Let’s be honest: how to derive revenue from an app is probably a question at the top of many business owners’ minds. After all, if you’re good at something, never do it for free is a classic saying.
Ensuring a steady stream of income requires defining the right monetization strategy for your application. Your monetization strategy should not only be good for your business but also complement your app’s user experience.
In this article, we talk about the dominant monetization strategies and things that can make them work for your business.
Pay to download
At the very beginning of the App Store, in 2008, charging for apps was the dominant monetization strategy. The idea is pretty straightforward: users pay a one-time fee for downloading and unlocking the full functionality of an app. These days, however, the tendency for paid apps can hardly be called strong.
The percentage of free apps on both iOS and Android started to decline in 2009. In 2010, free apps already dominated both stores, representing about 80 percent of all apps. Today, a massive 91.2 percent of apps on both platforms are free.
Considering these statistics, it may seem that the pay-to-download strategy isn’t very lucrative for businesses – after all, it can be difficult to convince users to pay for a product they haven’t tried yet, especially when there are hundreds of free alternatives. The truth is the paid model still works pretty well for 8.8 percent of app vendors. The trick is to know when to use it and how to do it properly.
[Paid app category on App Store]
What to consider when going paid
Here are some things that will help you convert app searchers into satisfied users:
Clearly communicated app’s value. Make sure to create a clear and attractive landing page to support your application. On your app's landing page, explain its features and clearly state what it offers that competitors don’t . Your app listing – which includes screenshots, descriptions, and videos – should also be exhaustive, self-explanatory, and clear to create a sense of trust between your business and users.
Wide press coverage and excellent app reviews. Articles and reviews can help your prospects make a choice. On their landing pages, many vendors list resources their apps have been covered on: TechCrunch, Verture Beats, Forbes, etc. Here’s where influencer marketing will help. Also, be sure to encourage existing users to leave feedback right within the application. However, be careful not to badger them to death.
An excellent vendor reputation. Making apps paid is a popular strategy among established vendors with excellent reputations. For example, Rusty Lake, the creator of Cube Escape, offers a series of gaming apps. Some of them are free of charge, while others are offered for $1.99 to $2.99.
An attractive price tag. As of 2018, the average price for an app on the App Store was $1.02, according to Statista. Your price should not scare away your users, which is why most vendors put a modest price tag of $0.99 to $2.99.
[Average prices for apps in the Apple App Store as of September 2018 (in U.S. dollars) – Statista]
With an advertising-based business model, app functionality can be accessed for free, while revenue is generated through displaying in-app ads.
Monetizing your app with in-app ads eliminates the barrier of price and lets users get to know your app while discovering its value. Understand that you need to have a significantly large user base to earn substantial revenue from this model, however. That’s why many vendors mix this model with the freemium model. We’ll discuss that one later.
What to consider if you opt for in-app ads
There are many niceties associated with in-app advertising. We’ll help you understand what you need to pay attention to to make in-app advertising work for both your business and you users.
1. Choose the right ad network
In-app advertising should be pleasant and not interrupt the user experience. That’s why it’s important for an app vendor to look for an ad network that collaborates with trusted brands, makes use of smart ad targeting, and supports interactive ads. Google’s AdMob is probably one of the best networks.
AdMob provides a number of useful SDKs that make it possible for developers to enable in-app ads for different platforms, including iOS, Android, and Unity. The network also makes it possible to cover more markets by adjusting ad content for the user’s current location; this feature covers more than 200 markets.
Moreover, AdMob provides a smart analytics and reporting feature to let vendors make informed decisions based on performance statistics. Developers can also easily integrate AdMob with Google Analytics and Firebase to get even more insights into their users’ interactions with ads.
2. Choose a suitable ad format
To deliver a smooth user experience, choose the most suitable ad format for your app. App vendors generally use one or several of the following ad formats:
Native ads are considered the least intrusive type of ad, since they’re designed to match the look and feel of the app and their content usually matches the interests of a user. One of the brightest examples of native ads are ads on Instagram.
Banner ads, or display advertising, are probably the most common type of in-app ad. These are small banners displayed either at the top or bottom of an app’s screen, alongside other elements.
Interstitial ads, or full-screen ads, are either images or videos that appear during transitions in an app (when you go to the next level in a game, for instance). Even though interstitial ads are usually shown at natural transition points, they can still be pretty irritating, since users have to view them till the end to continue using the app. However, this type of ad has a stronger click-through rate than others.
[Interstitial video ad in one of Rusty Lake’s games]
Video ads are promotional clips displayed within an app. Video ads can be rewarded ads, playable ads, or full-screen interstitial ads. However, be careful when using this format since mobile app users consider video ads the most annoying type (probably because they usually can’t be skipped and have pretty loud audio that automatically plays).
A wall with ads, or offer wall, is typically a page in an app that suggests a number of incentives or goods. You have probably seen these walls with equipment, currencies, and gems in games. These ads get a high click-through rate since they generally offer something valuable for users.
Make sure to test your ad format. Testing will help you strike the ideal balance between revenue and a great user experience. For a hotel booking app, for instance, it would be nice to test what works better: a native ad among other accommodation listings or a modest banner at the bottom of the screen.
Also, be attentive to users’ reviews. These may give you valuable insights for how to improve your app further.
3. Choose the right ad pricing model
CRM, CPC, CPA… What the heck? Are you casting a spell on me? Not really. We’re trying to help you get more revenue from your ads with the proper ad pricing model. Let’s find out what these abbreviations mean:
Cost per mille (or cost per thousand) is a model where an ad network pays a publisher (you) every time an ad gets 1000 views. This sounds pretty attractive for a publisher, since an ad only needs to shown to generate revenue.
