App Pricing Models Simplified: Which One Should You Use?

The world of mobile apps is like a mega shopping mall on steroids. Countless app developers and publishers fight for attention among the 9 million apps available worldwide.

How should you approach the right app pricing strategy if you’re an aspiring app publisher entering the game? Do you opt for affordability to attract more users? Or do you aim for profits with a stellar app that works like a charm?

Read this article to find precise answers to these vital questions and develop the right app pricing models for your app business — that users are willing to pay for.

4 app pricing models explained

A masterfully crafted pricing strategy holds the key to an app’s success. And no, merely slapping on a low price tag won’t suffice.

Several factors come into play when determining the optimum price point for an app to generate revenue. Internally, considerations such as business goals, target market, app purpose, app development cost, and the value it offers to users need to be taken into account. Externally, factors like market conditions, perceived value, and competitor pricing should be considered.

With nearly a decade of experience in app development and product-led growth strategy, our product strategy experts have encountered the following mobile app pricing models in their pursuit of empowering our high-performing clients for success:

1. ✅ Free
2. 📣 Freemium
3. 💰 Paid
4. 🚀 Paymium

Let’s look at each and what kind of mobile apps fit each product pricing strategy.

1. Free apps: best pricing strategy for user acquisition

Free apps are a popular way to attract many users. After all, everyone likes free stuff. Unlike other app pricing models, the free app arrangement doesn’t charge a cent, whether for basic or advanced features. Almost 95% of iOS apps were free, while about 97% of Android apps came at no cost.

Lowering the barrier to entry and offering users to use the app without any financial commitment can boost downloads and a larger user base. This strategy works best with social media apps, eCommerce apps, and instant messaging apps that flourish with a big, thriving community.

📣 Check out our guide on how free apps make money to learn how these mobile applications remain sustainable.

How does the free app pricing strategy work?

Apps, whether for-profit or nonprofit, need some source of income to remain sustainable. Keeping apps defect-free and updated costs money. Given that these free mobile applications do not charge a fee, they usually earn through other means. Here are some ways how:

1. In-app advertising

Ads are displayed to users as a common means for free apps to make money. Within the advertising ecosystem, ad networks are intermediaries or brokers among app developers, publishers, and advertisers, facilitating buy-and-sell transactions.

In-app advertising takes different forms like banners, videos, native ads, interstitial ads, or incentivized ads. Here’s how Block Blast, a Tetris-like puzzle game, uses in-app ads straightforwardly while maintaining a free game app. When you’re out of moves, the app will play an ad for about 30 seconds, prompting you to finish it when you click the close button.

 

2. Data monetization

Data monetization lets developers generate revenue by collecting and transferring user data. This process involves gathering non-personal identifiable information and sharing it with data collectors, companies eager for this valuable data. Collected data can include device type, version, screen size, mobile operator, network type, and country.

This type of monetization can be legal and ethical if it’s contingent upon the user’s informed consent.

Facebook is the best example, although its data monetization schemes have been subject to scrutiny and criticism for the past few years. Despite these issues, it still gets its income mainly from selling and collecting data. Experts project that Facebook’s ad revenue will jump to around $59.61 billion by 2024.

Source: eMarketer InsiderIntelligence

3. App merchandise and eCommerce

Lastly, another way to make money in apps is by directly selling merchandise items or facilitating payments in the app. Other apps like the Angry Birds game earned significant revenue from selling plush bird toys, T-shirts, stickers, and backpacks — these items are related to the game.

Meanwhile, e-commerce platforms like Amazon use their apps for product purchases, charging a referral fee for each item sold. In contrast, brands like Nike or Domino’s don’t view their apps as main income earners since they are only tools to extend their business reach and enhance customer engagement.

MyDeal is another e-commerce app that does not charge users any fee.

Sean Senvirtne established the MyDeal website in 2010 to enable Australians to purchase goods online. However, in 2020, he saw a rise in mobile-based e-commerce transactions. Around this time, he approached us for a mobile app to help MyDeal scale up.

He eventually grew the reach of MyDeal to almost a million active customers and increased the value of his company to more than $200 million.

📣 Check out our case study to learn how MyDeal grew from self-funded to sustainably successful.

Gaming apps like Angry Birds Journey and Apex Legends often use in-app advertising and in-app purchases to generate revenue. In-app advertising alone contributed an impressive $209 billion in revenue in 2022. This lucrative ad format has become a key source of income for app developers.

But despite the possible profits you can earn, you also want to weigh the pros and cons of this pricing strategy.

What are the pros and cons of using free apps strategy?

