Understanding App Store share of fee and how to avoid it
After your business has successfully developed an app, what do you do next? You need a channel with low barrier entry to bring in more customers to your app. The App Store is Apple’s digital distribution platform made for this very purpose. It was initially developed for their mobile apps. Now, they have different versions of the App Store for macOS, tvOS, and watchOS. Users can browse and download apps on the App Store. However, the App Store can only host apps developed with Apple’s software development kit. Developers that make applications for the App Store can monetize their applications in various ways. Applications can range from free, paid, and free with in-app purchases. They are best known for their security features and flawless user experience. Apple treats all its revenue channels with equality. Since the App Store is part of the Apple ecosystem, it offers the same benefits to developers and users as it does with its line of products.
When you create a developer account with Apple, in that case, the App Store charges an annual fee of $99. This can be an issue if you are just starting out as a developer. As you make more sales, the less the annual fee will bother you. New developers also assume that they will get 100% of the income from app sales, but this is not true. If you sell an app priced at $0.99, your share will be about $69.3. The rest of the money App Store takes as the App Store fees. The store’s cut is based on a percentage that differs based on types of apps. Essentially, the more money you make, the more they make too.
How do App Store Charges work?
Apple receives a percentage of the profits an app makes through in-app purchases. Apple’s cut for micro-transactions is different from regular subscription payments. Micro-transactions are small value transactions that happen within digital apps. The payments are usually less than $10 and involve the sale of in-game digital content. With such payments, Apple gets 30% of the revenue. For regular subscription-based payments, Apple’s cut can reduce to 15%. Apple initially decreased the percentage for subscription apps to appeal to Netflix and Spotify. In 2018, Netflix earned $853 million through the App Store, of which $127 million went to Apple. They were getting a significant amount of Netflix’s profits. Netflix decided to discontinue iTunes as a method of payment in 2019. Thus, Apple no longer receives any of their earnings.
Businesses whose apps do not have in-app purchases are not charged by apple. For example, the Amazon app is solely an interface to display product information. The products you are purchasing on amazon are no in-app purchases. Amazon directly bills you using the details you provided. Apple or your iTunes account is in no way affiliated with your purchase. Companies that bill you directly are not charged any tax by Apple. Despite the taxes being waived off, they still have to pay an annual $99 developer fee.
How to evade Apple’s tax?
Apple can only tax payments made through the iOS app. The easiest way to avoid tax is not to offer subscription services through the app. This is exactly what Netflix has done since 2019. It redirects users from the app to the company’s website. Users are required to sign up and pay for the service through the site before logging in on the app. Netflix is not the only developer that has attempted to cut Apple off. Spotify, Valve, and Financial Times have been trying to do the same. This trend could be a matter of concern for Apple.
Not offering subscription services in-app can also impact its App Store Optimization (ASO). Say an app is marketed as a subscription service, but users are unable to purchase it directly. Many users will uninstall it. This will result in dissatisfied users, which will, in turn, result in negative rankings within the store.
Should you continue to pay Apple’s taxes?
Letting Apple have 30% of your profits might not be so bad. They are not taking the App Store fees for no reason. There are numerous benefits that developers enjoy by letting Apple host their apps. In addition to the high traffic that the App Store will bring to your app, it also protects users from fraudulent applications. Due to their vigilant checking, it is not easy to upload apps on the App Store. Unlike other services, Apple has placed some restrictions that prevent developers from committing fraud.
Apple is not the only company that levies taxes on developers. Since most app stores get their income from in-app purchases, they take their share before passing it on. The industry standard for the app store’s take is 30%. Apple’s tax is not too high. It is the standard tax that most of the industry follows. Of course, there are stores that pay a higher share to the developer, but that is not always beneficial. Higher percentages do not necessarily translate to more money for the developer. Getting the most out of a sale is great, but it’s not as important as getting more sales. Most of the stores that pay more do not have high traffic. With the App Store, your app will get very high traffic. Higher traffic translates to more sales, and more sales mean more money.
Rather than pulling their apps out of the App Store, businesses should shift their focus. They should increase their user base with proper ASO. Optimizing apps can improve rankings and visibility, potentially resulting in more users. The profits made working within the App Store is significantly more than any other store. Paying Apple App Store fees, their share of the profits seems like a fair deal. After all, they did build the marketplace. Money spent to bring in more customers is money well spent.