They idea is nice but, i am afraid that as most of this articles the title is a little misleading... you had a sale but not yet delivered a product, that is what the customer paid for. So you still have to work and even with all the limits you pose this might take 3/4 hours... and supposing you work at an hourly rate of 20$/h witch i think(but i'm not sure) it's quite low you might "spend" 60/80 $ of your time to develop it. this gives you a profit of 10/30 $ depending on how fast you are.
Anyway this is a nice project and i really hope you or someone else will prove my calculations wrong! Good luck ;)
Whether or not you are profitable depends on the cost of the labor you put into each app. Can you actually be profitable if you spend 2 hours per app that you would have billed to a big client at $100/hour?
A lot of this is an experiment. You're right, I can potentially bill a client $100+ an hour as an iOS developer but there's other costs that a lot of people ignore including time spent finding a client and time spent courting them.
The income isn't optimized (yet) but it's a start.
Proper accounting is to recognize the revenue and costs of a sale in the same period.
So you don't get to claim any profit until you complete the work you were paid to do.
How do you plan on finishing the apps fast enough to consider this a win?
To me this is the opposite of a good side project. You want your projects to generate passive income, not income that requires a non-trivial amount of work to recognize. If you can write apps, you should write apps yourself and generate ad revenue or sale revenue.
You should definitely reconsider this idea before you have oversold yourself to the point of never being able to meet your responsibilities.
> Proper accounting is to recognize the revenue and costs of a sale in the same period.
> So you don't get to claim any profit until you complete the work you were paid to do.
Correct. For anyone who's rusty on their financial accounting and interested:
Assets - Liabilities ≡ Stockholder Equity
This is the fundamental identity in financial accounting, and most financial statements are really just different ways of breaking this identity down. Usually it's written as A ≡ L + SE, but I find A - L ≡ SE to be easier to explain.
If you receive a cash pre-payment, you record an increase in the assets, but you also record an increase in 'unearned revenues' - a liability account. Your profit is, essentially, the difference in stockholder equity from one period to the next, so you've had no profit or loss so far (as far as the books are concerned, you're right back where you started).
You also record all costs associated with the revenue in the same period as the revenue payment. This is separate from the 'unearned revenue' liability account. That prevents people from boosting their bottom line in a given period by getting a lot of pre-payments, without recording all of the costs that will eventually be incurred by following through on the service itself. (And the prepayment creates an obligation to follow through, which is a liability).
Once you perform the task, you've earned the revenue, so the unearned revenue gets transferred to an equity account. Then you've earned a profit, which is the difference between your cash received (equal to now-earned revenue) and the costs associated with performing the job.
So if you've already incurred the costs but have not yet followed through on the service itself, you're actually making a loss on paper so far, because you've earned $0 in revenue, even if you have the cash on hand.
(This is highly oversimplified, just in case there are any accountants on HN, but I figure any people who missed the chance to take Financial Accounting 101 may appreciate understanding how some of this works. Even if you hire someone else to do the finances of your startup for you, it really helps to have an idea of why two actions that have the same 'real' outcome can have very different effects on your financial health on paper!)
You do bring up a good point about trust and validation, especially online. Freelancers have to deal with this all of the time when we ask for money up front for a job. Trust is everything in business.
Passive income is definitely a goal of mine. Getting there requires a lot more work than just 'making an app' and throwing it at the app store and hoping someone gives me their dollar.
As I mentioned in the post, I want to learn more about making money: what motivates people, what can I sell my labor/ideas for, how to make conversions, etc. It's definitely something I think I can pivot on later once I've gotten enough attention and traffic. Alternatively, maybe I'll figure out how to optimize the workflow.
You're right, it definitely has a scaling problem. :)
Lot's of people spend upwards to $99 for a startup weekend/hackathon to create apps over the weekend for nothing more than a chance at prizes and fun. Why not sell roughly 4 hours of my time for $99?
It's an interesting idea at least that will have no problem finding customers, and you seem to understand the problems.
My only strong suggestion is to only take on 3-4 of these projects before completing them 100%, then doing a complete retrospective assessment of how it went. Keep everyone else in a queue. Do not accept money from everyone.
Maybe you'll hit a formula for "local business news feed & map view to locations for $99" where you can put out these apps in 1/2 an hour instead of 4.
