You’re here, so I’m guessing you have an idea for an app. Also, you’ve probably started thinking about how you can make money off it.
The problem is, you’re not quite sure where to begin?
Don’t worry, I’ve got you covered.
Let me guide you through the first monetization steps you should take, the most common app monetization strategies, their pros and cons, and more.
App Monetization: The Basics
App monetization is the process of making money off your app. You can use different app monetization strategies to make that happen.
Some monetization strategies fit certain app types better. For this reason, a fitness app will probably have a different strategy than a financial or gaming app.
Whatever your app type is, one rule applies to all of them.
You HAVE TO define your app monetization strategy before you start developing your app.
The thing is, based on the strategy you decide on, the app will need features that support it. If you don’t do this on time, it will be more difficult to do later.
As an app developer, you need to ensure your app is profitable. But, at the same time, you need to make sure that monetization doesn’t ruin the user experience.
This is quite a challenge, but it’s doable.
Preparing for App Monetization
Before choosing an app monetization strategy, you should be able to answer some relevant questions about your app.
Here is a list of potential questions:
- What makes your app unique?
- How big is your potential target market?
- How will your target audience use your app?
- Do you believe users would be willing to pay to use it? If yes, how much?
- Which app monetization strategies do your competitors use? Do these strategies work well for them?
- Is your primary goal to get as many users or to quickly generate revenue?
Once you have the answers to these questions, you can start thinking about a strategy that fits your business goals.
In this phase, you should be able to determine on the ground strategy – whether to make your app free or paid.
Is your app simple to use and has a large potential target audience? If so, better make it free to install.
Does your app come with multiple unique and complex features? Is it intended for a niche audience? Then, it may be a good idea to make this app paid.
Top App Monetization Strategies
As I mentioned above, there are different app monetization strategies at your disposal.
However, this can leave app developers wondering – Which strategies are most effective? Which one fits my app best? What are their pros and cons?
By the time you finish reading this article, these things should be much clearer.
In the following section, I’m bringing you an overview of the five most popular app monetization strategies.
If you’re wondering which app monetization strategy is the #1 in popularity, this is it. According to AdColony, 63% of all publisher revenue comes from in-app advertising.
In-app advertising allows developers to make money by displaying ads. Thanks to these ads, the app remains free to install and use.
Apps that monetize with in-app advertising focus on attracting large user bases. It’s pretty logical – the more users an app has, the more revenue it can generate.
In mobile apps, we can find different ad formats. Here are the top ones:
- Banner Ads
Small ads that appear in dedicated areas on the users’ screens (e.g., top or bottom). They are usually static (e.g., text and image banners), but they can also be dynamic (e.g., videos, GIFs, dynamic CTAs).
- Interstitial Ads
Ads that take over the users’ whole screens. They appear in different forms – as video interstitial ads, playable ads, or static ads. The users can exit these ads after watching them for a certain time (e.g., ten seconds). This ad format appears in content breaks (e.g., after app launch, after completing an action, after finishing a level).
- Rewarded Video Ads
In exchange for watching a video ad, users will receive a reward from the app. For example, unlocking an in-app feature or earning in-game currency. Rewarded video ads are especially effective in mobile games.
- Native Ads
Ad format designed to naturally blend with the app’s look and feel. As such, this ad format doesn’t significantly interfere with the user experience.
As you can see, each one of these ad formats has its advantages and disadvantages. Luckily, you don’t have to decide on just one ad format for your app – you can combine them.
In-App Advertising: The Good and the Not-So-Good
Just like each ad format comes with certain pros and cons, so does in-app advertising in general.
- Quick and easy to implement
- Doesn’t require much maintenance
- Ads can be tailored to user interests
- The app remains free
- Frequent ads can destroy the user experience
- Irrelevant and non-appealing ads affect the user experience
- Users ignore certain ad formats
The in-app purchase (IAP) strategy also keeps apps free to install and use. But, instead of monetizing all users, the focus is on the potential buyers.
IAP-based apps offer users purchasable content, services, or features.
No, not all users will decide on a purchase.
In fact, the majority of them will never buy anything from the app.
This monetization strategy has proven to be the most effective for gaming apps (extra lives, in-game currency).
However, in-app purchases appear in different app categories. For example, in photo editing apps (e.g., more filters), dating apps (e.g., more visible profiles), fitness apps (e.g., personalized nutrition plan), etc.
If you’re thinking about this monetization strategy, ask yourself – What can I offer to enhance the users’ in-app experience?
As long as the benefits you offer are valuable enough to users, some of them will decide on a purchase.
In-App Purchases: The Good and the Not-So-Good
The in-app purchase strategy isn’t perfect either. Here are some of the reasons you should consider it and the things to look out for.
- All users can try out the app for free
- You don’t have to display ads to generate revenue
- If users want extra features, they can buy them
- The revenues depend on the paying user base
- If not implemented well, IAPs can trigger bad reviews
You’re absolutely confident that your app is worth paying for?
If this is the case, you can rely on the oldest app monetization strategy on this list – paid apps. They are also known as premium apps and pay-to-download apps.
