Navigate app store revenue recognition, optimize in-app purchase accounting, manage user acquisition costs, handle platform fees, and ensure international VAT/GST compliance. Expert guidance for iOS, Android, subscription apps, mobile games, and freemium models.
Mobile app businesses face unique complexities from app store revenue recognition to international tax obligations. We provide specialized expertise for maximizing profitability.
Apple and Google collect payments, take their cut (15-30%), then remit to you weeks later. Proper revenue timing and net vs. gross accounting is essential.
Revenue Flow:
Proper Accounting:
Different IAP types (consumables, non-consumables, subscriptions) have different revenue recognition rules under ASC 606.
IAP Types & Recognition:
Our Solution:
Mobile apps spend heavily on user acquisition (Facebook, Google, TikTok ads). Should these costs be capitalized or expensed? The answer impacts profitability and taxes.
Expense vs. Capitalize Decision:
Our Approach:
Mobile apps sell globally. EU VAT, UK VAT, Australia GST, and other countries' sales taxes apply based on customer location, not your location.
Who Collects VAT/GST?
Our Solution:
Apple and Google take 30% of all in-app purchases and subscriptions (first year).
If customer pays $9.99, you receive $7.00 (after 30% cut)
Apps earning less than $1M annually qualify for 15% commission (both platforms).
If customer pays $9.99, you receive $8.50 (after 15% cut)
After 1 year of continuous subscription, commission drops to 15% (standard rate).
Incentivizes retention and long-term subscriber relationships
Record revenue net of platform fees, treat fees as COGS, recognize ratably over 12 months
DR Cash (App Store) - $5.83
CR Subscription Revenue - $5.83
DR Deferred Revenue - $64.16
CR Deferred Revenue - $64.16
Platform-Specific Features
iOS/Android native development with technical challenges
Performance Optimization
Battery optimization, memory management, load time reduction
Backend Infrastructure
API development, real-time sync, scalability architecture
Game Development
Game engine optimization, physics, rendering, multiplayer networking
Novel UI/UX Implementations
Custom animations, gesture recognition, AR/VR features
Security & Privacy
Encryption, biometric auth, secure data storage
Funds nearly 4 additional developers or extends runway by 6-8 months
Facebook, Google, TikTok, Apple Search Ads, and other UA spend is 100% deductible. Largest expense for growth-stage apps (30-50% of revenue).
All software, services, and tools for app development and operations are deductible business expenses.
Apple and Google's 15-30% commission is your largest COGS component. Treat as cost of revenue, not operating expense.
Tools to track installs, measure ROAS, and analyze user behavior are essential operating expenses.
Backend hosting, databases, CDN, and APIs to support mobile app operations are deductible.
App store optimization, creative testing, and organic growth efforts are deductible marketing expenses.
The Company:
Productivity app with freemium model. $4M ARR from subscriptions ($9.99/month), 200K monthly active users, 8% conversion to paid. iOS and Android.
The Problems:
Our Solutions:
Results:
— Founder & CEO
Record net revenue (what you actually receive after Apple/Google takes their cut). You're acting as an agent, not principal. If customer pays $9.99 and you get $7 after 30% commission, record $7 revenue, not $9.99 revenue with $3 expense. This properly reflects your economics.
Recognize ratably over the subscription period. Monthly subscription: recognize 1/month of value each month. Annual subscription: recognize 1/12 each month for 12 months. Revenue is earned when service is provided (stand-ready obligation), not when payment is received.
Yes, if you're developing novel features, optimizing performance, solving technical challenges, or building custom infrastructure. Simple UI changes don't qualify, but backend architecture, game engine development, AR features, and complex integrations typically do. Mobile game studios especially qualify extensively.
Generally expense UA costs as incurred. While some companies capitalize based on demonstrable LTV, it's complex and requires defending. Most app developers (and VCs) prefer expensing for clean accounting. Focus instead on optimizing CAC and payback period through analytics—that's what investors care about.
For sales through Apple/Google app stores: No, they collect and remit VAT/GST in most countries. For direct sales (web subscriptions, enterprise deals): Yes, if you exceed country thresholds (EU: €10K, UK: £85K, Australia: AU$75K). We monitor your international revenue and handle registration when needed.
Both are COGS (cost of revenue). The 15% rate applies if you earned less than $1M in prior calendar year. Track qualification carefully—if you cross $1M mid-year, you lose the benefit for remainder of year. This 15 percentage point difference (15% vs 30%) significantly impacts gross margin for small developers.
VCs focus on: (1) DAU/MAU (daily/monthly active users); (2) CAC by channel; (3) LTV with retention curves; (4) CAC payback period (6-12 months ideal); (5) Viral coefficient (organic growth); (6) Conversion rate (free to paid); (7) Churn rate (<5% monthly for subscription); (8) ARPU/ARPPU trends. We build dashboards tracking all these.
Don't recognize revenue during free trial period—customer can cancel without payment. Start recognition when trial converts to paid (when they're charged). Track trial conversion rates closely—7-14 day trials typically convert at 10-25%. Failed conversions are zero revenue, not refunds.
Get expert guidance on app store revenue recognition, R&D credits, international tax compliance, and unit economics tracking. Free assessment for mobile app developers.