I've noticed that you are LLC. Therefore, gravitronic and chimeracoder are absolutely correct in their remarks re accounting methodology (glad to see other GAAP versed folks here) - unless you do cash based accounting, which is highly unlikely. I would recommend that you check with your accountant how this works.
However, putting aside accounting stuff, I do not understand what you are trying to achieve? What are your use cases?
There are apps for prototyping (Balsamiq), there are DIY browser based web apps for getting one's app in the AppStore (AppMkr, etc)[with some ads, ya, but that's prototype, correct?].
You production process is not automated and does not scale.
I've given this some thought, subcontracting isn't something I'm super familiar with but it's definitely worth looking into. Things are way too early to tell yet.
I really like your idea. However, you didn't provide us with a link to signup if we're interested.
On that note, how does the app release work. Do you leave the client up to their own devices to submit the app? Do you provide them with all the assets upon completion(tar of code, etc)?
Depends on what the customer wants to do. When you're dealing with mobile apps, it's tricky to do distribution (especially with Apple) so if they want to put it on the app store, I'm more than happy to help them upload it or they can give me credentials to upload myself. However, that's only IF they want to upload it. These are very unpolished after all.
Every customer gets an archive of all assets once development is complete.
You could have revenue in a matter of seconds by offering to sell $100 gift certificates to Amazon for $50 (why hello, many daily deals sites) but that would probably not be a sound business decision.
Can I strongly, strongly, strongly suggest that you rethink the pricing and value proposition here? You're chasing away good clients because anyone who has ever done mobile or programming thinks that custom development offered for $99 implies not-great-things about your programming savvy or likelihood of following through on this deal. The "wantrapreneurs" (hate that word) you appear to be targeting will disproportionately have wildly inaccurate expectations of what you're selling for $99, because you appear to be promising them the fantasy of having their business come from idea to actual fruition at the cost of $99.
I am having difficulty finding strong enough language to communicate the unwiseness of this business model vis-a-vis accurate worries like "If you’re not careful, you may end up spending an exorbitant amount of hours on a project, driving your hourly rate into the basement." All the words I'm reaching for seem hostile and yet they do not nearly capture the scope of how bad of a decision this is.
I really want to agree with you, but I think he found a profitable little niche. The type of apps (actually concepts) he's building for $99 will end up being very cookie cutter and should take a good developer less than an hour (and sometimes 15 minutes).
I think this could scale well too if you find decent, dependable developers that want to make a quick buck here and there...
This could end up as great lead generation for a mobile development shop. Once the customer sees what $99 buys, it's likely that he or she will want changes and probably some design work.
If you can pull together a group of designers and developers and provide the hosting and make the ever-so-painful submission process painless, you are basically creating an app-as-a-service business where the $99 prototype is the loss leader that gets you your customer base.
The cheapskate entrepreneurs might indeed want more services, but will they want it for an hourly rate that's 150% of what he paid for the whole initial app? Probably not. That's Patrick's point: This is basically an adverse selection machine. It's disproportionately attractive to people who don't want to pay you money while also putting up a big red flag to people who would like to give you money.
There might be a good business model here, but I'm pretty sure it isn't going to involve these $99 app buyers suddenly turning into worthwhile consulting leads. My guess: In the best case scenario, this process can be entirely automated and take up no time for anyone.
The assumption that people who pay $99 for a prototype are "cheapskates" who don't understand mobile development completely ignores the fact that the market for mobile development is growing like crazy in so many different directions and is at such an incredible premium right now that the bottom end of the market has been pretty much ignored (if you are a great iphone developer right now why would you even bother?)
But it is going to get huge. Think about web developers in 1997. They could charge a premium because there were few of them and few out of the box options (ie ugly template websites where you pay $50 for a full ecommerce site, 99designs, etc.).
Starting out doing consulting means you get to know a part of the market that most people are too snobby to touch (the whole "talking to your customers" thing) - though they are just as legitimate a customer segment as the people who will pay the egregious rates for custom.
Eh, I agree that it will be a large demographic, just like the large demographic of customers who want a WordPress clone written in PHP and ranked #1 in Google for $500. I suppose they are "legitimate" in the sense of being legal persons, sure — but "legitimate" in the sense of "profitable" or "preferable to other options," not so much. If you want to work for an effective rate of $12 an hour, my experience is that a job behind the counter at Barnes & Noble will probably be less of a headache.
