If you want to know how to make money from apps, you’re in the right place. With the increase in mobile users, there has been a significant increase in app downloads. According to Statista, 77 billion mobile apps were downloaded in the first half of 2023.
You can leverage the growing number of app installs to generate app revenue through the process of app monetization. Let’s dive deeper into understanding the different methods to monetize apps and which strategy would suit your business the most.
What is App Monetization?
App monetization can be defined as the process of creating revenue from app users without applying a download fee. You can use a variety of methods and strategies for monetizing apps. Implement a strategy based on your product’s vertical and target audience, as well as by mapping your user journey.
A well-researched app monetization strategy ensures that you are creating a positive user experience to retain and grow your user base. You can use different metrics such as the average purchase value, and lifetime value of your app to measure your app’s key performance indicators (KPIs).
Importance of Mobile App Monetization
The exponential increase in free apps available via app stores over the last 15 years has made mobile app monetization an essential consideration for app owners all over the world.
In 2023, more than 95% of free apps are available in Google Play Store and Apple App Store. Free apps improve the likelihood of app downloads as it offers little commitment. App marketers opt for this long-term revenue generation strategy to acquire new users.
In contrast to free apps, paid apps are heavily reliant on strong brand recognition, reputable reviews, and unique content. Users who use such apps have higher and more immediate expectations. This limits app monetization strategy options where you can also lose out on long-term revenue.
What are the Different App Monetization Models and Strategies?
Apps weren’t always free. The reason behind this is that app development costs money. With little to no data on how to generate revenue, an up-front commitment was the best way for developers to gain app revenue.
However, with time, mobile developers and marketers understood that in-app purchases, in-app advertising along with other monetization strategies can result in much more positive outcomes. Although mobile marketing has undergone various changes over the years, app monetization strategies have elevated the mobile app market.
You need a solid app monetization strategy to gain revenue from it. It is important to remember that the increasing number of downloads does not always translate to monetary gains. However, you can implement various types of ads and strategies to elevate your chances of revenue generation.
A mobile app marketer can implement a single app monetization strategy, combine different models, or try a hybrid app approach to create revenue. So, without further ado, let’s check the different monetization apps approaches:
- In-app Advertising (IAA)
You can make monetization easy by choosing the in-app advertising model for your mobile app. As per this strategy, you show ads to your users to generate revenue. Since many users do not complete in-app purchases, ads provide the scope to drive revenue from a large segment of users.
Maintaining a balance between showcasing the right number of relevant ads is integral so that they do not negatively impact the user experience. The IAA strategy goes well with any free app and can especially be helpful to monetize the non-paying audience.
Let’s take a look at the different types of in-app ads you can use for your app.
Types of In-app Ad Formats
Banner Ads: Banner ads are made of graphics as well as text components. They usually appear at the top or bottom of a screen and have a clear call-to-action button.
Native Ads: Native ads appear to look like organic content, such as content recommendation engines that are marked as sponsored content. These ads fit naturally within the app and do not hinder user experience.
Video Ads: Video ads are video clips that appear before another video. This pre-roll ad appears before you watch your video and has high engagement and click-through rates (CTR).
Rewarded Video Ads: Here users are provided with a reward after they watch a video. Typically present in gaming apps where users can earn in-game currency or other rewards by watching a video ad.
Playable Ads: Playable ads are playable mini-games that briefly show how another game works. These ads have the highest engagement and CPM rates for gaming apps.
Interstitial Ads: Interstitial ads are full-screen ads. They appear during a transitional phase of the app, for instance, after completion of a level. These ads can be in the form of images, texts, or even videos.
Offerwall Ads: These types of ads give users rewards in exchange for specific actions. For example, users can gain rewards by filling out surveys, downloading an app, or playing a game, among others.
- Benefits of In-app Advertising
The biggest advantage of in app monetization is that you can drive bugger results and reach a significant number of audience. Most importantly, your users can choose to download your app if you advertise relevant apps within a specific target audience. This makes in-app ads significantly more effective.
