium application, and buying a premium plan costs $5 / month. The application has reached a point of 10 million downloads on App Store & Google Play Store combined. From those 10 million downloads, I assume at most 1 million users are still active, which is 10% of its downloads.

From those 1 million users, considering a good premium conversion rate of 2%, there will be 20,000 paying users. So the app makes 20,000 * $5 = $100,000 / month. Because stores get 30%, the number goes down to $70,000. And because you need a payment processing platform like Stripe or PayPal, which takes about 2.9% of the each transaction, the final number is now about $67,970.

In order for an app to reach those number of downloads, extensive marketing has to be done. While the numbers may vary very much, I assume the company has to pay at the very least $2,000 on marketing each month. Paying hosting, VPS, business domains, all kinds of services (email marketing, cloud storage, etc.) will add your total costs with at least $100 / month.

The biggest cost in the company is represented by human resources. The code has to be constantly maintained and bugs will always appear, so at least 3 programmers must work on the project. Considering the average salary for a programmer is $85,000 / year, multiplying that by 3 people and dividing by 12 months, we obtain $21,250 / month. I assume at least three more people have to work on thinks like marketing, accounting, legal, etc., and considering a salary of $50,000 / person / year, another $12,500 would add up. So a total of $33,750 will be used to pay the employees.

$67,970 - $2,000 - $100 - $33,750 = $32,120 profit / month, and that's before taxes, considering an almost ideal environment, for a company having 1,000,000 active users. And maybe the company has multiple associates, so those money are split between them.

What am I missing?

Tuah Bao

Hi @liviubosbiciu ,

Mobile apps usually make money from:

1. Paid users (upgrade)
2. Sponsor ads