(I once had a client whom I'd given a ~50% discount. Upon completion of the contract, he declared that he'd only pay me half of my already halved invoice. If this sounds like fun to anybody out there, by all means, pursue $99 app customers.)
Turn-key solutions for creating basic sites have lower margins but make it up by being able to sell at larger volume either by offering the same set of themes or offloading design costs to the community or customer.
If that's what he's going for, then it's workable, and I agree with you, it's a good market to target. But that's rather different from creating custom prototypes for $99.
It's probably the opposite of good lead gen. It's attracting a disproportionate share of pathological customers, for one thing, but also: for many, perhaps even most, of the potential follow-on customers, their first experience with the business is going to be of disappointment over what $99 actually got them.
Is it doing the developer community a favour by teaching people that for $99 you're going to get an absolute minimum product?
I'd be fascinated to see what kind of programming you'd get from places like Mechanical Turk. Has anyone done a $2 FizzBuzz request, and then compared all the resulting code?
Sure, let's agree that an amazing developer can build an amazing prototype for $99 and scale it.
The problem comes here: "guide you on submitting it to the app store." Good luck getting that to be scalable, easy, or worth your time/effort. I've run clients through this process. I've gone through it myself many times. It is tedious, complicated, and full of technical jargon. If someone could simplify the process so that a client can set that up in under 1 hour - I will subscribe to that service.
On second thought, maybe I should pay him the $99 to run my clients through the sign up process...
This is a strange definition of "profit", as it counts customer revenue before they've signed off on the deliverable --- or even before work has commenced. It seems to imply that the author's time has no value.
39 comments
[ 6.4 ms ] story [ 132 ms ] threadAnyway this is a nice project and i really hope you or someone else will prove my calculations wrong! Good luck ;)
The income isn't optimized (yet) but it's a start.
So you don't get to claim any profit until you complete the work you were paid to do.
How do you plan on finishing the apps fast enough to consider this a win?
To me this is the opposite of a good side project. You want your projects to generate passive income, not income that requires a non-trivial amount of work to recognize. If you can write apps, you should write apps yourself and generate ad revenue or sale revenue.
You should definitely reconsider this idea before you have oversold yourself to the point of never being able to meet your responsibilities.
Correct. For anyone who's rusty on their financial accounting and interested:
Assets - Liabilities ≡ Stockholder Equity
This is the fundamental identity in financial accounting, and most financial statements are really just different ways of breaking this identity down. Usually it's written as A ≡ L + SE, but I find A - L ≡ SE to be easier to explain.
If you receive a cash pre-payment, you record an increase in the assets, but you also record an increase in 'unearned revenues' - a liability account. Your profit is, essentially, the difference in stockholder equity from one period to the next, so you've had no profit or loss so far (as far as the books are concerned, you're right back where you started).
You also record all costs associated with the revenue in the same period as the revenue payment. This is separate from the 'unearned revenue' liability account. That prevents people from boosting their bottom line in a given period by getting a lot of pre-payments, without recording all of the costs that will eventually be incurred by following through on the service itself. (And the prepayment creates an obligation to follow through, which is a liability).
Once you perform the task, you've earned the revenue, so the unearned revenue gets transferred to an equity account. Then you've earned a profit, which is the difference between your cash received (equal to now-earned revenue) and the costs associated with performing the job.
So if you've already incurred the costs but have not yet followed through on the service itself, you're actually making a loss on paper so far, because you've earned $0 in revenue, even if you have the cash on hand.
(This is highly oversimplified, just in case there are any accountants on HN, but I figure any people who missed the chance to take Financial Accounting 101 may appreciate understanding how some of this works. Even if you hire someone else to do the finances of your startup for you, it really helps to have an idea of why two actions that have the same 'real' outcome can have very different effects on your financial health on paper!)
(that said, good post. not enough people think about A=L+SE when they do business)
You do bring up a good point about trust and validation, especially online. Freelancers have to deal with this all of the time when we ask for money up front for a job. Trust is everything in business.
As I mentioned in the post, I want to learn more about making money: what motivates people, what can I sell my labor/ideas for, how to make conversions, etc. It's definitely something I think I can pivot on later once I've gotten enough attention and traffic. Alternatively, maybe I'll figure out how to optimize the workflow.
