I was meant to present to you all at the 2020 XOJO.CONNECT event, but as we’ve all heard the sad news, the event was canceled. Many of the presenters are taking their presentations to video, but since mine is more about business and marketing, I felt it would be too much of a lecture. So I decided to write up a post, and expand upon one of my new favorite concepts, one of which some of you might already be doing and not even knowing it.
When I was researching questions to use in my dietitian study guide apps, I came across this topic called the Menu Engineering Grid. This is a tool used by restaurant managers to evaluate foods in a specific category, the appetizers category for example. They look to see how each item does in comparison with others in the group in terms of its popularity and profitability. Depending on where an item falls on the grid, there are several recommendations on how to improve upon the item’s popularity and/or profitability. As the name says, this is a tool commonly used in the food industry, but I’ll show you how you might be able to incorporate this tool into your business practices. The menu engineering grid looks like this below:
The x-axis shows the profitability, and the y-axis is the popularity. You see there are 4 quadrants to the grid.
- Stars (upper-right): Items that are very profitable and very popular. Goal: Maintain the quality of the item since it is selling well and bringing in good revenue. Recommendations: No change to the item or maybe experiment with slight price increases.
- Horses (upper-left): Items that are very popular but not very profitable. Goal: Find ways to increase the profit margin. Recommendations: Try a price increase and/or using less expensive materials. Now, digital goods really don’t use materials, per se. However, maybe a plugin could be considered a material for an app. If you purchase a plugin, you can look at using less expensive plugins that perform the functions you need, you can write the plugin yourself, or you can renew the plugin every other year instead of annually. For me, I wouldn’t mess with the plugins. They’re working and hopefully are being updated to meet the needs of current Xojo releases and the latest operating systems. Plus, you’re helping out other small business developers by buying their products. Instead, I would recommend slight price increases for this category. People are already buying your app and haven’t been complaining about the price.
- Puzzles (lower-right): Items that are highly profitable but not very popular. Goal: Find ways to increase the popularity of the items without sacrificing the profitability too drastically. Recommendations: See if a slight decrease in the selling price brings in more sales. Other strategies include finding a new focus area of the app or maybe marketing it better on your website and social media.
- Dogs (lower-left): These items are not profitable and not popular. Recommendations: Don’t waste your time or money with improving these items and consider removing them from sale.
Next in the image, take note to the vertical and horizontal lines that separate the quadrants. These are not arbitrarily added. They’re calculated. Without getting into too much detail, the horizontal line separating the upper and lower quadrants is known as the popularity line and is calculated as 70% of the expected popularity:
Popularity line = 100% / total number of items X 70%
The vertical line separating the left and right quadrants is known as the average contribution margin, which is simply the sum of all item contribution margins divided by the total number of items.
The plot points utilize the popularity index (y-coordinate) and contribution margin (x-coordinate).
Popularity index = number of an item sold / total number of all items sold X 100
Contribution margin = selling price – item costs
Technically, the item costs of digital goods are essentially low. What are you actually buying for each item sold? Probably nothing, unless you are distributing on a removable media source. Maybe you are selling on your website and use a credit card processor. For example, I use PayPal, and for each sale made on my website, PayPal collects 2.9% + $0.30 per transaction. You might also count the salary you pay yourself towards the item cost. There can be a lot of work to determine the item cost of apps since the costs associated are not as cut and dry as the food industry, for example.
So how can you, as an independent developer, utilize this tool? Allow me to share a real-world example. An example of my own business. I’ll show you how I utilized the menu engineering grid in some of my apps with actual before and after data.
I have three standalone study guide apps for students to prepare for the registered dietitian exam:
- Study Suite: By far my most popular product, accounting for over 85% of revenue. This product contains multiple study modules, providing students with different forms of studying and keeping them engaged in an interactive format.
- Flash Cards: An electronic version of flash cards. This product sells for $150. The year prior to any changes, I sold 37 units, resulting in $5,550 for the year.
- Hanging with Nutrition: A hangman style game. This sells for $150. Year prior to changes had a whopping 13 units sold, resulting in $1,950 for the year.
Analysis: Study Suite is a star. While each of the three apps did bring in a profit, Flash Cards and Hanging run quite low on the popularity scale, falling into the puzzle category. Students understand Flash Cards is a method of studying, but maybe this is priced too high. Students may not understand Hanging with Nutrition is meant for study purposes, plus, this is priced too high.
Changes: Keep Study Suite as is since this is very popular and profitable. With both Flash Cards and Hanging with Nutrition, I decreased the prices of each to $100 and $50, respectively. In addition, I incorporated both products into Study Suite as separate add-on products. Now students continue to purchase Study Suite as their main study app. They can trial the two add-on products and see the value of the products and if these are something they want to include. The reduced price also entices students to make a purchase.
Post-change evaluation: The year after the price decrease plus incorporation of the apps as add-ons returned the following:
- Flash cards sold 113 units at $100 each for a total of $11,300 for the year. More than 3 times the number of units and just over double the revenue from the previous year!
- Hanging with Nutrition sold 64 units at $50 each for a total of $3,200 for the year. About one and a half times the revenue, plus over 300% increase in the popularity!
- I think the changes were quite successful with increasing the popularity of both apps. Plus, I not only maintained the profitability, but actually increased it in both, even with a selling price decrease.
In terms of profitability, all apps should be considered profitable as long as they have helped bring in adequate revenue to cover your costs to develop the apps, such as your Xojo license and other licenses you may need to make your awesome apps. If you cover your costs and don’t even sell one more app during the year, you can essentially sit back and just let the app remain without any updates, maybe even for the unforeseeable future. But this isn’t ideal. Operating systems change, bugs are always being discovered, and let’s face it, as you grow, so does your knowledge in developing. In order to maintain the high quality of your apps and improve them, it must be worthwhile to you to continue working on them. If I hadn’t changed up the way I market Hanging with Nutrition, I wouldn’t see 13 users per year on that product worth the time and effort to maintain it, at least regularly. Though when the number of students who are buying the product annually increases five-fold, it makes my decision of investing my time in keeping these apps up to date much easier.
Take this lesson as you will. Many of you probably have dozens of apps or more. How well are your apps selling? How are they priced for the market? Priced compared to the competition, if any? Do any of these serve a similar purpose and may benefit as an add-on or as an in-app purchase to another app? While we have some downtime in the world today, take a moment and evaluate your apps. Come up with a marketing plan, implement it, and see what happens. Don’t be afraid of change. Some small tweaks can have a big impact on your small business.
Good luck, and stay safe and healthy
Ryan Hartz has been a Xojo user for over 10 years. He is a registered dietitian with no formal education in software development, illustrating that anyone can learn development in Xojo with its ease of use and understandable language. In 2005, Ryan started his company, Visual Veggies Software, which offers software study guides to young nutrition students preparing to become registered dietitians.