Here’s the gist of it.
Before installing a paid app, users need to pay a one-time fee. Once they do this, they get permanent access to all features within the app.
When the first apps started appearing in the app stores, this was the most popular way to make money off them.
Today, things have changed.
There are a lot of apps on the market, and most of them are similar to each other. Some are free, and some are paid. For this reason, users aren’t sure which app will fit their needs best.
Hence, it’s difficult to convince users to pay upfront.
It doesn’t even matter how low the app’s price is. In fact, the average cost of a paid app is only $1 (Statista).
As you can see, this strategy has its challenges. However, it’s not impossible to succeed with it. If you decide on this model, make sure your app has:
- A superb app listing
- Great reviews
- Clearly demonstrated value
- A comprehensive set of features
Only if your app has all this will users maybe perceive it as better than the free alternatives.
Paid Apps: The Good and the Not-So-Good
Despite its challenges, this strategy can be a great choice. However, before making the final decision, you need to consider its flaws.
- Revenue is tied to downloads
- The potential to build a quality user base
- Acquiring users is challenging
- Paying users can be more critical of app features
Apps that monetize with subscriptions are free to download. Upon download, they are even free to use.
So how do these apps make money?
By impressing users and turning them into engaged or loyal users. Such users may be willing to pay a subscription fee to access content or features.
There are two different approaches to subscription monetization.
All users can download the app for free and use it for a while.
However, the app’s free version is only available for a set period (free trial). You decide how long this period will be (e.g., ten days, 30 days).
This strategy is good to attract a lot of new users. Some of them will get hooked to the app, and some won’t.
What happens when the free trial ends? If users want to continue using the app, they need to pay a recurring subscription fee.
You can offer several subscription plans, so users can decide on one that fits their needs (and wallets).
Generally, users don’t mind paying fees for things they frequently use. For this reason, this strategy works great for content apps (e.g., news or entertainment apps).
In this model, all users can use the app for free – indefinitely.
There are two different versions of the app – basic and premium.
Users who don’t subscribe can only use the app’s basic features. On the other hand, those who choose to subscribe can enjoy the app to the fullest.
The app needs to turn as many users into subscribers to stay profitable. But how?
The free version needs to be good enough to engage and retain users. On the other hand, the paid version has to provide clear value. If the content behind the subscription gate is valuable enough, users will recognize it.
Subscriptions: The Good and the Not-So-Good
Despite their differences, these two types of subscriptions share some pros and cons.
- Attracting large user bases to the free version
- Recurring revenue from subscription fees
- It’s challenging to get users to subscribe
- Supporting non-payers can be costly
None of these monetization strategies are exclusive – you can combine them all.
More and more apps decide on a mixed (hybrid) strategy, and for a good reason.
The reason? Maximizing profits, of course.
With such a strategy, you can combine two or even three revenue streams. If done well, this should help you monetize as many users as possible.
This strategy is based on a simple fact – different users like different things.
For example, some users will never pay a subscription fee. Yet, they don’t mind watching in-app ads. Others despise ads so much that they are happy to pay a subscription fee to remove them. On the other hand, some users prefer making individual purchases over paying subscriptions.
With this strategy, you can leverage all of these users.
Possible combinations include:
- IAPs and in-app ads
- IAPs and subscriptions
- In-app ads and subscriptions
- IAPs, in-app ads, and subscriptions
In all of these strategies, one monetization model is the primary. This model drives most revenue. Others are there to support this model and bring in some extra cash.
The mixed strategy is becoming more and more common in gaming apps. However, it works for other types of apps too. For example, a music app can offer an ad-supported basic version and an ad-free premium version.
A Mixed Strategy: The Good and the Not-So-Good
On paper, this strategy may sound ideal. However, it all depends on how it’s applied. Here are its main benefits and flaws.
- The ability to monetize different users
- Revenues don’t depend on a single group of users
- Users can perceive it as aggressive
- It can negatively affect the user experience
Other App Monetization Strategies
The above-mentioned app monetization strategies are the most common ways mobile apps make money.
They are not the only ones, though.
There are two more app monetization strategies worth mentioning, so let’s go over their basic features.
If you build an established app with a vast user base, you will be a desirable partner. Different brands and companies will want to reach your audience.
Once you agree to a partnership, your app helps your partner drive sales or traffic. In return, you get a share of their earnings.
For example, you can tell players to complete a particular action within the app. When they do this, they receive a reward from your partners. For example, a discount, a voucher, etc.
Service Fee Strategy (Transactions)
The service fee strategy takes place in all kinds of transactional apps.
This includes banking apps, e-commerce apps, travel apps, etc.
For example, if users want to convert a currency (e.g., Bitcoin), the app will charge them a service fee. When they book a hotel and make a transaction, the app will take its share.
Here, it’s important to charge reasonable percentages that don’t drive users away.
App Monetization Strategies: Wrap Up
As you can see, there are plenty of app monetization strategies for you to choose from.
The key to success is finding the right one(s) for your app. Hopefully, this article provided you with some guidance.