Pros	Cons
Provides a higher chance of increasing app downloads	Challenges user retention strategy as users are less likely to commit to the free apps
Offers an opportunity to generate revenue from ads	Opens a higher possibility of receiving negative reviews from dissatisfied users
Gives room for testing and improving the app for possible transition to a freemium or paid strategy in the future	Opens the door for scrutiny and criticism when it comes to data monetization, which can affect users’ trust

When and how to use the free model

This pricing model is best used by apps with multiple app monetization strategies in their arsenal or those mobile applications that won’t charge for any additional features in the future.

If you plan to add paid features in the future, it’s best to use the freemium pricing strategy from the get-go. Some studies show the ineffectiveness of offering an app for free initially only to pivot into a paid model. We’ll learn shortly why the freemium model is better than the free pricing strategy in this respect.

Despite the said weakness, free app pricing could be a good model if you’re confident that your app marketing efforts can reel in “boatloads” of users. A large sea of app users is vital to sustainably earn from in-app ads, a main income source for this pricing strategy.

2. Freemium pricing model: best way to monetize apps

The freemium pricing model is a savvy monetization strategy. It offers users basic features at no cost while charging a premium for advanced enhancements. By providing free access to software, games, or services with an option for “upgrades,” users can get a taste of the essential features before deciding to invest fully.

In a survey of 400 app developers in the U.S. and U.K., 54% used the freemium model, which generated the most revenue for 33% of them.

Source: Statista

When I look at the mobile gaming sector, it’s even more convincing why freemium pricing is gaining traction. Despite most regular mobile gamers spending less than US$10 per month on new games, 48% of gamers are making in-app purchases to enhance their gaming experience.

How does the freemium app pricing strategy work?

There are three main types of freemium apps, which involve one of the following arrangements:

1. ✔️ Users download the app for free but must pay to access premium features, in-app currency, or advanced gaming levels.
2. ✔️ Features and functionalities are offered for free for a limited time, after which users must pay to continue using the app.
3. ✔️ People enjoy an ad-free experience by paying a one-time fee.

For an in-depth look at different pricing strategies, here’s a list of pricing models with examples and pros and cons.

1. Freeware 2.0

Freeware 2.0 is a freemium pricing model that provides a comprehensive, complimentary product or service while generating revenue through alternative methods like mobile advertising or data monetization. It’s free forever, but the company can monetize the app by selling add-ons to its core offer.

You’re not expecting your users to upgrade but instead focusing on improving your product or app via the add-ons. A famous SaaS app that works exactly like this is Skype. The service is completely free to use, but for international calls, you need to buy credits to call mobile or landlines abroad.

Source: Skype

Freeware 2.0 attracts a substantial user base, which enhances brand awareness if your mobile app is new to the market. But the caveat is that offering a free version may reduce conversion rates for your paid product’s free trials. Freeloaders will settle leaching into the free service, which conditions their minds that “free” is the best price point.

2. Land & Expand

Land & Expand price model is available to users at no cost. Monetization occurs at the organizational level. Commonly used in B2B SaaS products, individual users can freely use the app, but once they reach a certain threshold, the organization will pay for the excess usage.

This can enhance cross-sell and upsell rates of apps, all while protecting the discounted deals. It also reduces your customer acquisition costs for additional revenues as this can proactively retain existing users without requiring them to pay upfront.

This pricing strategy is intricate, and the more the product becomes as complex as it gets, the more it drives up mobile app development costs. As complexity increases, so does the associated expense.

Source: Slack

What’s more, you need to manage customer churn as well. If it goes high while you are expanding your product offerings, it’s a double-edged sword in the long run if existing customers prematurely exit. You have extra expenses and then missed revenue opportunities.

3. Classic freemium

The classic or traditional freemium model provides a feature-limited yet usable free version of the premium product. While it’s expected that most users won’t make a purchase, a small percentage will choose to upgrade to the premium version.

With this pricing model, there’s an opportunity to build MVP (Minimum Viable Product) apps, a cost-effective app development philosophy that has helped us launch many tech startups to success. You start lean through an MVP and gradually improve it according to market demand.

📣 Vello, a social networking platform created by Ben Dixon of Hawthorn FC, is also an impressive example of a freemium app.

The app allows users to join the app for free, enabling them to send and receive personal video messages from their favorite celebrities. However, to keep users engaged and interested, Vello offers a paid VIP feed option, granting access to exclusive premium video content.

The success of Vello is evident from its substantial database, which now includes over 1,000 well-known celebrities and a fan base exceeding 150 million users.

📣 Read our case study to learn more about Vello’s exciting journey as a startup.

The freemium strategy may unlock opportunities to gain profits, but you must also consider the pros and cons as well.