In-app ads drive great user experience and help in popularizing your apps so that you can earn revenue from them. It’s fairly easy to implement these ads and are less disruptive to the user.
- Limitations of In-app Advertising
One of the major limitations of in-app ads is that your competitors may end up appearing in the in-app ad. So, a user watching might end up clicking that link and installing the app. You can also face low clicks through these ads, however, this is not the case for interstitial or native ads.
Therefore, you can test different formats to see which type of in-app ad is working the best for your app. Make sure you check your viewability and enhance creativity so that these ads are always engaging.
- Pay Per Download or Paid Download (PPD)
Pay-per-download is one of the oldest monetization strategies. According to this strategy, you can charge a one-time fee to download your app. With paid downloads, you can effectively generate revenue.
- Benefits of Pay Per Download
If you have a recognizable brand with unique content and trusted reviews, this model can prove to be effective. Moreover, if your paid app can provide users with undeniable and undifferentiated benefits, then it can lead to consistent revenue growth.
Along with that, a paid app does not have any other type of in-app ads. These enhance user experience and may also positively impact user retention as they provide a higher quality and uncluttered experience.
Therefore, check the market to ensure there are no free alternatives for your app and position it as the differentiated market leader. This can help you in serving your target users and improve your app’s ranking, trust, and visibility.
- Limitations of Pay Per Download
The major disadvantage of the PPD strategy is that it disrupts you from long-term revenue opportunities. And, if your brand is not well known and you have not gained the trust of users, they might pass on the app.
- Subscription Models
A subscription model can help grow your revenue and monetize your game or app. This model relies on an app being free to download and charges a recurring fee to use it over time.
Types of Subscription Models
Premium Subscriptions: Premium or paid mobile apps require users to sign up for a fixed payment right after download. Here, revenue on paid apps is generated as per the number of downloads of these apps.
Freemium Subscriptions: This app business model is more flexible and one of the easy monetization methods. Here, users can download an app for free and they are offered in-app purchases that give them access to exclusive features such as additional content or digital goods, among others. For instance, Spotify offers premium app features to its free users for a monthly subscription fee.
- Benefits of Subscription Models
The subscription model can help in generating a regular cash flow. If executed well, they can lead to an increase in retention rates. Especially for the premium subscriptions, you can rely on the steady income stream and make sure the app remains accessible and useful to its users.
However, the freemium subscription model is at an advantage here as it offers users the ability to try out your app before they commit to it. This attracts more users and you can easily scale your app without any costly overheads of traditional marketing and sales campaigns.
- Limitations of Subscription Models
Premium subscriptions can be expensive for some users, thereby discouraging them from using it completely. It may also alienate users as they are unable to understand its value while some subscriptions are difficult to cancel due to which users can feel trapped or stuck.
Freemium subscriptions, on the other hand, may lead to decreased revenue if users do not upgrade to the paid version. It can also negatively impact user experience if users are constantly bombarded with ads or upsells.
In some cases, this form of subscription may be consuming, leading to users unsubscribing or simply not using the app. Therefore, if you choose this strategy, you need to focus on your content first so that users get value and quality experience by using your app.
You can also offer discounts for long-term subscriptions and make sure users have a memorable onboarding experience. Clarify your app’s value by making all your best available features known to your users. You can also offer free trials so that users can get a glimpse of your app’s features and value.
- In-app Purchases (IAP)
The in-app purchase monetization model focuses on selling different virtual goods, services, and bonuses within the app. This method was already well established across the internet, making it a tried-and-tested strategy to garner revenue.
This strategy is especially effective for gaming apps as they allow users to earn extra coins or gain the ability to unlock hidden or previously unachievable levels. In-app purchases are a smart way to monetize mobile apps. This option can be introduced at any point in a game or whenever users need help.
