Wednesday, April 22, 2009

The Great Debate: How Do I Actually Sell My Apps?

Preface: Note that all figures talked about in this entry are approximate, but based around my own sales and costs to make the figures relevant.

This argument seems to pop up again and again in the Mac development circle:

How do I collect money from my users?

Back in the days of shareware being distributed on floppy disks with magazines, many developers simply asked the user to send a $5 bill through the mail. These days, however, cash is pretty much obsolete for anything but car boot sales. Now we have to charge the user’s card ((This includes PayPal accounts, since they’re just another thing the user has that contains money)) over the web and have the license delivered by email.

When looking for solutions, the aspiring Mac developer has two options: either write the store yourself and integrate with a payment gateway (like their bank or PayPal) or use a third party service that does the lot (like eSellerate).

At first, doing it yourself looks like the much better option. Payment gateways are cheaper than full services, and you have the coding experience to throw together a simple store that integrates with them. It’s also been done before, and there are a few open-source stores you could use instead of writing your own.

Number Crunching

Right, let’s break down the average direct costs of selling apps - not including man-hours.

Our fixed costs:

EV SSL Certificate: £599 + VAT per year ((If you’re not using SSL to even simply collect your customer’s email address, you’re doing it VERY WRONG))
Hosting: £1,000 + VAT per year ((I’m aware that this is unusually high - we co-locate an Xserve in a London data-centre))
Accounting: £1,000 + VAT per year

So, let’s spread out our fixed costs over each sale. The accounting costs would be roughly halved by using eSellerate’s services.

Obviously, this doesn’t make sense! Why on earth would I pay over 7% more per sale when I could do all that extra stuff myself?

Time vs Money

Firstly, there’s the time it takes to implement a decent web store and the tools that manage your orders. I wrote two applications - a web application to act as the store and interface with HSBC, and a Cocoa app to manage the orders and calculate VAT figures for me - which took about three weeks in total. Once your volume starts increasing, you get to the point where it makes more sense to set up a limited company. At this point, solutions like eSellerate really start to gain traction - you need to start dealing with Corporation Tax as well as your Self Assessment.

The accounting figure for the HSBC solution assumes that you deal with VAT yourself and share the corporation tax work with your accountant, which is what I do. This takes up roughly two weeks of my time per year on top of the store development work, and I really really hate doing it. I make silly mistakes because I’m bored and would rather be coding, which happens to everyone. Well, only an idiot would do it themselves, right? My accountant is a professional and more trained to deal with this stuff than I am, and we’re earning enough to pay him to do it all! Today, I phoned up my accountant and asked him what my accountancy bills would be like if I decided to stop doing VAT and Corporation Tax work, and loaded all the accountancy work that would be done by eSellerate to him. Let’s factor this in to the table, shall we?

Well, it’s still cheaper to do it ourselves. However, the difference isn’t that huge. So, what else does eSellerate do to justify that extra cost?

Not Just the Accounting

Up until now, we’ve only been comparing eSellerate to the absolute minimum we all do to sell apps. What about the rest? Well, eSellerate gives an in-app store, which by itself almost justifies the cost. In-app stores are awesome. If you’re implementing your license limitations properly, an in-app store neatly slots into the experience. This is the standard flow when you have a web store.

- User: Clicks “Add” button.
- App: “I’m sorry, you can’t add more than 5 things until you pay. Would you like to pay now?”
- User: Clicks Buy.
- App: Open license window with license key fields and “Buy” button.
- User: Clicks Buy again.
- Web page opens in separate app.
- User enters details.
- User waits for email to arrive.
- User copies details from email.
- User switches back to the app and enters details.
- App: “Thanks! You can add your thing now.”
- User: Switches back to main window, clicks “Add” button again.

That flow is really getting in the way, and is pretty annoying. You can make it better by displaying the license code on your store’s “Order Complete” page and offer a link to automatically register the app, but it’s still pretty sucky. Consider this:

- User: Clicks “Add” button.
- App: “I’m sorry, you can’t add more than 5 things until you pay. Would you like to pay now?”
- User: Clicks Buy.
- App pops up in-app store.
- User enters details.
- App: “Thanks! Because the store is integrated, I’m already licensed. Isn’t that cool? Oh, by the way, here’s that thing you wanted to add.”

Much better! That, on its own, is worth quite a lot of money. The implementation details of this system - especially the security - are mind-boggling. I tried to do this on my own once, and it was too hard to be worth it.

Perceived Cost

This is where it gets more interesting. Even though the eSellerate solution still costs more, to many it would seem to cost less. Why? Well, my current cash flow for a sale looks like this:

- User buys my software.
- Three business days later, all of that amount is cleared into my bank account.
- Once a month, HSBC charges that month’s transaction fees back from my account. ((I’m aware that with PayPal, they take their cut at sale time))
- Once a quarter, I pay all the VAT I owe from that quarter’s sales to HMRC.
- Once a year, I pay my accounting bills.
- Once a year, I pay my corporation tax.

If I was to use eSellerate, it’d look like this:

- User buys my software.
- eSellerate subtracts their fees, deals with VAT and sends me the rest.
- Once a year, I pay my accounting bills.
- Once a year, I pay corporation tax.

That’s two less bills I have to pay! That has a serious effect on cashflow - I’d rather be paid slightly less and keep it than be paid a bit more but have to give it away later.

Opinion!

In the end, it really boils down to what you value more - money or time. If you really care about that extra 6% per sale, then you do it yourself. If you’d rather spend the weeks of extra effort it requires to do everything yourself more money or coding, you use someone who’s better at it then you. Of course, if you can actually value your coding time reliably, the extra cost of a payment service may very well pay for itself.

Danny Greg sums it up pretty well, in my opinion:

“Its _very_ simple. If you want to spend time coding as opposed to doing taxes you use [services like eSellerate].”
(Danny Greg, on Twitter)

I’m interested to hear what other developers have to say. Chime in below!