Top 5 Mobile Application Monetization Strategies Every Developer Needs to Know

Building an app and having it published on Google Play or iTunes is just half the battle. To earn serious money from your app you need to have a well planned monetization strategy.

We’d like to think that users are willing to shell out serious money when they see a high quality app or game, but we all know that’s not the case. In Vision Mobile’s State of the Developer Nation 2015 3Q report, we saw that only 4% of mobile apps earn more than $500k per month and more than half of the apps in the market today make less than $500 per month in revenue.

This is why it is crucial that developers have a clear monetization strategy from the outset. It’s not the kind of thing you can just set aside for later because you have no idea how to make money from your app or you’re not comfortable with the idea of charging money for your work. The hours and resources you spend developing applications costs money. There’s no point in developing these apps if you can’t earn at least enough to sustain the costs associated with maintaining these apps or give you a comfortable lifestyle so you can continue building.

Fortunately, there’s more than one way to skin a cat. Listed below are the top 5 mobile app monetization strategies you can use today. We’ll explain how each of them work, plus the pros and cons of each strategy.

   1. Paid Apps

Paid apps are the oldest and most preferred monetization strategy by a lot of developers. It’s pretty straightforward, you pay to download the app. I know a lot of people prefer this strategy because it’s simple and it allows you to focus on marketing your app to get more people to download.

But the problem with paid app strategy, especially with new apps, is that most users are often unwilling to spend any amount of money on an unknown or untested app. One way to get around this is to offer the app as a freemium so users can test it and pay to access all the features. Offering the app as a freemium not only teaches users how to use the app, but also allows users to give reviews and recommendations that can help with marketing and development.

As attractive as this strategy is, it’s not always ideal. New developers would have a hard time marketing their apps this way. Most user are only willing to pay for apps if they have name recognition, received numerous rave reviews, and have a stellar marketing strategy. All of these efforts cost money.

Another problem with the paid app strategy is that you only earn once. Once an app peaks in the market, the sales eventually plateau and drop, which means the revenue will run out over time.

There’s also the proliferation of free apps in the marketplace.  Let’s say you developed a scheduling app. How can you convince someone to buy your app when there are hundreds of free apps out there that can do practically the same thing? What stand-out features does your app have that they can’t find anywhere else? Are those extra features worth the cost for the users and enough to motivate them to purchase your app instead of going for a free alternative?

Last but not the least, especially when you’re offering your app as a freemium, is finding a balance. What features will you offer for free, and what will they get once they pay? Give too little and no one will want to use your app. Give away too much and they won’t feel the need to pay for it. You have to find that balance where there are enough free features to attract users to use their app and hold back just enough to entice them to pay for more.

The key to launching successful paid apps is you really have to offer a high quality product that offers users clear benefits.

A great example of an app that uses this strategy is Dropbox. It gives free users 2GB free storage and offers an additional 500MB per referral, which is just enough for most users to feel the benefits of having Dropbox. Once you exceed your free space allocation, you can get 1TB if you pay $9.99 per month.  

   2. In-App Purchases

The use of in-app purchases is gaining in popularity as a monetization strategy, especially among games and retail apps. They usually come in the form of virtual currency, extra lives, or unlocking special features and upgrades. Also included are purchases made from e-commerce apps like Amazon, Zappos, etc. What makes this strategy really attractive is that it can provide developers with sustainable revenue long after the app has been released on the market. It’s also easier to sell to users because you’re basically giving away the app or the game for free with all the features. And these features in turn help sell the in-app purchases.

The best example of a game that successfully used this strategy is Candy Crush, which is reported to make over $630 thousand a day on purchases like extra lives and upgrades. What made Candy Crush such a success is the fact that their app is really addictive. And the prices for the in-app purchases are very affordable so that users feel that they can afford to keep buying in order to gain an advantage in the game.

