Apple’s $1M Threshold for Small Business Program Apparently Has a Flaw

Apple has made a big announcement today with regards to App Store commissions. The brand has launched the Small Business Program to assist developers with low App Store revenue and to cope-up with increasing scrutiny over the App Store’s business model.

If a developer signs up for this program, Apple will take just 15% commission on sales and in-app purchases instead of the standard 30% cut from the developer given that the earnings of that developer from App Store are below the $1 million mark in the previous calendar year. 

However, if the revenue of the developer, after signing up for the Small Business Program, exceeds $1 million, the developer will not be eligible to sign up for the program in the next calendar year and the developer will have to pay a standard, 30% commission on revenues in the next calendar year.

While this may seem fair, John Grubber, the inventor of the Markdown markup language, says that the Small Business Program has a flaw in it. Here is what John Grubber has written in his blog post regarding the flaw in Apple’s Small Business Program:

Let’s say a new developer enters the program (and thus qualifies for the 15 percent commission) and their apps are on pace to generate $1.2M in sales. At 15 percent, $1.2M in revenue would generate $1.02M in earnings — putting them over the threshold, so their entire earnings the next year would face a 30 percent commission.

If their sales remain flat the next year, the same $1.2M in revenue would earn them only $840K at 30 percent. They’d have to generate $1.5M in revenue to earn the same profit that $1.2M in sales brought them the year before.

Basically, if the end of the year draws near and a developer in the Small Business Program has revenue approaching $1.2M, they’re incentivized to pull their apps or reduce their prices to keep from going over the threshold.

One of the solutions to this issue would be to reset the revenue count every year and let everyone enjoy 15% commission on the first million dollars they earn every year and charge 30% commission on anything over the $1 million mark.

However, doing so would cut Apple’s revenue significantly and that could be the reason why Apple didn’t opt for this model. Reports online suggest that the number of developers that will be affected by this issue will be too low to worry about. And if there are only a few such cases, Apple can approach each of them individually to come to a solution.

[Source: Daring Fireball]

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