The coming year and beyond offer a lot of exciting opportunities to mobile app businesses and entrepreneurs.
Industry analysts expect the global mobile app industry to generate more than $935 billion in revenue by 2023, with a compound annual growth rate of 19.5%.
If you want a fair share of the lucrative market, now is the time to think about how to monetize your app.
And I’ll be glad to help with that.
I’ve put together this article to guide you through choosing the right app monetization strategy for your business. Read on to learn about the different ways you can generate revenue from your mobile app and the pros and cons of each.
App monetization is the process of generating profits from your mobile application. It involves various strategies to encourage users to download your product, increase their app usage, purchase, or upgrade.
Allow me to illustrate the answer using collegiate sports as an example. Ultimately, teams join leagues not for money but for school pride, right?
But let’s face it.
In today’s cutthroat collegiate sports landscape, you need money to stay competitive. This is why teams look for corporate sponsorships, endorsements, and other potential financial sources.
The same is true for mobile app development.
While your goal for creating an app may be something other than pure monetization opportunities, you must ensure that your app idea has a path for making revenue.
You may have a cool, inspiring, or even groundbreaking app idea, but if you don’t think about your monetization strategy from the start, it could be impossible for you to monetize later on. It can also be extremely costly to redesign your app to fit or integrate a business model.
Now that you know why you should consider your app monetization strategy carefully, let’s talk about your different app monetization options.
This app revenue model enables free-to-download mobile apps to gain revenue by selling items or services within the application. These can include everything from virtual gaming characters to actual consumable goods.
Almost all mobile app types can implement the in-app purchase model to gain revenue, but it’s most popular among mobile games and e-commerce apps. About 79% of gaming and 50% of non-gaming apps adopt this model.
In-app purchases also account for the $380 billion global user spending and 48.2% of mobile app revenues.
One great example of a brand that adopts the in-app purchase model is toolZhire, a one-stop marketplace for tool and equipment hire and one of our app development partners at Appetiser Apps.
toolZhire offers users a free platform to buy or sell equipment rental services, allowing them to build a large user base comprising both the demand and supply segments of the market. The app generates revenue by charging a service fee for each completed transaction within the app.
To successfully monetize through in-app purchases, toolZhire first accomplished a prerequisite: engage a large audience.
But how did they do that? By meeting the crucial factors of a successful app development venture.
- First, they identified a need. In this case, a place where equipment renters and rentees can connect.
- Then, they came up with a solution to fulfill the need.
- Lastly, they chose the right partner to design a user-friendly, clutter-free platform that meets their market’s needs.
They partnered with Appetiser Apps, Clutch’s Top Mobile App Developer in Australia awardee for two straight years!
Read the toolZhire case study to learn more about its success story.
Source: Apple App Store
- Expands user base: With this model, you can generate app revenue without charging users to download. This allows you to attract more users, which you can nurture and potentially convert into paying customers.
- Increases user engagement: Giving users commitment-free access to the basic functionalities of your mobile app is proven to drive app engagement. The more users interact with your app, the higher your chance of making a sale through in-app purchases.
- Doesn’t automatically guarantee significant revenue: Since not all app users convert to sales, the in-app purchase model requires many users to deliver substantial revenue. Your app must also be engaging enough to encourage upgrade purchases.
This app monetization model is also called freemium subscription for a reason. App publishers who adopt this approach offer users free access to the limited features of their apps during download. Users who want to use the app’s full feature or premium version are charged a one-time or recurring fee.
According to a Statista survey, the freemium model is the second-most widely used and profitable app monetization strategy (as of 2019).
One excellent example of a freemium app is Geavi, an innovative personal safety mobile app developed by our team of experts.
The powerful video evidence recording application can be downloaded and used for free. In addition, users can subscribe to a paid version to enable cloud storage and access other advanced features.
You may check out Geavi’s other exciting features and benefits to discover what else the app has to offer.
- Expands user base. Since freemium apps are offered without outright costs, they can attract many downloads. This allows app developers to build an initial user base, which they can cultivate into becoming paid subscribers.
- Boosts user acquisition and retention. Allowing users to experience your app’s features and value without any strings attached is an excellent way to increase app engagement. And when users are engaged, they are more likely to pay for upgrades and recommend your mobile app to others.
- Helps create a predictable cash flow. Once you have established a name for your app and gathered enough paying subscribers, it is easier to predict monthly revenue and maintain a healthier cash flow.
- Is used by a lot of competitors. The free app landscape is a free-for-all market. And it’s an ultra-crowded space.
Statista found that 93.9% of iOS applications and 97% of Android apps are offered free in the app stores (as of June 2022). So you have to proactively optimize your app and help your users see your app’s value to make it stand out.
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- Offers no guarantee of conversion. Not everyone who downloads and uses your app will be a paying customer. Most freemium apps have a 1% average conversion rate. That’s why ensuring that your app is engaging enough to encourage users to pay is important.
You may be surprised to discover that free apps, the close cousin of freemium apps, could also generate income if designed properly. To gain deeper insights on the matter, check out this expert-written Appetiser Apps article on how free apps make money.
Also known as pay-per-download, the paid download app monetization model enables app developers to gain revenue by charging users an upfront fee to download and access their apps’ features.
It is one of the oldest ways to monetize apps and is often used by streaming apps like HBO Max, Disney+, and Netflix.