Cost per click is a model in which an advertiser only pays when an ad is clicked on. More beneficial for advertisers, this model is not so good for publishers since they risk giving away ad impressions for free.
Cost per action means that an ad network only pays a publisher when a click on an ad leads to a specific action (for example, downloading another app or filling out a contact form). While the highest-paying model, with cost per action publishers still risk not getting revenue since their ads may generate clicks but not desirable actions.
A combination of free and premium, the freemium model implies downloading an app for free with the ability to unlock paid features. These may be either virtual goods or a subscription to a premium version of the app. This approach allows you to attract a good deal of first-time users before charging them for the service.
While the most revenue was generated from paid apps in 2009, today, the freemium model is considered the most widely used and successful on the market. From 2011 to 2017, for example, revenue from freemium apps went from $7 billion to $29 billion, according to Statista.
[Share of global mobile app revenue from 2011 to 2017, by channel – Statista]
So why are freemium apps so successful? Because they help vendors build trust between a product and its audience by letting users test an app’s most prominent features absolutely free.
There are essentially two ways that vendors can implement the freemium model:
In-app purchases. An app can offer virtual goods for money. VSCO, an image editing service and social network, previously offered a set of free photo filters while inviting users to their store where they can buy more filters.
In-app subscriptions. Subscriptions let users unlock the premium version of an app that offers additional capabilities. VSCO also offers a subscription to VSCO premium for as much as $19.99 a year to access the full range of editing features. Another example is the Eve app, whose premium subscription not only gives access to top-level features but also provides an ad-free experience. In-app subscriptions are considered the dominant strategy for web applications as well. Trello, a popular productivity app, allows users to upgrade their basic functionality with Trello Gold.
[Yearly subscription in VSCO]
Mind you, unlike with purchases of physical goods, both in-app purchases and subscriptions are fully handled by Apple or Google. To enable subscriptions in your mobile app, you should integrate either the In-App Purchase APIs (for iOS) or the Google Play Billing APIs (for Android).
What to consider when going freemium
Despite being quite successful, the freemium model may still disappoint your users. Why? Let’s find out:
1) Badly selected premium functionality
Remember that one of the main goals of a freemium app is to attract new users. If you fail to attract them, it can mean that your free offering isn’t that good. This usually suggests that your free features aren’t enough to satisfy users’ needs. On the other hand, if too few people subscribe to the paid version, your initial offering may be too generous and thus may lose money for your business. The trick is to find a balance between being too generous and too greedy.
Being a huge fan of Family Guy, I once tried to download their branded iOS app. My “exciting” journey ended after hardly a day, since the free features of the app weren’t enough to really play the game (in my humble opinion, waiting 24 hours for the Drunken Clam to be built in the free version is too much. Seriously.)
2) Poorly explained premium functionality
In some cases, it may not be obvious for users what benefits they get from your premium offer. Are users supposed to give you their money if they don’t know about the perks they can get from your product? Take FBReader, for example – it took me ages to finally find out that the application has a so-called Book Shell that provides access to a whole library of first-class free and paid books, which is the company’s potential for additional income.
[Well explained benefits of the paid subscription in the Eve App]
On the other hand, it’s important not to shout at your users with your premium perks. I’d been using LinkedIn for years, but I’d never really used their search engine. Two years ago, I was tasked with researching the best players in the food delivery field. I was surprised to discover that LinkedIn has an advanced search called Sales Navigator. So I can thank LinkedIn for two things: first, they made a cool and helpful search feature; second, they never bothered me with campy banners.
3) Unexpected charges
Imagine you’ve been using a service for a while. You’re fully satisfied with the experience and you’re willing to pay all your money once a vendor adds something new. One sunny day, you launch the app and see an offending message that you can’t access any content unless you pay. Well, I’d say that such a move would betray my trust. In the worst case scenario, I’d close this app and never come back.
[New Medium’s monetization strategy that suddenly came into effect]
A similar thing happened to me two months ago, when I opened Medium and got a message that I had reached the limit of free articles. What? I mean seriously, how was I supposed to know that I had a limit?
The thing is, Medium, a service that has always been free of charge, suddenly came up with the new monetization method without timely notifying their audience about it. Luckily for Medium, I love it too much. Had this happened with another service, I would have stopped using it immediately. The bottom line is always think over your monetization strategy from the very beginning and always warn your users of any changes to your service in terms of fees or anything else. This will allow you to set proper expectations so users don’t feel betrayed.
Additional opportunities for bringing in revenue
At this point, you’ve done a lot of work to create a powerful application that solves a real problem and that makes use of some innovative ideas and technology. You understand that your product may easily help other businesses improve their solutions and help their customers achieve their goals more quickly and effectively. Here’s where you may start considering selling your API.
Selling APIs has been a popular monetization strategy recently. For example, Google has long been enabling developers around the globe to integrate their apps with powerful mapping functionality thanks to the Google Maps APIs. Similarly, Uber allows developers to integrate their apps with Uber functionality. There are a number of cool applications built on the Uber API, including Moleskine, Slack, Foursquare, and Teleport.
If you’re considering providing your app’s API to other developers, read our recent article that tells you more about this strategy and all the benefits it brings.
Without a doubt, defining your monetization strategy requires careful consideration and deep research into tricky stuff like ad networks and ad pricing models. We hope this article helped you understand the basics before you get started.
Based on our experience with app development, we advise thinking over your monetization method beforehand since you need to understand how it should be implemented in your app. You can mix and match the strategies mentioned above or be faithful to only one to drive revenue. But at the end of the day, you can only succeed if you listen to your users about how to improve your product. What we can help you with is building a user-friendly, stable, and secure app. If you have an idea for one, we’ll be glad to hear from you.