The process of setting up payment for in-app purchases is pretty simple. A user needs to sign up to the Google Play store or the iOS App store and add a credit card or other payment option to make the in-app purchase.
Types of In-app Purchases
Consumable: Consumables or in-store revenue is a type of revenue you can generate through the app store on which fees apply. For gaming apps, consumables can be in-game currency., power-ups, or bonus health.
As the name suggests, once you use the purchase, they disappear, however, they can be purchased again. These are great options for users who don’t like to wait to gain items in a game and save time.
Non-consumable: Non-consumables or out-of-store revenue is where you can generate money directly in the app, providing you with more revenue as compared to the first method. Users have permanent access to these items such as bonus characters or unlocking hidden levels.
Auto-Renewing Subscriptions: In-app subscriptions are regular payments that users can make to access premium content. In the gaming context, these can be exclusive gameplay items to premium versions of the game.
Non-Renewing Subscriptions: The only difference between this method and auto-renewing subscriptions is that users need to manually renew their subscriptions
- Benefits of In-app Purchases
In today’s transactional economy, in-app purchases help in generating profits as they offer valuable upgrades. From selling sticker packs on messaging apps to plugins that help unlock new features in your editing app, this strategy is a great fit. You can use it to elevate user experience, ultimately creating a loyal user base.
Level up this model by using predictive modeling and machine learning algorithms to identify key patterns that make you the most profits. By identifying this data, you can promote your in-app purchase and tailor your messages accordingly. This method is not only convenient but also flexible as it offers a wide range of content and features for users to purchase.
For example, you can introduce soft and hard currencies in a game. Users can gain soft currency by performing certain actions in a game whereas hard currency is available in limited amounts.
It can be achieved through difficult in-game actions but can be bought with real cash. Here, you are providing users with the choice of how they can progress in their game, making it a highly effective monetization method.
- Limitations of In-app Purchases
With in-app purchases, there is always a risk that users may feel disappointed with the product after making a purchase. This can lead to negative reviews and decreased downloads. Another limitation is that users may feel alienated if they are constantly being asked to make purchases.
- Affiliate Marketing
Affiliate programs focus on promoting other mobile apps within your apps. Although the commissions offered in this app monetization strategy are not that high, app developers have the choice of which app they want to promote. This encourages users to associate their apps with similar brands.
Major technology companies like Google, Apple, as well as Microsoft, have official programs open to app developers.
- Benefits of Affiliate Marketing
With affiliate marketing, you can generate revenue from your app without charging for downloads or in-app purchases. This strategy also helps you build steady brand relationships as you can promote or sell products and services within an app.
- Limitations of Affiliate Marketing
This form of marketing can prove to be quite competitive as many companies take this approach to promote their app. This approach can also be risky as affiliates may promote an app in a way that may not reflect its quality or user experience. It is also a time-consuming method as you need to constantly recruit affiliates and manage them.
- SMS Marketing
SMS marketing is an old yet effective technique to reach out to your users and offer them discounts on your in-app purchases or premium subscriptions. However, it is important to note that you need to get consent from your users to use their data to send them messages.
Think carefully about the content of the message. Nobody wants to read lengthy messages. Therefore, craft personalized messages to cater to your audience along with a call to action.
- Benefits of SMS Marketing
You can execute SMS marketing easily by collecting data via in-app prompts and sending messages via mobile marketing automation. This strategy is one of the most effective when it comes to retaining users who haven’t engaged with your app for a while. It motivates them to pick your app once again.
- Limitations of SMS Marketing
SMS marketing can be intrusive and spammy, especially if people are not expecting it. It can also lead to reduced user data as many people delete the messages without even reading them.
In this case, it becomes difficult to track the effectiveness of this marketing method. Moreover, SMS marketing does not suit all brands. It can fail to garner a good response if your target audience is not responsive to text messages.
