If your going to make money in Android you need to know how to price your application. Android applications can be priced from $0.99 to $200, what number do you pick. The most popular seems to be $0.99, $1.99 and $2.99 at least in the US market. But why do people pick these prices? I think they pick them because everyone else does!
If your going to price your apps, you need to know a little bit of economics, in particular profit maximization. If your not familiar with it, Wikipedia has a great article on profit maximization.
Basicly as your price goes up, sales go down, so you need to find the local maxium price that gives you the most profit for your product. This graph from the wikipedia artical is a good example:
In the graph above, you can see that the profit is maximized at Price A, so for your product how can you quickly find your max profit point? You can try random price points, and then create a pricing model, but I have noticed that sales of Android apps decrease linearly after a given price, which means you can use a binary search to find your maximum profit.
Here is an example of how to using a binary search to find your price.
You will need to pick your minimum price, max price and time to wait. I recommend starting with $0.99, $50.00 and one week.
Create your product listing and and price it for $0.99, and then let the sales settle for a few days, so you don’t skew the results.
Then record the sales you have for that week, and your computed profit.
For the next week price your app at maximum price. If your maximum price has higher profit then your lowest price, then you might want to consider raising your maximum price. If its lower, the initial price, change the price to half way between the highest and lowest price and wait a week.
Keep reviewing your prices sales and profit, each week and raising and lowering the price as you see fit until you reach the point where you have maxium profit.
When does this method not work? If your profit curve is poly-model, meaning if you have several local maximums, you may not find the global maximum, since we assumed the sales will increase as the price decreased. Also, if your advertising your application it may skew the results, and this includes word of mouth advertising. In addition reviews of your application will skew the results, so use your head and think about what your doing.
In my case, I have made the most profit pricing Digital Drug at $0.99, and Private Browser at $1.99. Digital Drug’s sales droped by 150% when priced at $1.99! Private Browsers sales decreased by only 25% when price at $1.99 from $0.99.