You can now save the 30% app store fee and let your users pay you directly.
This seems like a no brainer. 30% more profit for a simple change? That’s just free profit right?
I don’t think its that simple and for most companies I think its a mistake.
To break this problem down, you need to figure out:
Which is better at the initial transaction?
Which is better at recurring transactions?
What else should we consider?
What we (always) care about on this site, is which of these will make you more money?
Revenue: Initial Transaction
You can break the initial transaction into these elements:
Revenue from Initial Purchase = Checkout Page Conversion x AOV x Initial Payment Processing Success - Refund Rate - Fees
Now lets look at each of these elements to see who likely wins this.
Factor | Likely Winner |
|---|---|
Checkout Page Conversion | App Stores, by a lot. It has a higher degree of trust, saved payment methods, one tap payment (which is huge). |
AOV of Initial Order | Likely a Tie I don’t see any reason these should be different |
Initial Payment Processing Success Rate | App Stores They process 10000x the volume that you do, have a higher merchant rating, use multiple gateways, etc |
Refund Rates | Likely a Tie The giant caveat here is that web checkout can be much worse if you’re not managing the experience well. If the user hits material bugs or friction right after they purchase and don’t activate on your product, you’ll see refunds go up. |
Fees | Web, by a lot Assuming you’re using stripe its “2.9% + $0.3” by default. Both apple and google stores charge 30% by default. 15% for the second year of subscriptions and developers in the SMB program with under $1M of revenue. |
Verdict: I think the app stores win here.
For the web based payments to win, you need a really good checkout page.
Even then I think you won’t be able to overcome the power of single click checkout.
Cornell did a study where they concluded that single click checkout increased order frequency in e commerce by 43% and items purchased by 37%.
This is different than session conversion level, but these numbers are huge. There is a reason that Amazon does it by default and that Stripe is building the same feature.
The team at RevCat wrote a great article testing web checkout vs app store.
They found that the web billing lead to slightly less take home. My suspicion is this is driven by the smoother checkout experience.
Revenue Recurring Transactions
Now lets look at the recurring side. You can break this into:
Revenue From Recurring Transactions = Monthly Price x Active Churn Rate x Passive Churn Rate - Refund Rate - Fees
Factor | Likely Winner |
|---|---|
Monthly Price | Likely a Tie I can’t see a reason this will be different. |
Active Churn Rate | Web, by a lot Your hands are pretty tied within the app stores and I’ve seen this universe of tactics drop churn by 10-30% |
Passive Churn Rate | App Stores Same rational as the payment processing point above. Whatever gateway you use won’t be able to compete with the app stores volume and dedicated teams. |
Refund Rate | Likely a tie App stores might have a small advantage here as they have slightly tighter policies but it might not be material. |
Fees | Web, by a lot As noted above, you pay a lot less of your revenue |
Verdict: I think the web wins out here, driven by the bottom of funnel tactics that you can use to win back users.
Tactics like this matter a lot. Read more here.
What Else Should You Consider?
As I’ve written before, your ultimate enemy is the complexity tax.
You need to protect your ability to ship code quickly and drive results in the long term.
Arguments to Stick with App Stores
Apple/Anroid app stores give you a lot of out the box functionality that you’d need to recreate (i.e pay engineers to recreate).
High converting, trusted checkout page - and one that you don’t have to spend any engineering capacity to maintain.
Multi currency support - both within the UX and on the payment processing side
Multi language support - across the same surfaces
Tax calculations - across all countries
Discount code support - so you can run promos
Saved payment methods - this allows both single click checkout, which is huge, and back up payment methods if the initial card fails.
This is a lot of functionality that you’ll have to build or pay another vendor to manage.
Arguments to Switch to Web Billing
You cancellation tool box is stronger outside of the app store
If you build this yourself, you have a lot more options. I’ve seen the “correct” deployment of these options lower churn 10-30%
You run a product that get used across desktop and web, so you can actually consolidate this with time.
You acquire most of your users via paid ads, so you can get users to pay a step higher in your funnel, therefore increasing conversion and ROAS.
Before this you’d need get them to download and app, then pay.
Its my suspicion that monetizing off of the app stores will reduce your distribution in these app stores. I have no proof, but I think its going to happen either directly or indirectly.
Firstly, all of the marketplaces use ranking algorithms to determine what you see. Ebay, UberEats, Doordash, FB marketplace, app stores, etc
All of these look at some combination of “whats best for the user” + “whats best for the business”.
I was on the team at UberEats that rank the ranking of the homepage, so I can say this from first hand experience.
At UberEats, we explicitly say that % fee you pay Uber directly impacts your organic ranking. This would be direct impact.
The harder one to determine is indirect impact.
All ranking algorithms are fed by signals from the product and the algorithm basically determine their weight of importance.
Apple would almost certainly take “payment retention” as a sign of quality and use that to boost the ranking of apps that retain well as they are seen as good for the user.
If you monetize off the app, Apple can’t get that signal and this is effectively held against you.
How material is this? I don’t know. But I think its there.
So What Do You Do With This Information?
As with most advice, you should care less about what is best overall and care more about what’s best for you.
For the average start up, I don’t think the complexity is worth it. You have a limited amount of time and focus.
Once that 30% is millions of dollars and you can pay additional people to handle that complexity for you, then it can be worth it.
Good luck out there,
Dan
About Me
Dan has help drive 100M+ of business growth across his years as a product manager.
He ran the growth team at Codecademy from $10M ARR to $50M ARR, which was acquired for $525M in 2022. After that he was a product manager at Uber.
Now he advises and consults with startups & companies who are looking to increase subscription revenue.