Bankable Pricing: A UK App Subscription Model That Survives Store Commission, VAT and Refunds
Photo: Toomson, CC BY-SA 4.0, via Wikimedia Commons
Most pricing conversations in UK app teams start with a competitor's price and end with a spreadsheet that has one too few rows. The missing rows are rarely glamorous: VAT treatment, store commission, refunds, failed renewals, trial conversion. But they are the difference between a tier that looks healthy and one that quietly loses money.
The customer sees a price, not a revenue line
Take a consumer subscription at £9.99 a month. In the UK, that is a VAT-inclusive price. Strip out 20% VAT and you have £8.33 before tax. Now apply the store's commission. If you are on the standard 30% rate, the store keeps £2.50, leaving £5.83. On a 15% reduced rate, you keep £7.08. Neither number is £9.99.
That gap is not a rounding issue. It is the difference between a product that can afford support and a product that cannot afford a second developer.
Commission is not one number forever
Apple's Small Business Programme and Google's reduced service fee can lower the cut for eligible developers, and subscription rates can change after the first year. Model the rate you are actually on today, then stress-test at 30%. If the tier only works with a reduced fee, it is not a tier; it is a favour from the platform.
This matters more for annual plans, because the commission lands in one go. A 30% cut on a £99.99 annual plan is £25.00 before you have paid for onboarding, hosting or the support ticket that arrives in week two.
VAT is already inside the price
Consumer app prices are generally VAT-inclusive. You do not add 20% at checkout like a B2B invoice. The store often handles collection and remittance, but you still need to know the ex-VAT amount because commission and your own accounting hang off it.
Build your model on the ex-VAT figure, then convert back to the shelf price. If your finance lead asks why the spreadsheet starts at £8.33 rather than £9.99, that is the row to show them.
Refunds deserve their own line
Refund rates vary by category, price point and how clear your cancellation flow is. A 3% reserve is not pessimistic for a new consumer subscription; annual plans can see a spike after price changes or when a free trial converts on a bad day. Treat refunds as a percentage of net store proceeds, not as a rounding error.
The reserve is not cash you spend. It is cash you do not spend twice.
Trials convert at a rate you have to choose
Free trials are not free. They cost support, store fees on any paid conversion, and a slice of your acquisition budget. If 1,000 trials convert at 35%, you have 350 paying subscribers. At £5.66 net per month after commission and a 3% refund reserve, that is £1,981 a month before hosting, support and VAT admin. The trial length and the reminder emails are pricing decisions, not marketing decoration.
Annual plans change the shape, not just the discount
An annual plan at £99.99 is £8.33 a month to the customer, but the net is not simply 12 times the monthly net. Here is the same treatment: £99.99 inc VAT becomes £83.33 ex VAT. At 30% commission, the store keeps £25.00, leaving £58.33. Put a 4% refund reserve against that and you have £56.00, or £4.67 a month equivalent.
That can still be a good deal if annual plans reduce churn. But do not call it a 17% discount without checking the net. If you need £5.66 net per month, the annual price should be closer to £107.99, not £99.99.
Working backwards from the bank balance
The useful formula is simple: gross price = target net ÷ ((1 - commission rate) × (1 - refund reserve)) × (1 + VAT rate).
Say you want £4.50 net per month. At 30% commission and a 3% refund reserve: £4.50 ÷ (0.70 × 0.97) × 1.20 = £7.96, so £7.99 is the shelf price. At 15% commission: £4.50 ÷ (0.85 × 0.97) × 1.20 = £6.54, so £6.99 works.
That is the workout. Start with the money you need, not the price you like.
A simple model for 1,000 subscribers
| Tier | Customer price | Ex VAT | Store fee | Refund reserve | Net |
|---|---|---|---|---|---|
| Monthly | £9.99 | £8.33 | £2.50 | £0.17 | £5.66/month |
| Annual | £99.99 | £83.33 | £25.00 | £2.33 | £56.00/year (£4.67/month) |
If 1,000 subscribers are on the monthly tier, gross customer spend is £9,990. Net after VAT, commission and refunds is £5,660. If half are on annual, the cash arrives in lumps and the monthly equivalent falls. Neither is wrong; they are different products with different cash-flow and churn profiles.
Before you ship the price
Put the store fee, VAT, refund reserve and trial conversion in the same sheet. Use the fee schedule you are actually on, then a conservative one. Check the price against your support cost per subscriber. Review after 90 days with real refund data. And keep the model alive: a price that worked at 200 subscribers may not work at 2,000.
The number on the App Store is a promise to the customer. The number in your bank account is the one that funds the roadmap. Build the model that connects them before you tap Publish.