You're right, it definitely has a scaling problem. :)
Lot's of people spend upwards to $99 for a startup weekend/hackathon to create apps over the weekend for nothing more than a chance at prizes and fun. Why not sell roughly 4 hours of my time for $99?
My only strong suggestion is to only take on 3-4 of these projects before completing them 100%, then doing a complete retrospective assessment of how it went. Keep everyone else in a queue. Do not accept money from everyone.
Maybe you'll hit a formula for "local business news feed & map view to locations for $99" where you can put out these apps in 1/2 an hour instead of 4.
Working on products that nobody wants is the kiss of death for many projects-by actually finding customers, you've greatly reduced that risk.
However, putting aside accounting stuff, I do not understand what you are trying to achieve? What are your use cases?
There are apps for prototyping (Balsamiq), there are DIY browser based web apps for getting one's app in the AppStore (AppMkr, etc)[with some ads, ya, but that's prototype, correct?].
You production process is not automated and does not scale.
So, what's the point?
That is still dirt cheap for anyone who wants to get an app made.
You'll do half the work for the same no eyes.
Like I mentioned, a lot of this is trial and error, but we all have to start somewhere.
On that note, how does the app release work. Do you leave the client up to their own devices to submit the app? Do you provide them with all the assets upon completion(tar of code, etc)?
Every customer gets an archive of all assets once development is complete.
Can I strongly, strongly, strongly suggest that you rethink the pricing and value proposition here? You're chasing away good clients because anyone who has ever done mobile or programming thinks that custom development offered for $99 implies not-great-things about your programming savvy or likelihood of following through on this deal. The "wantrapreneurs" (hate that word) you appear to be targeting will disproportionately have wildly inaccurate expectations of what you're selling for $99, because you appear to be promising them the fantasy of having their business come from idea to actual fruition at the cost of $99.
I am having difficulty finding strong enough language to communicate the unwiseness of this business model vis-a-vis accurate worries like "If you’re not careful, you may end up spending an exorbitant amount of hours on a project, driving your hourly rate into the basement." All the words I'm reaching for seem hostile and yet they do not nearly capture the scope of how bad of a decision this is.
I think this could scale well too if you find decent, dependable developers that want to make a quick buck here and there...
If you can pull together a group of designers and developers and provide the hosting and make the ever-so-painful submission process painless, you are basically creating an app-as-a-service business where the $99 prototype is the loss leader that gets you your customer base.
There might be a good business model here, but I'm pretty sure it isn't going to involve these $99 app buyers suddenly turning into worthwhile consulting leads. My guess: In the best case scenario, this process can be entirely automated and take up no time for anyone.
But it is going to get huge. Think about web developers in 1997. They could charge a premium because there were few of them and few out of the box options (ie ugly template websites where you pay $50 for a full ecommerce site, 99designs, etc.).
Starting out doing consulting means you get to know a part of the market that most people are too snobby to touch (the whole "talking to your customers" thing) - though they are just as legitimate a customer segment as the people who will pay the egregious rates for custom.
(I once had a client whom I'd given a ~50% discount. Upon completion of the contract, he declared that he'd only pay me half of my already halved invoice. If this sounds like fun to anybody out there, by all means, pursue $99 app customers.)
If that's what he's going for, then it's workable, and I agree with you, it's a good market to target. But that's rather different from creating custom prototypes for $99.
I'd be fascinated to see what kind of programming you'd get from places like Mechanical Turk. Has anyone done a $2 FizzBuzz request, and then compared all the resulting code?
The problem comes here: "guide you on submitting it to the app store." Good luck getting that to be scalable, easy, or worth your time/effort. I've run clients through this process. I've gone through it myself many times. It is tedious, complicated, and full of technical jargon. If someone could simplify the process so that a client can set that up in under 1 hour - I will subscribe to that service.
On second thought, maybe I should pay him the $99 to run my clients through the sign up process...
What would be interesting, as an experiment, would be to see if there is a way to build a larger app from a bunch of $99 app legos.
Break your app down to a range of small blocks that will all link together.
Buy out each block as you go and have money.
Maybe there are larger blocks available. Say - proof of UX concept for 99, core functions for 500, 99 additional change/feature, etc...