Taking a groundbreaking idea and turning it into an app isn't always easy, but the biggest struggle that app creators often come up against is determining how to monetize their efforts. Between in-app ads, freemium or subscription-based models, or one-time fees, there's a lot to consider—but which strategy is going to work best for you and your project?
In this article, we'll share the various app monetization options available to you and help you better understand the conceptual game behind generating an increasing ROI. Whether you're a developer, investor, or product owner, this guide can help you lay the foundation you need leading up to the launch of your app.
Mobile app monetization is the process of generating a stream of revenue by leveraging an application’s user base to convert engagement and actions into rewards.
If this technical definition is making you shake your head, no worries! In the following sections, we'll elaborate on this concept and provide you a more holistic view of the what, when, and how regarding app monetization.
According to this 2017 survey on user media consumption habits, smartphone phone applications consumption is as common as all other platforms combined, and that number has grown even more drastically today in 2021.
The stats do not end there either. Since mobile devices dominate laptops and tablets due to their ease of use and close proximity, the time people spend using smartphone apps is remarkable. The image below exhibits the average daily hours a visitor spends on a mobile app.
These facts show the significance of creating mobile apps for monetization purposes.
The short answer is "yes". Without implementing a proper monetization strategy, your app won’t generate any revenue and it will be difficult for you to recoup the cost, time, and resources sacrificed during the app development process. The app market continues to expand and is worth billions of dollars. According to an expert prediction from 2016 to 2020, revenue generated by apps will be doubled. However, not all apps or all parts of an app need to be monetized. For instance, let's take an example of a workplace app which is not required to be monetized at all since you will not be charging your employees for using the app.
There are two general categories in which the strategies to conduct app monetization fall, named as direct monetization and indirect monetization. Let’s have a look at what each stands for and the difference between two.
It is the most popular method and it generates money straight from the application. The income comes directly from the app when users pay some amount on Google Play or Apple Store to download your app. Similarly if a user buys something while operating your e-commerce application, that particular sale also comes from the application.
This type is quite popular among software products. In this method, an independent product or service comes with the application. The app acts as secondary and you make profit regardless of the app usage. Indirect monetization acts as a clever strategy to make products more appealing to valuable customers, thus, improving the user experience.
The majority of app monetization strategies (i.e., explained later) fall under the direct monetization category.
Let’s take a glance at a list of popular app monetization strategies that are commonly used. I’ll elucidate whether the said strategy is direct or indirect, pros and cons where applicable and how someone can use these strategies to monetize their app.
The Word Freemium is an amalgamation of “Free” and “Premium”. In the freemium strategy, you offer the app services free at first. Afterwards, you provide different versions of the application (both free and premium). The basic features of the app are free and users can access content with additional features and capabilities using the premium mode of the app. For example some apps offer premium versions for removing unwanted ads.
People face a tough time converting free users to paid ones. So you must work on creating the free versions good enough. Moreover, you must adjust the cost for the premium version on justified levels i.e. if the distinction between two versions is minor, people won’t be willing to upgrade. In the freemium strategy, a free monthly premium version is also offered and extending free trials of these versions is also a good way to implement this model. Freemium model is a mixture of both direct and indirect monetization.
In paid downloads, one can make money by simply charging a certain download fee from users. However, you must set the download cost at a range which users are used to paying. For example, the average download cost on the Apple Store is $4.37 according to a statistics report. Statistica prepared a study in 2020 using data from the Google App store. The study showed that most of the paid apps cost less than $1 and the average range is below $5 (shown in figure).
This model falls under direct monetization strategy. Although the number of downloads cannot be compared with those of free apps (you might not get as many for paid apps because some people do not download if the app is paid). If your potential paid customers are frequently engaging with the app, then you can apply other monetization models and generate income.
A recurring revenue can be generated using this model. You earn from monthly and annual subscription fees rather than one-time app download free. Subscription model falls under freemium category and is very popular for multimedia apps like Apple Music and Netflix etc. various packages are offered based on content offered and number of users accessing the content.
This model is beneficial in terms of generating a steady income i.e. once a user has subscribed, he/she will be charged regardless of their activity in the app (even if the user is not active , fees will be charged until unsubscription is applied by the user). Even small business can leverage this model to offer monthly, bi-anually services (cleaning, washing, fitness apps, pickup/delivery).
With this model, revenue is generated through sponsored ads. You made your app free to incentivize the number of users. The more the users, the more revenue will be generated through your ads. In-app advertising has the following forms:
There are further five types of ad revenue model, which are stated below:
In-app advertising is an easy to implement strategy through which you can earn passive income. However, ad banners do hurt the user experience (UX) and make it tough to retain users. Put ads relevant to your user base and in correct formatting to achieve fundamental goals. According to Digital Content Next, 78 percent of users get satisfied when ads relevant to their interest are delivered.
This model works in several forms: a premium feature in the app, new free user level/reward, one free meal and an extra workout in the health app. This monetization works for both free and paid apps and can be applied for physical as well as virtual products.
Gaming apps are the best example of leveraging in-app purchase models. Users get addicted to the game and spend money to buy lives, maps, clothes, weapons, vehicles etc. One such example of a popular game which received its popularity in pandemic time- PUBG is using this monetization model.
Sensor Tower has stated that PUBG creators have earned over $226 million making it the highest grossing game of May 2020.
Other than game apps, eCommerce apps can also imply in-app purchase models. Products purchased by users also fall into this category.
A type of indirect monetization strategy that generates money from product, services rather than the direct actions in the app. In this method, whenever a user downloads a software, it can use the iOS or Android app of that software for free. One such offer is available on QuickBooks (a popular online accounting software). You can achieve a significant edge in the market if your product offers the free app and others don’t. Moreover, users like to access their data from anywhere with native mobile app.
In free apps, you cannot charge users for downloads. Worried? You must not because you can still make money with free apps without charging the users. I have described six strategies above for app monetization. Following are five those models which can be applied to monetize free applications.
All of these models can be used for free apps and you even can implement a combination of models to monetize free apps. Leveraging multiple monetization methods will let you make revenue with free apps.
It does not suggest that you should dismiss the idea of creating paid apps. You can still implement diverse strategies based on your interests.
It's important to pay attention when it comes to selecting the right monetization strategy for your product. Evaluate your KPIs such as audience, engagements, capabilities, type of apps and services, before choosing the model. I have compiled a list of proven tactics that you must consider:
Some types of apps are easier to determine. For example, for an e-Commerce app, In-app purchases is the most suitable model. On the other hand, if you try to apply Advertisement model to an eCommerce app, it will divert user attention from the product you are selling thus demeaning the value of app.
There are several well known tools and platforms which you can use to monetize your app. For a beginner, app monetization could be a challenging task and you must go with executing the effective strategies and tactics to build the right process. If you need help with selecting the best monetization model and creating a market competitive app, then our expert team at Crowdbotics can help you achieve the desired goal. To get a detailed quote, get in touch with us today!
October 29, 2021