Just because you’ve built an app, doesn’t mean you’ve built a successful business. Really, your app is one piece of a much larger puzzle.
We all know how expensive development is. You’re either spending valuable time or precious savings bringing your ideas to life. Probably both. But, if you’re in the business of shipping apps, you need to have a well-planned strategy for monetizing your hard work.
A successful app creates massive value for its end users. It could save them time at work, help them manage their already busy schedule, or entertain them during their downtime. And a successful business is able to generate positive revenue on top of all that.
When everything lines up the right way, your app has the potential for massive returns! And an effective, well-planned monetization strategy gets your business moving in that direction.
Unfortunately, many “zombie” apps (unsupported, never-updated, essentially-dead apps) never got their monetization strategy right. The App Store will even go out of its way to warn you about downloading them. No, they won’t eat your brains, but you may start to get a headache after dealing with all its bugs and glitches.
You don’t want zombie app. You want to sustain and develop your business in the months and years after you launch it, to add new or better features to your app, and to grow an engaged community of happy users and customers.
So, in this post, I want to share the six most common ways for you to monetize your app. You’ll understand how each revenue opportunity is unique and learn which one best fits your situation.
The app developers that succeed are the ones that think about where their revenue will come from before they’ve even started building anything. And like most things, the better prepared you are, the more success you’ll have.
Do your homework. Understand your target audience. Know your competition. Create a unique offering that people will want to use. Do these and you’re more likely to find a strategy that’ll make you money.
Before we dive in deep to each strategy, let’s shed some light on a few things first. It’ll be super helpful going forward to understand the difference between a revenue stream, a revenue model, and a business model.
A revenue stream is one activity or process that creates value for someone that you can exchange for some amount of money. You may do fine with just one stream, but most businesses will have a few (or sometimes many) streams operating simultaneously, aligned with different ways of creating value.
A revenue model, then, is how your various revenue streams interact and how to manage the resources required to keep everything running. For example, you may attempt to optimize one stream to benefit the development of another one. Or, different offerings may be parsed out or stacked together based on the buyer journey.
Finally, a business model is how a business’ revenue model interacts with all the other assets, resources, and processes that a business owns. It’s also the vision for what the business and the revenue models are going to be in the future, and how they’ll get there.
Just as you were likely obsessed with creating an awesome app for your target audience, you should be obsessed about how these concepts apply to your operation. Once your get everything aligned: targeted traffic, customer acquisition, user retention, and monetization, your business has nowhere else to go but up!
So now, let’s look at 6 different revenue streams (and revenue models) that you can use for your app:
Free Apps with In-App Ads
One of the most common ways to monetize an app is to offer the app as a free download followed by displaying ads to users somewhere in the app.
Because the app doesn’t cost anything to download, this strategy relies on acquiring a large user base to provide enough eyeballs to be valuable to advertisers.
Here, you’re not so much selling the app to each user, you’re selling the traffic (and the data you’ve gathered about those that use the app) to companies that would find value in being seen by your audience.
The downside to in-app ads is that they usually disrupt the user experience that you’ve crafted. Some ads take up a significant percentage of the already limited screen real-estate. Some hijack the entire screen after performing certain actions. And some even, in the case of Reddit and Twitter ads, get ignored altogether.
When to use In-App Ads?
This type of monetization is best when you’re making an app that can capture a large audience. Or you’re making a social network that provides users a place to hang out and share content. Mobile games are also a big market segment that uses in-app ads. If you go this route, consider optimizing for session duration so you can have more opportunities to offer ads up to your audience.
Freemium apps are ones that offer a limited experience of the app for free, indefinitely, and only allow the full range of features to be opened after the app is paid for.
The freemium model lets the user experience some of the app’s basic functionality, giving them a taste of what it can do, but leaving the more advanced capabilities as part of the paid version.
This is a great way to “try before you buy.” And, especially if your app has some sophisticated tech, it will showcase the power of what you’ve built without giving away the farm.
If you can get your users to play with the main functionality, and leave them wanting more at just the right time, you can definitely make the sale for the full, unlimited version.
When to use Freemium?
The freemium strategy is best for when you have an app that provides a set of highly valuable features, some of which you can give away. Ideally, you want to be able to test which features you hold out on. But, to run these tests, you’ll need a high volume of traffic. So in niche markets, it will be harder to figure out what the best trigger is for creating a conversion. Mobile games, again, do pretty well in this category by keeping some of the content locked. Only after you’ve invested time into the game will you learn what’s unavailable.