- Email Marketing
Email marketing is an effective way to engage existing users who have downloaded your app into paying customers. Although this form of marketing may seem like something other than a logical fit for mobile app advertising, when executed correctly, can lead to positive results.
- Benefits of Email Marketing
The ease of implementation makes email marketing one of the most lucrative marketing methods. It is relatively easy and cheap to automate marketing emails. This method can also increase your app monetization rate by speeding up the purchase process.
- Limitations of Email Marketing
Email marketing can be less effective as compared to other app monetization methods like in-app ads or in-app purchases. Additionally, they can also be considered spammy if implemented incorrectly.
- Sponsorship Ads
A highly beneficial app monetization model is by undertaking a sponsorship arrangement. If your mobile app has a large user base with a high engagement rate, this model may be ideal for your app.
For sponsorship ads, you will need a single company to become your app’s sponsor or investor. This gives the company exclusive access to advertising to your user base. These ads can be executed via push notifications, integrating a splash screen that is visible to your app’s users, or by covering a significant portion of your app’s interface with the company’s logo.
If you want these ads to work, you should identify your user base and which products or services they would like best. Based on this assessment, you can choose a brand to further user acquisition.
- Benefits of Sponsorship Ads
Sponsorship ads can be targeted to a specific audience, resulting in higher conversion rates. This monetize deal provides you the opportunity to cross-promote other products or services and can lead to increased user acquisition and revenue. Moreover, sponsorship ads can also create a sense of brand loyalty among users, positively impacting your audience base.
- Limitations of Sponsorship Ads
It can be difficult to find a sponsor who aligns with your user needs and is willing to partner up with you. If you cannot find a suitable sponsor, this strategy might fail. Plus, the ads may be disruptive to your user experience and can increase uninstalls.
If your app collects consented user-generated data like geo-locations, then you can consider licensing as your app monetization model. You can provide users free access to your app, the whole app is paid for by the licensing.
This method is most commonly seen in traffic and navigation apps which license its community-driven data collection to businesses wanting to place location-based ads.
- Benefits of Licensing
With licensing, you can garner a reliable and predictable stream of revenue. It also helps you consistently control data as per the company’s brand and values.
- Limitations of Licensing
Licensing data can be expensive for app developers, especially if they are small or independent developers. The process is also time-consuming and can limit how you want to monetize the data.
Crowdfunding is particularly used in the early stages of a free app’s development. This method helps you to gain a significant amount of funds to go into your new venture. You can use different crowdfunding platforms to app monetize.
- Benefits of Crowdfunding
Through crowdfunding, developers can reach out to a wider audience of potential app users. It can help you create a built-in community of users and supporters who can provide you with valuable feedback and help in app promotion. Apart from this, it can provide you with a quick infusion of cash for developing an app successfully.
- Limitations of Crowdfunding
You need to have a strong brand voice to successfully achieve crowdfunding. If your app does not stand out in front of other competitors, then you might not be able to gain the required resources you need for app development.
What are App Store Platform Fees?
Listing your app on the app store requires only a few clicks. However, getting your app to show up is challenging. With the amount of competition, if your app is not optimized for the app store, your app will not show up in the search results. To list your apps on respective marketplaces, you need to pay a fee.
- Google Play Store
Google Play takes a 15% fee for every paid app download and in-app purchases of digital goods and services up to $1 million in sales. The rate increases to 30% once the threshold is met.
- Apple App Store
Apple App Store takes a 30% commission for every paid app download as well as in-app purchases. Developers generating less than $1 million may qualify for Apple’s App Store Small Business Program which charges a 15% commission fee instead of 30%.
If your app sells physical products, then no fees are charged for them and subscription commissions are lowered to 15% after a year.
- Galaxy Store
This store charges a 30% commission on purchases made on the app store. You can also negotiate the commission rate.
