The Ultimate Guide to Mobile App Monetization
The Ultimate Guide to
Mobile App Monetization
Having an idea and turning that idea into something profitable
are two very different things. Lots of people want to create an app, but the
money-making aspect holds them back. Will you ever see a return on your
investment?
I get
asked dozens of questions about apps on a daily basis. But “how do you make
money with an app” is definitely at the top of the list—which inspired me to
create this guide.
Fortunately,
there are lots of different ways to monetize an app.
Whether
you’re building a new app for the first time or trying to make money with your
existing app, I’ll explain everything you need to know about app monetization
below.
How to Make Money With an App
Generally
speaking, app monetization strategies fall into one of two categories—direct
monetization and indirect monetization.
Direct
monetization is definitely the most popular. In fact, the vast majority of the
app monetization models covered in this guide will fall into that bucket. But
before we get into the specifics, I want to quickly clarify the difference
between these two app monetization methods.
Direct Monetization
As the
name implies, direct monetization is money generated straight from your app.
If an
iOS or Android user pays $1 to download your app from the Apple App Store or
Google Play Store, the cash comes directly from the app. When someone uses your
ecommerce app to buy something from your business, the sale is coming from your
app.
Again,
this is pretty self-explanatory. But it’s essential to understand how direct
monetization works before we dive into indirect monetization.
Indirect Monetization
Indirect
monetization isn’t quite as black and white. You can still make money by
creating an app, but the actual dollar amount can’t necessarily be tied to the
app itself.
The
best example of indirect monetization is a standalone product or service that
comes with a free app. In this situation, the app is secondary. You’re making
money whether the app gets used or not. Having an app makes the product more
appealing to prospective customers since it will ultimately improve the user
experience.
Indirect
monetization is extremely popular for software products. I’ll give you some
actual examples of this shortly as we talk about app monetization strategies in
greater depth below.
6 App Monetization Models and Strategies
There
are six different ways to make money with an app. I’ll explain each one’s
advantages and drawbacks to help you figure out the best way to monetize your
app.
You’ll
also see some real-life examples of apps using these monetization models
successfully.
1. Paid Downloads
Charging
users a fee to download the app is one of the simplest ways to make money with
an app.
So how
much should you charge? According to a 2020 a study from Statista, the
majority of paid apps cost less than $1.
most paid apps cost less than $5. This particular study only
used data from the Google Play Store.
Statista
also determined that the average cost of a paid app in the Apple App
Store was $4.37. While this is slightly higher than the distribution of paid
apps in the Google Play Store, it still falls in the less than $5 range.
You
have the freedom to charge whatever you want for your app. But if you’re going
to charge users a download fee, it should be in the range that they’re used to
paying.
While pay-to-download
is definitely a straightforward app monetization model, it does have its
drawbacks. You can’t expect to get nearly as many downloads as you would for a
free app. Some people won’t consider installing an app if it’s not free.
With
that said, it’s more likely that paid users will be highly engaged.
Anyone
who pays for a download will want to get the most out of their investment. If
those people are using the app frequently, you could potentially make even more
money from them with other app monetization models on our list.
2. In-App Purchases
The
in-app purchases monetization model can be used for both free and paid apps
alike. You can use this method for physical and virtual products.
Gaming
apps love to leverage the in-app purchase methodology for virtual coins or
experience upgrades. For example, users playing a mobile gaming app could spend
money to unlock a new vehicle, weapon, map, or something along those lines.
Pokemon
Go is a great example of a free mobile
app Development that makes money from in-app purchases.
According to Video Games Stats, Pokemon Go has generated more
than $3 billion in revenue as a free app.
This
revenue comes from roughly one billion downloads. But since people aren’t
paying to download the app, how does it make money? In-app purchases. The app
sells “PokeCoins.” This virtual currency can be used to pay for upgrades within
the app that improve the gaming experience.
But
mobile games aren’t the only way to monetize an app with in-app purchases.
Ecommerce websites can build an app as a way to increase mobile sales.
If a
customer buys a shirt, pair of sneakers, book, watch, or whatever you’re
selling online from your app, it falls into this category as well. Using an app
to make money is a no-brainer for anyone who already sells physical or digital
products online.
3. Subscriptions
Subscriptions
are an excellent way to generate recurring revenue with an app. The Apple
App Store and Google Play Store both make it easy for you to set up a
subscription business model with your app.
Users only need to sign up for a subscription once, and they’ll
continue to get charged on a recurring basis until they manually cancel the
subscription.
In
most cases, subscription apps are billed on a monthly basis. But you can set up
annual or quarterly billing cycles as well. It’s common to offer a better
monthly rate for longer subscription terms, as shown in the example above.
Subscription
apps could be applied to a wide range of industries and potential use cases.
If
you’re creating a fitness app, you can charge users a monthly subscription for
access to workouts, videos, and training regimens. Even a small business owner,
like a local dry cleaner, could leverage the subscription model to offer
pick-up and delivery cleaning services.
An
excellent subscription-based app, called PepTalks, was recently built using
BuildFire’s platform. App users pay a monthly fee to receive motivational words
delivered to their devices via push notification on a daily basis. You can read
the full PepTalks customer story here to learn how one person took a
simple idea and monetized it with an app.
4. Freemium Model
The
freemium app model is essentially a mix between subscriptions and in-app purchases.
Technically speaking, it could potentially fall into either category, but this
is definitely worth mentioning on his own.
To
clarify, the term “freemium” comes from combining the words “free” and
“premium.” Free + premium = freemium; get it?
So offering
your app for free is the first step to using the freemium monetization
strategy. Next, you need to offer different versions of your app—free and
premium.