What are the pros and cons of using the freemium strategy?

Pros	Cons
Offers an opportunity to tap a large number of app users with the free features	Increases customer service costs if there’s a large number of free users
Opens the door to do upsells to premium features, thus possibly converting users to paying customers	Accelerates cash burn due to the higher demand for supporting infrastructure and services, leading to strained finances if not properly managed
Lets companies explore other revenue streams like ads or data monetization with users’ consent	Dilutes the product’s perceived value, making it hard to justify the cost of the premium features to some freeloaders

When and how to use the freemium model

This app pricing strategy is for use cases where app publishers desire to start small and gradually expand the app to include more features as the app gains traction.

App publishers going for freemium must also know which features they can charge for and which they should keep for free. This tightrope walk is vital to prevent a massive drop in app usage while opening doors to additional earning opportunities.

Unless your company is in the ranks of successful freemium apps like Mailchimp, Dropbox, Masterclass, Bumble, Hinge, Fitbit, and Strava, encouraging upgrades to paid features must be timed carefully to avoid discouraging users from using your app.

3. Paid app pricing strategy: best for apps with unique features and known brands

The paid app pricing strategy involves users paying a one-time upfront fee for app downloads. It’s a straightforward approach to monetize apps and generate revenue, with prices determined based on the value and advanced features.

This pricing strategy is ideal for mobile apps with distinctive offerings that are not available on other similar apps, which users are willing to pay more for. Established brands with loyal customers can benefit from this as they attract a paying user base.

How does a paid app pricing strategy work?

In this pricing model, app users enjoy using features by:

• 📲 Paying a one-time fee
• 📲 Shelling out cash in weekly, monthly, bi-annual, and annual subscriptions

In any case, paid app users must pay upfront to download or access any app feature.

Referencing the same report I mentioned above — as per a survey of 400 app developers in the U.S. and the U.K. — mobile app subscriptions emerged as the undisputed money-makers. A whopping 56% of developers reported harnessing the power of subscriptions, with 36% attesting to its lucrative prowess.

How should you use a one-time fee or a subscription-based model?

Let’s explore each one.

1. One-time fee

The one-time fee payment strategy for paid apps lets users pay a single upfront fee for downloading and using the app — without any additional or recurring charges. Its simplicity gives you revenue upfront and immediate access to capital you reinvest or use in other areas.

Hemingway Editor is one of the apps that embrace this pricing model. It charges a one-time fee of $19.99 to download its Mac or Windows version.

Source: Hemingway Editor

One-time payments inherently demand a higher price point, posing challenges in converting potential users into actual customers. Moreover, those who make upfront commitments often have high expectations regarding app performance and features. The onus is on you to meet or surpass these expectations.

2. Subscription-based model

In this pricing model, customers pay a recurring fee (usually monthly or annually) for product or service accessibility. This approach finds extensive use in software companies and streaming service providers like Spotify, Amazon Prime, Disney Plus, and Netflix. It gives companies a sense of stability due to the predictable income stream.

Apple Arcade, launched in 2019, offers a curated gaming experience for diverse players. For a nominal monthly fee of $5, subscribers can access an extensive library of games, free from ads and in-app purchases, playable across all iOS devices.

Source: Apple

What are the pros and cons of using the paid app strategy?

Pros	Cons
Speeds up the recouping of development costs because of the immediate revenue	Lowers app downloads as some users prefer free apps
Offers a predictable income to developers and app publishers compared to free and freemium models	Slows down traction as it takes longer to build downloads and app engagement because users need to pay upfront
Gives the product a higher perceived value to the right users who are willing to pay	Increases the risk of receiving negative reviewers for users who have higher expectations
Provides more marketing opportunities like special promotions like limited-time offers to boost app downloads	Challenges lesser-known companies to keep up with major players if they launch paid app strategy abruptly without strong, unique selling proposition

When and how to use the paid model

Paid apps have advantages such as superior features, immediate payment, and higher customer loyalty. However, they also struggle with targeted marketing, cost investment, and meeting user expectations.

For paid apps to thrive in a competitive market, they need the following:

• 📲 Indispensability (people can’t do without them or must have them)
• 📲 Robust marketing strategy

Indispensability is achieved through a two-pronged strategy: getting an accurate pulse of the market and creating an exceptional user experience.

Determining what your target market wants in an app can help you choose the paid features you will incorporate in your mobile application.

The surge in subscriptions by Americans to video streaming platforms in 2020 compared to the previous year can be attributed to the essential role entertainment played during COVID lockdowns, resulting in the closure of cinemas and live venues. This market trend provided a ripe opportunity for video streaming app developers to leverage and design their paid features effectively. Keeping a keen eye on the market was crucial for their success.