- Microsoft Store
A 15% commission is charged by the Microsoft Store for every paid app downloaded and in-app purchases made for digital goods and services. A 12% commission is charged for PC games and a 30% commission is charged on all apps, games, and in-app purchases on Xbox consoles. Non-gaming apps have the scope to use their payment systems to avoid commissions.
- Amazon App Store
This store charges a 30% commission for every paid app download and in-app purchases. Video apps have a 20% commission. If developers are making less than $1 million per year in app store revenue, they qualify for a 20% commission rate and 10% promotional credits for Amazon Web Services.
Best Practices for Mobile App Monetization
A crucial factor you need to keep in mind is that whatever app monetization strategy you implement, should not invalidate user experience. Therefore, you need to follow certain practices to ensure your monetization strategy does not hinder your users.
- Invest in User Acquisition
If you want to scale monetization, investing in user acquisition should be one of your top priorities. This step is important, more so because there will always be user churn. Therefore, with new users, you can not only impact your app’s survival but also ensure it thrives in the current market.
- Hybrid Monetization
You can choose to implement a hybrid monetization strategy where you can combine two or more monetization strategies for your app. Usually, apps using this model combine in-app ads and in-app purchases.
This revenue generation model is extremely flexible and allows developers to garner money from users who are likely to make a purchase and who aren’t. Gaming apps have significantly benefited from this strategy. Here, users get the benefits of in-app purchases, while also getting the opportunity to improve their app experience by watching and engaging with ads.
Therefore, by prioritizing user experience, you can moderate the number of pop-ups, displays, and the pricing of your in-app purchases.
- Analytics and Data
Leverage analytics and data to implement the best app monetization strategy. You can choose to partner with an app monetization platform to receive insight into your app’s revenue, user behavior, and other aspects. Utilize this data to streamline your ongoing income stream for your app.
How to Identify the Best Monetization Model for Your App?
Every business has different needs and requirements. To understand which app monetization strategy would suit your business the most, you need to ask yourself the following questions:
What Does Your App Do: List down the features and values of your app and how it’s different from the existing apps in the market. Understanding your app’s purpose can help in differentiating and marketing your app to the target audience.
Who are Your Competitors: Do in-depth competitor research to identify where your app sits in the marketplace. By researching apps in a similar vertical, you can identify which strategy may work best for you.
Define Your Target Audience: One of the key factors is to understand who your target audience is. This can help you narrow down the strategy that would provide you with success.
Key Metrics to Measure Your App Monetization Model
Now that you understand the different app monetization models, let’s understand how you can check the success rate:
- Retention Rate
This rate is defined by the percentage of users who use your app over a certain period. This metric helps you identify if your app is providing a valuable user experience and helping users convert to a loyal audience. Therefore, the more loyal your users are, the more likely they will watch the ads in your app and make a purchase.
- Average Revenue Per User (ARPU)
ARPU helps measure your earnings on average from each user. You can calculate this by dividing the total revenue of your business by the average number of users within the same period.
- App Stickiness
With app stickiness, you can measure which users engage with your app on a regular basis. A higher engagement rate signifies the stickiness of your app. You can measure this metric by dividing your Daily Active Users (DAU) by our Monthly Active Users (MAU).
- LifetimeValue (LTV)
Use LTV to determine how valuable a user is over the span of time they’re using your app. This information can help you determine how much money you can invest in marketing to acquire new customers and remain profitable at the same time.
- Funnel Conversion Rates
Funnel conversion rates help you understand the quality of users as they go through the market funnel. This includes the moment they see an ad to complete a revenue-generating in-app event after installing the app. Use the funnel data to optimize your app monetization strategies by identifying where users are falling off on the advertising or purchasing process.
Thus, you can use a single or a combination of app monetization strategies to increase your revenue streams. Understand the purpose and audience base of your app along with your competitors to determine which strategy would work the best. Additionally, use different metrics to check your Apple and Android app monetization success. Modify or change your strategies as you see fit so that your users have the best experience and it generates positive revenue.