The Parse Announcement by Facebook to close down the Parse Cloud Service, you can approach life after Parse like it’s one huge pain in the butt or look at it an opportunity and find that silver lining.
Approach things right and something that at first looks bad can turn out for the good. Life after Parse is just that.
In the first in our Series of – Life After Parse – blogs we’ll show you how to take the positive out of the Parse closure. Turn a bad situation into something that gives your clients a better app. An opportunity to build monthly retainer services to manage and optimize your client’s apps, earning good recurring revenue for your app business.
With the hard deadline on Facebook pulling the shutters down on Parse, one way or another you’re going to have to have “that conversation” with your clients. You’ll need to explain to them that some rework is needed because the platform you chose for them is closing and money needs spent.
This can go one of two ways.
“Er, we have some bad news, it’s going to cost you money, sorry, it’s not our fault”
“We need to change the way we do your app. It will mean we work a bit differently in the future, but the benefit is you’ll have us working for you, helping you make your app better, now and tomorrow.”
I certainly know the conversation I’d rather have. And the thing is, your clients need to give you a hearing on this, because if they don’t, their app will break and break pretty soon.
After Parse. A chance to change the way you work with clients
At Kumulos we did some research a couple of month back looking at how mobile app agencies charge for their services. It showed the huge opportunity for them to build-out follow on services and convert one off project income from mobile app project into monthly recurring revenue. Up to 50% of the initial app build can be made EACH YEAR on follow on services. That’s huge.
So why aren’t we all doing this on all of our app projects. Well probably because relationships with clients get set. Once set, it’s pretty difficult to go back and discuss how it should change. It’s easier to put new customers on a new model, but tougher to get existing customers to change.
Parse could be the thing that gives you the “external disruption” point that lets you discuss a new way of working. If you aren’t charging for hosting (because the app was on the Parse free tier), then that’s going to have to change. Your customers will now have to pay monthly for their app hosting. And of course, you’ll wrap that up in a service, where you pass on the cost of the mBaaS with a value add service on top, of course. Right now you’re not going to get a better chance to redefine how you work with clients.
It sounds like a lot of hassle for little in return, I hear you say.
Well this is why.
Adding a strong underpin to your cash flow from selling monthly recurring services takes risk, and stress out of your business. Stress and sleepless nights around meeting payroll anxiety around project timings and when builds become billable. Unpredictable and a challenge when you have a highly predictable metronome-like cost structure.
The more stable the cash flow is for your business, the more confidently you can plan and scale your business.
Lets look at the numbers.
Here’s the Math.
To set the ground work, let’s take a typical web development project as a reference point.
The average website built is around $30,000 today.
The average follow on services from a digital agency is around 12% of the build costs, so $3,600 a year or $300 a month, for hosting, basic monitoring, CMS etc.
You can get closer to $6,000 a year if you add SEO, site flow optimization and AB testing and the like. So about 20% of the project build cost can become follow on retained services. This is pretty standard practise for web development businesses.
Now let’s look at Mobile App Projects.
For this example, take the average build for enterprise mobile app as $120,000.
If you’re not offering structured follow on services, you could be leaving between $14,000 and $36,000 a year, on the table for each end every app you build. Add to that a further $24,000 from follow on project work that will directly spin out from your monthly services. All in that’s $60,000 a year, from each mobile app project. 10x that for every 10 apps you’ve launched for clients and that’s a healthy sum.
Now, even a % of that $600,000 a year makes this worth doing. Right?
So here’s how it works.
Let’s say you have 15 Apps build for clients over the last few years.
Average build cost $120,000 for each app.
Average services (that’s the straight forward services you’d offer if you were building a website, so a similar rate of 12% cost for each app, per year that’s $14,400 yearly income from each app.
Total $216,000 per year or an additional $18,000 each month, every month, for doing very little.
Higher value retained services
It’s best to start customers off on BaseLine services, but have a plan to move them onto higher value services over time. Growing your monthly income is good, but what’s better is delivering more valued services, like App Store Optimization, services that will bind your customers more tightly to you, than if you just continue to offer “commodity” services.
Here’s the workings
- 15 Apps
- Average cost $120,000
- Average monthly service charge 30%
- Equals $540,000 a year.
$45,000 each and every month, whether you sell another new client app project or not. Now that would make a decent hole in your monthly running costs, of any mobile app business.
Services creates projects
Now factoring in the follow on project work that will come from feature rework and OS upgrades. Modestly that’s another 15-20% of the initial build. In this example a further $360,000 a year.
So from the 15 Apps you’ve built, approaching this right, you should be generating around $900,000 every single year in recurring revenue from these customers. Or 50% a year, each year from that initial app build project budget.
More than enough to smooth out that wild project income you’re trying to run your business on.
And if you’re a business owner looking to exit in coming years every recurring revenue dollar is worth 6-8 times a dollar earned on a one off project.
Clients will pay
“But my clients will never pay that”… I hear you say.
They will, for sure, if you approach this right.
It’s about understanding what they need from their app and structuring the services to deliver that for them. It’s about setting objectives and targets that in time, depending on the services you offer, you share responsibility to delivering against.
We are talking to mobile app businesses right now doing just this.