Quantifying App Development Costs

The first part of the app cost/benefit process is to identify and quantify the costs associated with your app development. Your costs will fall into two categories: fixed and variable. Fixed costs include any expenses that are the same every month. If you are an independent developer or a small LLC, you may be renting some office space. You will want to include the monthly rent as a fixed expense for the expected duration of app development. If you have just bought a new Mac for development, you have incurred a fixed expense with that hardware purchase.

Variable costs can include things such as expenses you might incur if you pay a developer by the hour to develop your app. This could range from $50 (low end) to $200/hour (high end). Your labor rates could vary depending on how complex your app project is. You may hire a developer and find, to your dismay, that the person does not have all the skills you need to develop your app. So, you end up hiring another more costly developer.

Another scenario is that the developer has underestimated how much time it will take to complete your app. Instead of the project taking 200 hours to complete, it takes 250 hours. This happens more frequently than you think. In fact, you should add 20% to the total cost of whatever estimates you receive from developers. You won't be too far off the mark, and you'll save yourself the shock of having to come up with more money because you will have anticipated this already.

If you are hiring an outside developer to create your iPhone/iPad app, you can ask them to give you a fixed bid price. Some developers will work with you on a per contract basis. Keep in mind that if you want to change/add features to your app down the road (and you certainly will), the contractor will most likely charge you a change fee or add on an additional project fee to accommodate your request.

The following steps will help you quantify the costs you will incur during the app development stage:

1. Make a list of all monetary costs you think you will incur during the development stage of your app. These expenses include buildings, developer's payroll, training, travel, hardware, and so on.

2. Next, make another column with a list of all intangible costs that you are likely to incur. This would include your own time if you are developing your app, risks if the app fails, lost time on other apps, and so on. Granted, it is quite difficult to quantify these areas but some attempt is better than no attempt. Table 11.1 gives you an example of the monetary and intangible costs you'll want to include on your list of overall expenses. (This is not an exhaustive list, and you should modify this for your unique circumstances.)

Once you have a list of your anticipated monetary and nonmonetary expenses, you can add numeric values where appropriate. Do your best to estimate nonmon-etary costs. This part of the exercise gets a little bit fuzzy, but it's still important to have some numbers down in writing. At the bottom of the table, add up the totals for each column.

If you are new to developing iPhone/iPad apps, you'll most likely need to get some training unless you are the type that can read manuals and learn by doing. Many people are best served by getting some training from experts who can teach basic (and not so basic) coding skills in a few weeks or months.

Online training, such as that offered by XcelMe.com (www.xcelMe.com), can cost as little as $97/course or under $500.00 for a bundle of classes. Other companies such as BigNerdRanch (www.bignerdranch.com) can cost $3,500-$4,750 plus your travel and lodging expenses, but they offer face-to-face instruction.

A sample of the table with some financial values included is shown in Table 11.2. These numbers assume that this person is a fairly new developer in the iPhone/iPad app space but has a development background and needs some training in this unique space.

*We are assuming that this person has development skills that would be worth $50/hr. This is a cost for her time. Granted, this may be low, but it's impossible to peg this number with any exactness.

*We are assuming that this person has development skills that would be worth $50/hr. This is a cost for her time. Granted, this may be low, but it's impossible to peg this number with any exactness.

As you can see from this simple analysis, you might spend more than $7,000.00 in real dollars to develop your first app. You may have the hardware already, and so you could deduct $3,000.00 from the total. Regardless, you would still be at $4,000.00 or more to develop your first app. If you added in your own time (nonmonetary costs), you can see that you might spend $17,000.00 to $20,000.00 in time and actual expenses to develop an iPhone/iPad app. The question for you to ask yourself is if you still feel that your app can make you enough money to justify your time and expense to get the app created, approved, posted, and marketed to the App Store.

We are well aware that you can pay a foreign developer to get an app created for $1,000.00 in just a few weeks. It is highly unlikely that you will see success from such an app. The time worn phrase, "You get what you pay for" applies. Most often these apps are quickly designed and buggy. You're better off going to Vegas over a long weekend with your $1,000.00 and rolling the dice!

Your next step in the cost/benefit analysis is to determine the expected benefits from the creation of your app. This is a little trickier than estimating the costs to build your app, but this step is a crucial part of the cost/benefit equation. Keep in mind that most of you, as app developers, are looking for monetary benefits from your first app. You'll need to spend a little time estimating potential sales of your app. Be sure to refer to other chapters in this book to understand market sizing and appropriate pricing for your app.

Some developers are offering a free app as a forerunner to another paid app or to demonstrate their skills and solutions in an effort to obtain consulting opportunities. In this case, they won't list a profit benefit for their app. Follow these steps to help you quantify the anticipated monetary and nonmonetary benefits of your app:

1. Create another list, similar to that which we used for costs, of all the monetary and intangible benefits that will be realized with the creation of your app (see Table 11.3). First on the list is the overall direct profit you hope to achieve from the sale of your app. Next might be additional investment capital you hope to attract by building a fantastic app. Other benefits might be less tangible, such as decreased production costs, name recognition, or building a solid app development reputation.

2. Next, assign some monetary and nonmonetary values to your list. In our example, we are assuming that a developer has created a productivity app and that this app will be sold for $4.99 on the App Store. The app is expected to have 5,000 downloads over the next six months based on marketing efforts. Once you have filled in all the monetary detail for which you have information, add and total them up at the

Continue reading here: Cross Selling and UpSelling

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