Building a web app is easy. Building a successful and profitable web app is where most people fail.
In this new series of articles, I will share valuable strategies and tips for building successful web apps. I’ll be covering everything from powerful marketing strategies, how to build a quality team, tips for great customer support and finally, exit strategies.
Building a web app is no different than launching any other product – it needs to be backed by solid business principles. You’ll need funding, a real audience, a solid monetization model, a marketing plan, quality support, and good project management.
The three vital questions
If you want your app to stay out of the Dead Pool, you need to know the answer the following questions:
- Who is it aimed at?
- Why will they use it?
- Will they pay for it?
#1 – Who is it aimed at?
Before you spend any time or resources, it’s vital to know exactly who your app is aimed at. Small business owners? Stay-at-home dads? Spanish speakers? Males under 30? It doesn’t matter, so long as you know who they are.
I believe that some of the best apps come from meeting your own needs. If you ever catch yourself thinking, “Wow, I sure could use …” then it might be a brilliant web app opportunity.
However, if you are not the target user of your web app, proceed with extreme caution. It’s incredibly easy to make faulty assumptions about your audience’s needs or wants. Remember that you’re an early-adopter and way more technically advanced than your average person. In many cases, 90% of your customers will think “The Internet” is the blue “e” icon on their desktop.
#2 – Why will they use it?
You may have an amazing idea. Maybe it’s going to help busy mothers organize their shopping list. Sweet. But do busy moms actually need that? Do they even want it?
Here’s some free market research you can do to determine if people will use your app:
- Ask people that you trust. What’s their first reaction?
- Search for terms that are related to your idea. If there’s a lot of online activity about it, you’ve got a good chance (and you’ll probably have competitors to deal with).
- Make sure it’s practical. Imagine someone actually using the app. If anything seems awkward about the actual use of it, be very careful about proceeding.
- Interact with your potential customers. Talk to them, hang out with them, participate in their online forums – get them to tell you what they need.
Making sure there’s a real need for your app is the most important thing before plowing your hard earned time and money into a project.
#3 – Will they pay for it?
This is where the rubber meets the road. You can be zeroed in on your target customers and know they desperately need the app, but if they won’t pay for the dang thing, you’re in trouble.
This is a useful test: close your eyes and imagine you’re one of your potential customers. Walk yourself through their typical day, from when they wake up, to the point where they come across your web app.
Imagine they make it to your “Pricing & Signup” page. Will they be so convinced they need your service that they’ll actually drag out their wallet and enter in all their details? If so, what will they be willing to pay?
If your app is aimed at business owners, they’ll be able to afford spending $49 to $99 per month. If your app is aimed at 15 year old kids, you’d better find an advertising monetization model.
Going the free route
If you’re building an app that is completely free to use (YouTube and digg are great examples) you typically have two options for monetization:
You should never plan on being acquired. Remember that getting bought for $1.65B (or even $5M) just isn’t likely for 99.9% of web apps. Profitability should be your #1 goal.
You need to have a viable and serious plan for profitability. If you get acquired, great. Just don’t plan on it.
Now for Option #1 – Advertising. It’s a great monetization strategy, providing that you have a solid plan for selling the inventory.
There are three options for selling advertising:
- Use advertising networks (Federated Media, Right Media, etc)
- Hire an advertising sales team
- Use a product like Google AdSense
Ad networks are brilliant because they take all the hard work out of selling ads. It comes at a steep price though – you’ll usually only get 60% or less of the ad revenue.
The next option, hiring your own ad-sales team, is a proven way to get your ad inventory sold … but it’s going to be damn expensive. You’ll typically be looking at paying a basic salary of $20K plus commission for each salesmen.
If you don’t have the cash for a full ad-sales team, here’s how to do it on a budget: See if you can find any friends who are already doing ad-sales and ask if they can do a bit of work on the side for you. They could be paid on commission, so there’s no financial risk to you.
The last option, using a product like AdSense, is only a possibility if your web app is going to receive a very large amount of traffic and is largely content based (Google needs to be able to parse text to offer relevant ads).
Pricing – hitting the sweet spot
If you do decide to charge for your app, determining your prices will be tough.
Every web app builder agonizes over pricing. Should you have a monthly or one time fee? Should you offer a free plan? Should you monetize with ads?
Here are some practical tips for determining your pricing model:
- Ask folks who know your target market. They’ll help you determine how much disposable income they have to spend on your idea.
- Use a spreadsheet to experiment with your figures and determine where you achieve profibility. I’ve created a straightforward Excel spreadsheet that will allow you to play with different pricing plan numbers and observe the effect on your profit. It’s simple, but it should give you a general guideline.
- If you’re going to monetize with ads, make sure you have a way to sell these ads. You will probably need a fulltime ad-sales person. Don’t expect to just slap on some Google Ads and become profitable.
- Use promotion codes to get users to upgrade from free to paying plans. Whenever we offer DropSend users 50% off their first month, we see a huge amount of upgrades.
The best advice I ever got on pricing was from Jason Fried of 37signals. I ran our pricing structure by him and he had a quick think. After a moment or two he said “Make sure your free plan doesn’t give away too much. Because if no one upgrades, you’re in trouble.”
If you decide to offer a free plan, only give your users a taste to get them hungry.
I’ve decided to share the percentage breakdown of paying users for DropSend so that you can see a real-world example:
- $5/mo plan: 13% of total revenue
- $9/mo plan: 17% of total revenue
- $19/mo plan: 20% of total revenue
- $99/mo plan: 50% of total revenue
So are you financially viable?
If you were able to able to answer the three vital questions and you’ve chosen a monetization model that puts your cash flow spreadsheet in the black, then you’ve got a damn good chance of surviving and becoming profitable.
Please feel free to share any lessons you’ve learned while building your web app or challenge some of the points I’ve made.
Next time …
In the next installment of Web Apps 101, I’ll share valuable tips on funding your app, building a successful team and project management.