Just read an interesting observation when doing some iphone development research, and it's good to see it in black and white. This comes from a blog post on ajaxian, which in turn quotes John Allsop's article from Web Directions South.

What's being outlined here is the number of customers you require to make $50KUSD from your app, and the vast difference between a pay-per-app model against the subscription model.

Let’s say you sell your App for $1.95. You’ll need to sell 25,000 copies to make $50KUSD. Hang on, Apple takes about 30% so you’ll need to sell 30% more. That’s 36,500 copies. If you look at a typical conversion rate of say 3% of downloads to sales (in my experience, good Mac apps can get that kind of conversion), if this were a desktop shareware app, you’d need to have 1.2 million downloads. That’s more than 10% of the entire projected iPhone user base for the end of 2008 interested in your app.

OK, let’s think about higher price points – at $5, you need to sell 14,000 copies to make $50KUSD, with a theoretical download of 476,000 demo copies. Up this to $10, and we are looking at 7,000 sales, and 233,000 demo downloads. And that’s for a single developer. Double this for 2 developers, triple it for a team of three, and so on.

Now, let’s compare the "sell the app" business model with the increasingly common "subscribing to a service" model. Let’s say we only have customers paying $5 a month. They are already paying $60 a year! So to make our $50KUSD, we’ll need around 1000 customers (about 14% of the number of sales of a $10 app). And I’ve factored in about 12% costs here (transaction and hosting costs, based on personal experience).