- Effectively generates revenue. Paid apps provide instant revenue, offering app developers a steady cash flow and a predictable source of income — once they have gained enough brand recognition and positive user recommendations.
- Offers better user experience. One of the strong selling points of paid downloads is that it is free from unwanted ads that often annoy and even drive users to uninstall. Without the intrusive ads, users can better enjoy the experience and likely stick and engage with your app.
- Can be hard to sell. In our experience, most users are less inclined to pay for apps they haven’t tried and brands they barely know. As such, paid apps require a much bigger marketing effort to gain brand recognition.
Your mobile app also has to offer users a unique, compelling value or functionality to drive conversions. These may come in the form of exclusive content, such as the case for streaming apps.
- Offers a slow return on investments. Although the paid download model offers instant revenue, it doesn’t automatically provide fast ROI. You first have to build a sufficient user base and establish your brand to see a significant return on investments.
- Has strong competition with free apps. One of the main reasons why it’s difficult to get users to pay for downloads is the abundance of free apps. So to encourage users to pay for your app, you must ensure it offers something they can’t get free elsewhere.
This app monetization model follows the footsteps of traditional advertising platforms, such as television and newspapers. But instead of selling ad space or spots, apps that use in-app ads offer their platforms to advertisers who want to promote goods and services.
In-app ads may come in the form of video advertisements, interstitial ads, banner ads, screen ads, and native ads.
- Easy to implement. The implementation of in-app advertising is a pretty straightforward process. You simply need to find an ad network, choose the appropriate ad format, and select the ad pricing model.
- High monetization potential. Many advertisers take advantage of the fact that mobile users spend 4-5 hours daily in apps, leveraging the platforms’ popularity to promote their products and services.
Mobile app advertising is now marketers’ preferred mode of promotion. According to Grand View Research, the global in-app advertising market was valued at $90.7 billion in 2020 and is expected to reach $226.4 billion in 2025.
Source: Grand View Research
- Requires a large base of engaged users. Your app must have a large base of engaged users to generate adequate and sustainable ad revenue. But as previously mentioned, intrusive ads are among the leading drivers of user disengagement and dissatisfaction.
To pull off a sustainable in-app ad monetization model, you’ll have to navigate this tricky chicken-and-egg dilemma.
- Highly competitive and crowded market. While there’s a real potential to make a lot of profits out of in-app advertising, the market is ultra-competitive. Nearly all the free apps and even a portion of paid apps in app stores use in-app advertising as a primary revenue stream.
- Disruptive to user experience. In-app advertisers pay according to the number of clicks of your app users. They also spend more to occupy larger space on your platform. In other words, the lucrative in-app model comes at an equally hefty cost: it can compromise user experience and drive uninstalls.
According to a Clevertap study, excessive in-app ads are the third-leading cause of app user churn. Therefore, you must plan in-app advertising cautiously and strategically before executing this model.
Before we move on to the fifth and final app monetization model, let’s take another look at the top drivers of app uninstalls.
Aside from excessive ads, technical issues are among the reasons users uninstall apps.
I want to zero in on the topic because I want to emphasize that it is something you can easily resolve by choosing the right app development partner.
Find one with a proven capacity to help brands deliver the experience your customer deserves, like how Appetiser did it for Grill’d.
In six short months, our team of app developers turned a crash-prone app into a 99% crash-free platform that saw a 51% increase in its monthly active users.
As its name implies, the hybrid approach uses more than one app monetization strategy. For example, some mobile app publishers combine in-app ads with in-app purchases to maximize their revenue potential. Others mix paid downloads with another strategy, such as an app referral program.
One example of an app that uses hybrid monetization is the gaming app Call of Duty (COD).
COD combines three app monetization models: freemium, in-app purchases, and in-app advertising.
Everyone can download the game free on app stores and start playing the game. In addition, players can purchase weapons, loot, and other items to advance levels.
COD players also have the option to upgrade to access the Battle Pass, which offers premium content, exclusive features, and additional tiers.
- Offers flexibility. Whether you want to combine two or all app monetization models, you have full control over how you execute your hybrid strategy. However, we suggest that you identify which among the strategies is your primary revenue source.
This will help you make better decisions if you find yourself in a situation where you need to adjust your strategy.
- Diversifies income stream. The hybrid app monetization model follows the age-old principle of putting only some of your eggs in a single basket. By adopting more than one strategy, you tap a larger audience and market base, diversify your revenue sources, and mitigate potential losses.
- Requires a keen sense of balance. App developers must keep everything in moderation for the hybrid app revenue model to work. The last thing you want to do is overwhelm your users.
Since the hybrid app monetization model adopts the practices of more than one model, all the downsides of other models also apply to hybrid. So, it’s crucial to strike the perfect balance in implementing each approach.
There is no one-size-fits-all approach to generating app revenue, nor is there a surefire way to monetize your app.
You must consider several factors: your business model, your app genre, your competitors, and even the app development climate.
But above everything, your app users’ experience must always take precedence.
Because if there’s one thing common to all the app monetization models above, they all require significant user participation to succeed.
If you need a reliable partner to guide you through every step of your app development venture, reach out to us at Appetiser Apps. We’ll be glad to provide you with a free consultation!
Jane Eslabra is a Content Marketing Specialist at Appetiser Apps. She has 14+ years of experience producing traditional and digital content. When she’s not busy being a wordsmith, she’s out swimming, taking a long walk, or trying new activities that will keep her eyes away from the screen and her body moving.
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