Even the best app idea can lead to failure and disappointment if it’s not accompanied by a suitable way of generating income with the final digital product. As you will soon find out, paid downloads are definitely not the only possible source of income – this article will offer you nine prevalent monetization tools.
Your monetization strategy should be based on the type of app you’re dealing with, the specifics of your product or service, needs and behaviours of your target audience, estimated number of active users and their behaviour within the app. The value of the app industry should hit the $580 billion mark by 2020. Before you jump headfirst into it, conduct a thorough analysis of your situation and choose the approach that is most likely to not only cover your initial investments but also to bring profit on a long-term basis, which is crucial for maintaining and updating the app.
Even though we spend up to 90% of our mobile time in apps, not all mobile applications are used regularly and in the long term. If you expect your app to be one of the rarely used products, you might want to consider one of the first three monetization approaches we will present to you.
Let’s start with a strategy which entails raising the needed funds beforehand. Mobile app development generally requires substantial investments. These could potentially be covered either by big investors and capital funds or by a large group of individuals who got excited by your idea. If you came up with a truly original app, crowdfunding might be a very smart choice for you.
Kickstarter and Indiegogo are not interesting platforms solely for sustainable clothes, futuristic sneakers or new comic books – software products of all sorts are also most welcome to come and try their luck. Other crowdfunding options include peer investment platforms such as Crowdfunder or pre-sale websites for innovative products such as Quirky.
Hopping on the crowdfunding train might enable you to avoid dependency on paid downloads or income from in-app advertising. However, you should first evaluate if your app idea has the potential to generate sufficient interest and hype in people even way before the launch.
The strategy of collection donations is somewhat similar to the crowdfunding approach. Some apps are simply relying on the willingness of users to regularly contribute to their maintenance and updates.
Pros: independency from in-app ads and paid downloads, building user base already during the campaign
Cons: uncertain outcome, highly competitive area, one-time income
If your app is not unique and attractive enough to cover the initial investments with crowdfunding, and if you would still strongly prefer to avoid letting advertisers into the app, charging money for downloads or selling bonus items and features in the app, you might want to consider looking for a strong partner who can back up the whole project.
You should aim for a sponsor whose brand won’t completely (negatively) overshadow your app. The partner’s business activities should ideally be closely linked to your app’s focus and mission. Being backed up by a sponsor is especially advantageous for apps with a health or social focus which strive for positive societal impact without any profit ambitions.
Pros: independency from ads, opportunity to focus on a hassle-free UX
Cons: getting overshadowed by sponsor’s brand, dependency on a third party
The vast majority of mobile apps are available for free. In 2019, only 4% of Android apps and 9.7% of iOS apps were fully paid. However, your app might very well be one of the few apps for which paid downloads are the most profitable monetization strategy. One of the benefits of this approach is the solid predictability of revenue – you simply multiply the estimated number of users by the desired price.
Keep in mind that people tend to be quite hesitant when it comes to paying for unknown products, especially when your product category within the app market offers several solid alternatives available for free or in the freemium model. Your app will need to be absolutely unique, unprecedentedly quality, or at least exceptionally well promoted.
Pros: potentially very large profit if the product is really good
Cons: smaller user base, threat of good alternatives available for free
The worldwide in-app ads revenue is projected to grow higher than $200 billion by 2021. Inviting advertisers into your app is the most wide-spread monetization strategy these days. This approach allows you to create a substantial source of income which has the potential to be very stable in the long run. Nonetheless, it’s crucial to keep in mind that user experience must always come first.
Although many apps today profit from subtle native advertising, generally quite well-received banners or even positively praised video ads with rewards for views, some aggressive advertising formats can interfere with user experience so hard that it forces users to uninstall the app. Less aggressive formats are usually linked with the Cost Per Thousand Impressions (CPM) billing principle, while the nature of Cost Per Click (CPC) and Cost Per Action (CPA) inevitably leads to more intrusive forms of advertising.
You can relinquish the sales of your app’s ad space to one of the many global advertising networks. For instance, you could rely on AdMob, Facebook Audience Network, MoPub by Twitter, Conversant or InMobi. If you want to start with in-app advertising straightaway, read this quick start guide to AdMob.
Pros: potentially very profitable, rich variety of ad formats
Cons: dependent on the number of active users and their time spent in the app, often interfering with UX
If you’ve already opened your app for advertisers, adding this tool to your monetization strategy mix might be a very good idea. Cover part of your investments into mobile app development with an ad-free version. This option will be especially well-received by users who simply hate advertising – they will be more than happy to pay a small fee for the “clean” version of your app.
Pros: smart addition to in-app ads, many users will appreciate having an ad-free option
Cons: the pre-requisite is having in-app ads in your product
We’ve already mentioned that only a small percentage of apps are fully paid. However, the truth is that a great part of the “free” apps are not entirely free of charge after all. Even though users can download the basic version for free, they will be required to pay if they wish to use the app to the fullest with all its features.
Are you confident that even the limited version of your app with only the basic functionality will be attractive enough to trigger interest in users and lure them purchasing the full version, the freemium model might be a smart move. Build a solid user base by virtue of free availability of the basic version and then offer people more advanced features as part of the premium (full) app – they will find this offer very hard to resist!
Pros: you won’t lose any potential users compared to the fully paid approach
Cons: difficult to find the perfect balance between limited functionality and sufficient attractiveness
Although only a few percent of users purchase special features and various bonus items, the income generated by this strategy is much, much higher compared to paid downloads. This is despite the fact that in 2017, an average in-app transaction amounted to only $0.43 for Android and $1.08 for iOS.
Your app can be developed into a platform which enables users to buy exciting features or cool game items in just a few seconds by adding them to cart and making one-time purchases.
Pros: opportunity to broaden sortiment and keep stable income, users usually only pay small amounts
Cons: solution needed for completing orders and processing purchases
The sole purpose of some apps is to function merely as a marketing tool created to promote the sales of a company’s main products or services. Is this your case too? That makes your monetization strategy much simpler – there’s no need to squeeze any direct income out of the app.
However, if you aim to lure new customers to your offerings through the app, put great emphasis on designing user journeys which neatly direct users to conversions on your sales channels.
Pros: smooth UX, app freely available
Cons: uncertain ROI, linkage to your sales channels might not be effective enough
Are you working on an ingenious idea for a community-based app which will be regularly and frequently used by many people? Then you should consider the approach of licensing your data in order to avoid in-app ads and other monetization tools. While users will be enjoying a very helpful and freely available service, you will be collecting very interesting piles of data which might be incredibly attractive for other companies.
Foursquare and Waze are probably the two most well-known examples of community-based apps which sell licenses to both commercial and governmental partners for the use of their Big Data, collected and anonymized in the apps. Anonymization and data security are two crucial aspects which you must adhere to because users tend to be very sensitive and suspicious when it comes to selling data about them or their behaviour.
Pros: perfect UX, app completely for free
Cons: users can be easily triggered and might revolt against you if you violate the principles of anonymization and data security
Before you start drafting the business model of your app, let’s go through three essential principles of mobile app monetization which you should definitely remember after reading this article.
Last but not least, don’t forget that every strategy can be adjusted later on. React to the way your user base responses to the monetization strategy in place and adjust your tactics in accordance with user behaviour insights and the latest app market developments. If you feel like you could use a good chat about app monetization with an expert, send us a message. Good luck!