Once market demand is established, developers must prioritize delivering a superior user experience. This entails captivating visuals, intuitive app interfaces, and compelling content or features. Remember, users may abandon your app if they perceive it as cumbersome or unpleasant, even if they currently find it indispensable.

Now a solid marketing strategy is also key for paid apps. Mobile apps rely heavily on robust marketing efforts since users can only try them out after purchasing. In this context, it becomes crucial to emphasize the value of these apps in comparison to free alternatives.

📣 To sustain the momentum from pre to post launch initiatives, it’s better to work with growth partners who can help you navigate the complexities of the app market. You can ask more about Appetiser Hypercare ™ when you book a call with us and learn more about the support and maintenance you need post-launch.

4. Paymium app pricing: best for apps with less competition but strong value propositions

The Paymium pricing model is an emerging strategy that combines the paid and freemium models. It suits applications with a distinct user experience, limited competition, and a strong value proposition. This approach works best when the app’s value lies in its content, showcasing the benefits of initial downloads and paid tiers and features.

How does the paymium app pricing strategy work?

There are two ways you can use this price strategy. Let’s delve into each one with successful paymium app examples.

1. Upfront payment with in-app purchases

Users pay a one-time fee to download the app and then can make additional in-app purchases to access premium features, content, or in-app currency.

Monopoly is a great example. The renowned board game app demands a one-time payment of $4.99 for its download. Then, unlock additional content and features through in-app purchases, enhancing your gameplay to new heights of excitement and enjoyment.

Source: App Store

2. Upfront payment with subscriptions

Users pay a single fee to download the app and can then subscribe for recurring access to premium content, features, or services. Minecraft employs a Paymium pricing model. Users pay an upfront fee of $6.99 for game downloads. Additionally, avid gamers create a multiplayer world with friends for a monthly fee of $3.99. They even enhance the gaming environment by building cool houses in Minecraft, with distinct styles like Treehouses or Cyberpunk Houses, blending the innovative app gamification aspects.

Source: Minecraft

With paymium pricing strategy, one of the greatest questions that developers and publishers face is from users: “Why would I purchase an app if I can find a free version?”

Thus, they need to differentiate themselves from the competition and ensure the app is worth it.

Here’s a summary of the pros and cons of this type of pricing strategy:

Pros	Cons
Provides ongoing revenue stream	Challenges app retention strategy as it requires a strong justification to make users stay to use it for the long term
Incentivizes app publishers and developers to improve the app	Requires advanced features to justify the upfront payment for users to buy

When and how to use the paymium model

Paymium apps can generate substantial income when marketed and used effectively.

However, to succeed with this model, mobile app companies must:

• ✅ Understand well the market demand for the app’s specific purpose.
• ✅ Provide value to users by keeping the apps engaging, relevant, and up-to-date.
• ✅ Ensure the market has few to no competitors since too much competition can hinder profitability and recurring revenue. Highly innovative and original apps have few rivals.
• ✅ Communicate to the users, at the outset, the initial fee and convincing reasons for users to continue paying for add-on features.

Failing to perform any of the actions above may significantly hinder app downloads and diminish app engagement, resulting in reduced revenue and user retention.

The paymium model, with its complexities, may not be the optimal pricing strategy for newcomers to the industry. To justify its price tag and meet customer expectations, a paymium app must excel in its field. As a result, established brands like Kingdom Rush, NBA 2K18, and Origins HD tend to be the primary beneficiaries.

How to Choose the Right App Pricing Model?

With all the information and data given above, here are the basic steps to help you come up with an app pricing:

1. Understand market value

Market dynamics — forces that impact the prices and behaviors of app users — will help you understand the market value of your app. So, what are these?

Let me walk you through each one of them briefly:

• 📲 Competition intensity. In reality, the mobile app market is highly competitive, with millions of apps available on app stores vying for the attention of users. Should you decide to compete with the major players? How much do they offer their apps? These are questions worth pondering as you conduct market research and analysis.
• 📲 Market strategies. A combination of organic and paid marketing strategies should be considered, thus app marketing costs must never be an afterthought. How much are you willing to shell out for paid ads? Which tools are you going to use for app store optimization and mobile analytics? Overall, these expenses will add up, and they must be included in how you put a price tag on your product.
• 📲 User behavior. App users tend to download many apps but will likely retain only a few ones. Research shows 71% of app users churn within the first 90 days after app download. How will lessen the likelihood of getting your mobile app deleted? Thus, this uncontrollable factor is on the side of the user, and it’s something that app publishers need to think through when choosing a pricing strategy.

