Almost everyone of us woke up one day with a great idea which will make us a rich. So many of us had an idea on a web or mobile app which is having a potential of a breakthrough innovation such as facebook, Snap-chat or Evernote. But after the “eureka” the reality check comes. Your idea already exists (it does not mean you can’t do it better)or it is just not feasible.

But how to accurately calculate the financial feasibility of a mobile app or web service? Is it all based on rough assumptions? Do we need to consult it with a business coach? Do we need to have a perfect economic understanding?

Well…, partly, but here is some short summary what you need to consider while calculating your break even and overall feasibility of your app idea.

Start-up costs

This is everything you need to launch your app. And believe me, there is more than you think.

Decide for what platform (iOs, Android, Windows,…)you will develop the app. Remember if the app is not developed in Java scrip (using Meteor) but it is coded for a specific platform, your expenses can multiply because they use different coding languages.

Having your app available on different platforms is not for free neither. iOS cost $99 per year, google play $25 initial fee and windows phone store is $99 per year.

Get a good development cost estimation. You can use freelance websites such as upwork.com or simply “google” app developers in your area and discuss the specifications and features your app needs. Remember, less is sometimes more and more feature increase your development costs. It is always good to start with a minimum viable product (MVP) and test the market on it.

In the end, add some marketing costs ( I will write about marketing budget estimations in my next blog), web hosting, domain etc.. This should give you a pretty good understanding what your startup costs are.

Operational Costs

These costs are repeating every week, month or year. These are all services and fees you need to pay to run your app. If you need a server to save your data you need to pay for that. Also you should spend 10% of your revenue on marketing (golden rule) or calculate your cost per acquisition and make your own decision of how much to spend on marketing.

Important: Operation costs are not constant number. It grows with the number of active users you are having.

Break Even Point

Once you understand your expenses you will be able to calculate your break even point. BTW, do you know what is your revenue model?

There are six most common revenue models for apps. Every each is suitable for different app idea and all of them have their advantages and disadvantages, so talk to your lead users and choose the right revenue model.

Some of these models are;

In store purchase for fixed price (access to all features) In app purchase premium model (unlocking premium features) Free model and possible acquisition by a bigger industry player (instagram acquired by facebook) Free app selling products outside of the app (H&M, Adidas) App with a monthly subscription (New York Times) Free app with adds (be careful with this model it might be not as profitable as you think)

Whichever revenue model you choose you will not receive the full price you are asking for your app. iOS and google is charging 30% of all in app and in store purchases. So if you are charging $0.99 per unit, you will be receiving around $0.70.

Once you have chosen your model, you can simply estimate your break even point buy setting up the price per item and calculate how many items you need to sell in order to break even and start to make some profit. Be realistic, when your break even point is after selling “millions” of units the feasibility of the app is questionable and you might do some pivots in your business model.

This was just a brief summary of what you need to consider before spending your time and money on your brilliant app idea. I will be writing more details about the different sections in my next blogs.