It’s not hard to figure out how you monetize a paid app. It’s simple, you pay money to download the app to your mobile phone and you’re done. Now, you’ve got the full version to play with and no ads to interrupt your experience.
With paid apps, there’s no way to try the app out before purchasing. If you got this route, you may need to invest more time and money in creating a marketing campaign that showcases why your paid app is better than the other free ones out there.
Set up more marketing materials. Make a website with an explainer video or social media accounts showing people what it’s like to use the app.
In the end, it may be better for you business since you won’t have to deal with free users using up your server space.
When to have a Paid App?
You should use a paid app strategy when you know that your app will be valuable to a niche market. These niche markets are usually overlooked or underserved. Single-purpose apps that target a particular need do well here, as you can learn from this article on Comfy Read. This developer’s iPhone to Kindle article-reformatter was a small success as a paid app. But after he tried turning his app from paid to freemium – and up-sells weren’t converting as well as the paid version – he quickly realized it was a mistake.
Paid apps generally do better on iOS since iPhone users expect to pay for apps. Android apps, unfortunately, don’t carry this same expectation. So opting for straight-up paid apps for Android may not work the best.
This monetization strategy is like freemium apps, as they’re free to download and use. But the way you make money with these is by offering users the ability to buy virtual assets or physical goods through the app.
Almost all mCommerce apps work this way, as you can use the app to buy different goods directly from the brand. Frank + Oak is a good example of a company that offers a branded app for buying clothes, shoes, accessories, and more.
Dating apps, as well, are strong in this category. By creating different offers that give an account greater visibility, add highly valuable features, and more, there’s an incentive to pay a small fee for them. Especially if it’s for love.
But Mobile games are by far the champions of the in-app purchase strategy. If you want better weapons, better armor, more health, or more magic powers, the easiest way to get them is by buying them outright. Many people may be weary of games that rely on this method too much because it’s very easy to force people to buy power-ups if the game is too difficult without them.
When to use In-App Purchases?
In-app purchases are a very reliable of making a solid return from your app. If it fits with your business strategy, IAPs should be at the top of your list for ways to monetize your app. The only way they aren’t effective is if the offer isn’t worth the investment. Obviously, physical goods cost what they do, but digital goods may take some experimenting to get right. If you’re charging too much for them, or the value isn’t great enough to shell out money for, they aren’t going to work. So if you don’t have the time, traffic, or resources to figure out the proper pricing for each sale, it might not be the best option.
Subscription apps charge for continually providing high-quality content or ongoing premium services that users value enough to pay for on a regular basis. You may take a freemium approach and let a user sample the content before requiring them to subscribe.
Netflix and HBO are great examples of services that rely on the subscription model but throw in a bit of freemium in the form of a free trial. Get two weeks free and then be forced to subscribe to continue to have access to the platform.
Subscriptions services are great for bottom line revenue because the customer is getting charged whether or not they are an active user. The only problem is, as the developer or content creator you need to make sure there’s enough engaging content for the most active users to justify the ongoing payments.
When to use Subscriptions?
A subscription type app can be very alluring because of the recurring revenue that you’re able to generate. However, you need the available resources to be continuously creating high-value content or improved services to justify this model. If you’re prepared to be engaged in that kind of work then this strategy may be a good fit.
As we’ve noticed in recent years, many app developers are opting for a blended model. The more complex your application, the more ways you could potentially monetize it, which leads to a mixing different models together.
A common blended model is a free app with ads that allows you to remove the ads by paying for a subscription. And some take this model even further by creating opportunities for in-app purchases.
A perfect example of this model is Spotify. You can have an unlimited experience with the free version, but you’ll need to listen to the occasional ad. If you pay the subscription fee, the ads are removed for a more pleasing, uninterrupted experience. But, they also show you the latest merchandise from the artists on their profile page and will let you know if there’s a show nearby. There’s no doubt that Spotify takes a cut from those users that click the links to buy merch and tickets to the show.
How to find the right strategy for your app
The best way to know which monetization strategy will work for your app is by doing a lot of research up front. Learn about companies that make apps similar to yours, find out what works for them, and decide if you want to follow in their footsteps.
If there’s a particular model that aligns with how you want to do business, find other businesses that have a similar approach but aren’t necessarily in your niche. You’ll learn a lot about what works.
If there’s a gap in the market, see what you can do to capture the value that may be there.
Do this work up front, before you’ve finished development, so your monetization strategy feels natural for your users.
And as always, if you need help figuring out which strategies you want to use for your app we at Designli are always there for you. Reach out and let us know how we can help.