Amazon is also a great example. They already have a great strategy in place by taking a percentage from each item sold through their app. But by making the purchasing experience easier for users overall (Amazon Assistant, Amazon Business) and adapting this model on multiple verticals (Amazon Prime, Kindle) they practically dominated ecommerce.

Another great thing about in-app purchases is it can easily be integrated with other monetization strategies, like giving users the option to view ads or download apps in lieu of purchase.

One disadvantage with this strategy is the fact that most app stores take a cut from revenue of in-app purchases. To make these purchases attractive, you want to keep the price low. But if your price is too low, and if you’re not getting enough buyers, you really won’t be making enough this way.

Another problem with in-app purchases is the bad press it’s been getting lately with children accidentally making purchases, people going into debt over app purchases, or apps not being transparent on the pricing of in-app purchases. This negative publicity has pushed governments to pressure Apple and Google to impose firmer regulations. Imposed regulations might involve adding protocols to make in-app purchases more difficult or to regulate the amount of in-app purchases per account.

  3. Subscriptions

The subscription strategy is ideal for apps that primarily provide access to content rather than features like streaming services (Spotify) or publications (Audible). The app is usually free for download and to entice users to subscribe, they’re given a free trial or limited access with the free account.

The great thing about the subscription model is it gives developers recurring income and it encourages repeated use. But it also relies heavily on the quality of the content provided which means it would involve some form of profit sharing with the content creators. This would require allocating more resources to marketing the content itself and investing more on content creators to encourage them to develop products that sell.

  4. Display Advertising

Advertising is another tried and true marketing strategy and is heavily used by free apps everywhere. You can do it yourself or with a mobile advertiser. It’s often used with other monetization strategies like offering free upgrades in exchange for viewing ads or encouraging users to pay for access in exchange for an ad-free experience.

Profits from advertising varies depending on the ad and the format. It also depends on whether your app can collect and use demographic or behavioral data, which allows you or the advertisers to created targeted ads. You can get paid either through click, impressions, downloads, or installations.

Facebook is probably the most successful example of an app earning from advertising. What made this strategy so useful for them is they already have a loyal user base who are mostly willing to be exposed to ads in exchange for access. And the massive amounts of data they have from their users is a goldmine for advertisers, which practically allowed Facebook to set their own terms and create an advertising system that built and sustained an entire company.

But unless you’re Facebook, most apps don’t earn that much through advertising, which is why it’s used in tandem with other strategies. And if you introduce too many ads in your app, it can affect user experience which results in app churn. The development of ad blockers could also be a problem in the future.

  5. Partnerships

Partnerships can help developers earn in different ways. You can partner with a company to repurpose or re-skin your app and use it for company advertising. A company can also use your app to discretely market their product and get paid for clicks, like when Klout offers freebies or discounts to other products for signing up or reaching a certain score. Internet service providers, smartphone and tablet manufacturers can also pay developers to provide their customers with free access to the premium app or free subscription for a limited amount of time.

What makes partnerships different from advertising is exclusivity.  When you partner with a high profile or popular company, you can’t have other companies run ads on your app.

The great thing about the partnership model is it gives you room to be creative in building multiple income streams. And when used in tandem with advertising, it’s better received because the partnership is often relevant to the users. The partnership itself can be used as a marketing tool, which helps promote the app to users, encouraging them to use it.

The problem with partnerships though is it can be difficult for new developers to create them with established companies. Another hurdle developers would have to face are the regulations Apple is starting to implement on social sharing and incentivizing downloads. Last but not the least, the partnership strategy is fairly new. There are no standard terms set in place and not enough case studies to identify factors for success and how successful most app partnerships are.

Conclusion:

The mobile app market is cutthroat and building a great app really isn’t enough anymore. To make money from building apps, you have to see your product as part of a business model. You have to see your app how your users would see it and find a way to objectively give value to it. That’s why it’s important to tailor your app’s monetization strategy based on what the user will be experiencing as they use it. You have to make your app an indispensable part of their lifestyle or experience to make paying for that experience feel organic.