2. Evaluate pricing models

Explore various app pricing models depending on the type of app you want to build. Remember that each model has its pros and cons and target audience.

Let me briefly discuss how you can do this practically:

• 📲 Market research and analysis. Research the market and analyze competitor pricing to understand the competitive landscape and identify pricing trends.
• 📲 Testing different pricing models. Test your app at various price points to gauge market response and analyze user behavior towards different pricing structures. Experiment with different pricing strategies such as free, freemium, paid, or premium models to assess which model resonates best with your target audience.
• 📲 Deploy user psychology and behavior surveys. Understand user psychology and willingness to pay by utilizing data-driven approaches like the Van Westendorp price sensitivity model to determine the optimal price point for your app. You can use surveys to start the ball rolling.

Source: Wikimedia

3. Reflect app value

Ensure that the chosen pricing model reflects the value proposition of your app. It should not only cover production and service delivery costs but also align with your long-term business objectives.

Pricing should be perceived as fair by customers while also supporting your app’s sustainability and growth.

Here are some strategies you can do:

• 📲 Offer free trials and easy cancellation. Provide a free trial period for users to experience your app before committing to a purchase.
• 📲 Provide value-added features. Give both free and premium features to cater to different user needs, ensuring there is enough value in the free version to keep users engaged while offering additional benefits in the premium version.
• 📲 Listen to feedback and reviews. Encourage user feedback and suggestions, and be responsive to continuously improve your app’s value proposition.

Above all, design and development costs are huge contributors to how much you will set your price. We have a comprehensive guide on how much app development cost, so make sure you bookmark this for your future reference.

Frequently Asked Questions About App Pricing Strategies

The realm of pricing strategy is relatively broad, and there are plenty of areas to explore. While I have provided apt information above, you may have some questions in mind that need to be addressed.

Below are frequently asked questions on app pricing.

1. How do I determine the value of an app?

Determining the value of your app requires a deep understanding of your target audience, market dynamics, competition, and pricing strategies. By carefully analyzing these factors and aligning them with your business goals, you can establish a pricing strategy that reflects the true value of your app.

2. What is the best pricing model for apps?

There’s no best pricing model, as everything depends on the business goals. There are in fact, four app pricing strategies to choose from: free, freemium, paid, and paymium. Each one has its fair share of advantages and disadvantages.

Choosing the right pricing model for your app involves aligning with market expectations, understanding your target audience’s preferences, and considering the unique features and value proposition of your app. By evaluating these factors alongside platform-specific considerations, you can determine a pricing strategy that maximizes profitability and user satisfaction.

3. How do I set a price for my app?

There are several key factors that will help you set a price for your app like upfront development costs, market research, value proposition, monetization model, testing, and user feedback. By carefully evaluating and adjusting your price strategy backed by data collected from your analytics and other resources, you can set a price that reflects the value of your app.

For instance, if users are willing to pay for some premium fees, then you need to test price points at which they will perceive a fair price without sacrificing your sustainability and business growth.

4. How does customer feedback help in adjusting app pricing strategies?

Customer feedback plays a crucial role in adjusting app pricing strategies by providing valuable insights into customer preferences, perceived value, and willingness to pay.

If customers indicate that they find the app extremely valuable and are willing to pay more for it, this could justify a higher price point or the introduction of premium features.

Feedback can reveal how price-sensitive customers are. If many users are complaining about the cost, it may be a sign that the app is priced too high, and a lower price could increase sales and user satisfaction.

5. What are the advantages of a subscription-based app pricing model?

A subscription-based model offers recurring revenue, establishes a loyal customer base, and provides ongoing support and updates. You can generate profits sooner than the other pricing models like free and freemium apps.

This stability is beneficial for long-term financial planning and investment in product development, customer support, and marketing initiatives. Subscription models are particularly well-suited for content apps and service apps, where users expect regular updates or access to ongoing services.

Strong value proposition equals right pricing strategy

It’s easy to fixate on certain pricing models and overlook others in the competitive app market. The allure of putting a 99-cent price tag on your app to attract users is particularly enticing.

But selling at a low price isn’t always the optimal strategy.

For a straightforward start with the option to expand later, freemium is the recommended choice. Alternatively, free apps can be viable if you have a range of income sources for your app in mind.

Paymium and paid app pricing strategies are usually better suited for established brands. Take this route only if you have already established a strong presence in the industry.

A successful pricing strategy hinges on app quality, business objectives, target market, and competition. Emphasize value over mere affordability.

I hope this article has shed light on making the best use of the various app pricing strategies.

But if you have questions about app pricing models or anything related to setting up an app business, book a free consultation with us. After all, the opportunity to help you grow is priceless