One of the most challenging parts of getting a product to market is figuring out the financials – you need to be able to answer, “how do you budget an app?” And, of course, this needs to be specific to your own product and financial situation. Next, there’s the whole matter of scraping together the money to bring it to life. For those who are simply dipping into a bit of their wealth to fund a project, it’s not a big deal, but many first-time entrepreneurs who plan to create a digital product aren’t quite as fortunate.
When you’re not used to acquiring, handling, and spending amounts of money that are often greater than your salary, it’s normal to feel anxious. We’ll start by quickly reviewing the cost of creating an app to give you an idea of how to budget then we’ll walk through the steps to get money.
How do you budget for an app: start with a price
Once you’ve settled on the idea of building a digital product, you’ll eventually need to either assemble a team from scratch or reach out to an agency. If you can successfully piece together all the talent you need, that’s great, but many look to agencies like us to go from cliché napkin sketches to a sustainable business. You should know that there’s a bit of a process here as well – we need to connect certain dots to figure out to price the project.
There’s no magic formula that allows us to pop out an exact cost after listening to someone describe their idea. It takes time to consider every factor to put together a good proposal to generate an estimate. With that said, we did put together an infographic and supporting content to explain what goes into how we calculate costs.
As we discuss in the last link, there are several other costs you’ll need to factor in as you’ll need to consider other business costs (and hardware, when applicable) to get an idea of the total cost to get to market. Make sure to consider every possible expense before you set your sights on a specific goal.
When it comes to the matter of ‘how do you budget for an app,’ keep in mind it’s going to take time to begin to turn a profit or significantly increase productivity, depending on its purpose. Ideally, you should have savings or another income stream to stay afloat in your personal life in the meantime; many people use some form of outside funding for personal expenses.
Funding sources by stages to build your product
Now that you know what costs you’re up against, it’s time to find the money to set things in motion. Here, we’re going to provide an overview of some different methods for obtaining capital at a couple of different points in your product lifecycle.
This is usually the hardest funding stage for most budding businesses. Going this route is usually in your best interest, especially if you find what you need early into your search.
Personal funds. To build on the last point from the previous section, you need to separate your personal and business funds early on. If you’re planning on contributing from your savings, you should do so just like everyone else – don’t put in anything you may potentially need personal access to down the road. This is a key part of the whole ‘how do you budget for an app’ scenario.
With that said, some look into “borrowing” their own money from accounts you’re typically not supposed to dip into, such as a 401(k), IRA, or403(b). The IRS is strict about the use of retirement account funds and associated loans from them. Make sure to understand the minutiae of these IRS rules before attempting this path.
Friends and family. These can be some of the most awkward conversations you’ll have in your life – it’s right up there with “the talk” parents have with their children at a certain point in the child’s life.
That wealthy uncle you don’t really like and you suspect doesn’t care much for you? He just might be willing to help you in some way for a certain return. Just like big-time investors, approach these matters strategically and give them the information they need to understand if the upside you hope to offer is worth the risk. Check out that link for a bit more information to plan your attack.
Take out a loan. Personal credit for entrepreneurs is all over the board and even with exceptional credit, it can be hard to get a few hundred grand from conventional lenders to fund your project. If you can pull it off (even with ugly interest rates), it can end up being much less expensive (in the long-term) when compared to sharing the equity of your company with different entities.
You also have the option of taking out whatever you can get when you can’t swing the full amount. This will at least allow you to finance a portion of the project with a finite amount then turn to other sources to make up this difference. By showcasing that you’ll be responsible for a certain amount of the cost from your own finances, you’ll be able to ask for a lesser amount – “putting some skin in the game”, as say – can sometimes inspire funding sources that might otherwise turn away.
Find government grants. If you know where to look, grants for businesses are everywhere from federal to local levels. The only problem is that these are often only allocated to specific business models and typically come with a fair amount of fine print.
If there’s a grant that’s applicable for your product, by all means, apply for it as soon as you can. You usually have a certain amount of time to accept or decline a grant so use this time wisely to make sure it’s a good fit.
For more detail on the above solutions as well as few additional options, check out this piece from Digital.com.
With most digital products, you’ll need at least another push soon after your MVP hits the market. By subscribing to the MVP model, you keep initial costs (even though it might not feel like it) and get to the market quickly. It takes time to get comfortably into the black – you need to continue developing your product according to your roadmap while minding user feedback and data from their behavior. As such, you’re likely going to need more capital to grow accordingly and the notion of ‘how do you budget for an app’ evolves as well.
Equity crowdfunding. Beyond platforms like Kickstarter and Indiegogo are equity-based crowdfunding platforms that allow you to exchange equity for capital. Like every other funding option, it has its pros and cons but the former often greatly outweighs the latter, at least for most projects.
You can use these platforms to gain exposure to investors without all the work it takes to approach everyone individually. Each investor or group is essentially lumped together in most funding scenarios which makes it easier when compared to working with several different investors who are all contributing different amounts with varying expectations. By using services like AngelList, Wefunder, or others, you can collect funding from a ton of investors but without the hassle of dealing with each individually.
Angel investors and groups. Unlike winning Powerball or local lotteries, angel investors are floating around, figuratively speaking, and much more likely to invest when stacked against the odds of you winning some large sum of money. Technically, any person who acts as a private investor can be considered an angel investor – typically, this style of funding is trademarked by generous repayment conditions (or highly unfavorable to you in equity terms) versus that of most other investors.
For most, it’s just about knowing the right people. In other cases, some turn to the web and use resources like AngelList to connect with investors who fit the bill as being angels. They might not be able to save you from the inferno, but they can provide the cash you need to eventually live your entrepreneurial dreams. And we all know that’s better than being stuck in your nine-to-five!
Or maybe you happen to run into a wealthy individual you met while barhopping back in your 20s who is so happy to see you made it your 30s and smitten with your personal growth that they want to put you on easy street.
Early-stage venture capital funds. The nice part about such funds is that they’re more or less everywhere, at least for the time being. After getting through your seed funding stage with the above tactics, this is typically where you’ll want to go for additional rounds like series A, B, C, and so on.
From here, the idea of ‘how do you budget for an app’ will change to accommodate for new things you plan to add. Going from, say, step three to four in your roadmap could require more funding than the hefty amount you forked over to get the MVP out the door. Whether it’s integrating some new piece of hardware into the mix, an incredibly sophisticated feature, or something else, you need to both obtain the funding and adjust your financials accordingly.
Try to get your foot in the door of local incubators first to see if you can find some kind of home-court advantage. For example, maybe part of your plan is to open a physical storefront or venue. You’re more likely to find someone who knows the lay of the land and can help with all the intricacies associated with your area.
If this isn’t an option or it just doesn’t pan out, you can easily find investors online through your favorite search engine. Stick to high-quality sources like this one from Entrepreneur for listicles of accessible investors and research the ones that seem like the best fit. When possible, try to touch base with entities they’ve helped fund and see if someone is willing to provide some insights about their experience.
We’ll help you figure out your financials and work with you to meet goals
Not only are we responsible for ensuring the products we build are functional, we provide comprehensive strategy and solutions to help businesses succeed. Every product Blue Label Labs develops is unique so we adapt accordingly for each of our customer’s individual needs and provide tools that help unlock funding. If you’re ready to get moving on your product, get in touch to learn more.
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