The
idea here is to offer a free version with basic features and an upgraded
version that delivers a better user experience. For example, let’s look at the
Pandora mobile app subscription options.
Anyone
can download the app for free and listen to music for free. However, you’ll be
interrupted with ads between songs. There are also some limitations and
contingencies in terms of skipping songs, searching for songs, and playing what
you want.
The free
version is fine, but if you want to get the most out of this app, you’ll need
to get a paid subscription.
With
freemium apps, you still need to make the free version good enough. For
example, if the free version of Pandora only played one minute of each song,
nobody would use it. So you’d have a tough time converting those free users to
paid subscribers.
You’ll
also need to make sure the cost associated with the premium features are
justified. If the only difference between the two versions is a minor inconvenience,
people won’t feel the need to upgrade.
Another
way to entice premium upgrades is by offering extended free trials of those
versions. Some users might not know what they’re missing until they try it out.
So don’t be afraid to offer a premium month for free.
5. Advertisements
Ad
revenue is an extremely popular app monetization strategy. With this method,
you’re selling space within your app for advertisements. Some of you might be
familiar with this model if you display ads on your website.
According
to a recent survey of the world’s top app publishers, mobile advertising
is the most effective method of app monetization.
Digital Marketing can come
in all different shapes and sizes. Not only are there different types of ad
formats (video ads, banner ads, native ads, pop-ups, interstitial ads, etc.),
but there are also different revenue models within this category:
- CPC
(cost-per-click)
- CPI (cost-per-install)
- CPA (cost-per-action)
- CPM (cost-per-mile)
- CPV (cost-per-view)
How
you’re paid and how much you get paid depends on a wide range of factors. For
example, simply displaying a banner ad with a CPV revenue model usually won’t
pay as much as CPC or CPI model.
Check
out our guide on the top mobile development company to help facilitate ads within your app. This resource contains
an in-depth description of the various revenue models as well. Ad networks help
ensure the ads displayed within your app are relevant to your target audience.
While
in-app advertisements are popular and profitable, they’re definitely not for
everyone. Sometimes ads can hinder the user experience, and ultimately make
your app less desirable. So you need to take this into consideration before
blindly adding ads to your app.
6. Product Extensions
A
product extension falls into the indirect monetization category, which I
mentioned earlier.
This
strategy is a great way to generate revenue for your product, service, or
business, but the money won’t be tied directly to actions within the app
itself. Let me give you an example to explain what I mean.
Take a
product like QuickBooks. For those of you who aren’t familiar with this
name, QuickBooks is an online accounting software used by 7+ million customers
worldwide. The platform controls more than 50% of the accounting software
market share, which is why it makes such a great example.
QuickBooks
is a paid software. But anyone who buys the software gets to use the iOS and
Android
mobile app Development for free.
The app itself doesn’t directly generate any revenue. You can
sign up for a QuickBooks subscription and never use the app.
However,
people love apps. Being able to access the software from anywhere with a native
mobile experience adds value to the product.
Having
an app as a product extension also helps differentiate you from the
competition. If your product comes with an app and others don’t, then it gives
you a significant edge. Your business will automatically be more appealing to
consumers who are shopping around for a product in your category.
How Do Free Apps Make Money?
If you
don’t want to charge users for downloads, you might be wondering how to make
money with a free app. Don’t panic—you can still make lots of money without
charging for app installations.
Refer
back to the app monetization strategies we discussed above; five of the six
methods can be applied to free apps.
- In-app purchases
- Subscriptions
- Freemium apps
- Digital
Marketing
- Product extensions
All of
these monetization models can be leveraged with a free app. You could even use
more than one method for your free app.
For
example, let’s say you plan to use the in-app purchases monetization strategy.
You can leverage advertisements as well. Using multiple monetization methods
will help you make money with a free app.
The
vast majority of app installations from the Apple App Store and
Google Play store are free downloads.
Furthermore, 98% of global app revenue comes from free apps.
Check out our extensive guide on mobile app Development, download and usage statistics for
other relevant facts like this.
In
short, don’t feel pressured to charge for app downloads—you can still make
money with a free app.
How to Choose the Right Monetization Model
For Your App
With
so many app monetization methods to choose from, how can you decide which
method is best for your mobile application?
There’s
no single answer to this question. You’ll have to weigh the pros and cons that
we’ve discussed above.
Some
industries and app types are easier to determine than others. For example,
in-app purchases would be the obvious monetization model for an ecommerce app.
Using ads for an ecommerce app or charging for downloads probably won’t be the
best idea. Ads can take attention away from the products you’re selling, and
making users pay extra for the ability to buy products through the app doesn’t
make a ton of sense either.
Depending
on your app type, you could experiment with different monetization models. Let
the data do the talking for you—track engagement and other valuable KPIs to
figure out which method will be the most profitable for your app.
Do I Need to Monetize My App?
In
most cases—yes.
Without
a monetization strategy, your app won’t make any money. You’ll want to make sure
you can recoup the cost for app development, and eventually turn a profit for
your efforts.
But
with that said, not every app needs to be monetized. Some apps can make money
without an actual monetization strategy. For example, let’s say you build an internal
workforce app. An HR mobile app or an employee communication app doesn’t need
to be monetized.
You
wouldn’t charge your employees to download an app or interrupt their experience
with advertisements. But building an app for these purposes can ultimately save
money in labor and productivity costs. Your profit total profit margins will
increase elsewhere, even though the app itself won’t directly drive revenue.
Conclusion
App
monetization can be a challenge for app developers and business owners. But making
money with an app doesn’t need to be complicated.
The
first step is understanding the different ways to make money with an app. Then
it’s just a matter of figuring out which ones work for you.
This
guide covers everything you need to know about app monetization. So use it as a
resource as you’re going through the process.
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