How to Monetize Your Mobile App? A Comprehensive Guide for Marketers

Anna Zabudska

Marketer

September 13, 2022

What is a successful application? The one that is in demand by the audience and makes money. To reach the latter, the chosen monetization models are crucial. There can be several of them applied to one application. In this article, we will analyze the different methods and go over their pros and cons. You will also learn how to monetize apps, optimize and generate impressive revenue from your app using various app monetization models.

This is a complete guide, so it will take some time to study it. Therefore, we have added a table of contents, with which you can quickly jump to the needed sections.

What Should We Know About App Monetization?

By June 2022, free apps have been dominating the market, according to Statista. For example, in the App Store, free applications account for about 92% of the total.

96% of the apps on Google Play can also be installed for free. Developers have to change their revenue model to receive money after uploads. Taking into account how much time users spend in applications daily, it is important to consider such a strategy to increase income while maintaining a high level of user experience.

Your strategy may include only one model or a combination. Let's get down to an overview of available models for making money from free and paid apps.

How to Monetize an App: Proven Models & Strategies

Among the many success stories of people who earn a decent amount of money per day with a free application, we have identified proven monetization models. 

In-App Advertising

Why is it worth using such monetization? Let's take a look at the statistics.

  1. In-app advertising works 11 times better than regular banner ads.
  2. Criteo's report says that users coming from in-app ads view 4.2 times more products per session than those who come from ads on websites.
  3. Looking at the eMarketer forecast, people will use their mobile devices for 4 hours a day in the near future. And 88% of this time will be spent on applications.
Mobile traffic average daily app and browser usage

  1. According to Statista, global ad revenue from apps grew 3.4 times in 2020 compared to 2015. While in-game advertising revenue grew 2.5 times.
global ad revenue

global ad revenue im billion dollars statistics

There are three types of ad income when monetizing an app:

  • The cost per thousand impressions (CPM, cost per mille);
  • Cost per click (CPC);
  • Cost per action (CPA).

CPM is more common among free app monetization strategies. Users do not need to click on ads to let developers earn. The income is less as well as the damage to the user experience.

Types of advertising for mobile app monetization

  • Banner. Small static or animated images are a classic that becomes obsolete and ineffective;
  • Rewarding. For viewing an ad or clicking on a link, the user is given bonuses such as virtual currency or access to functions for a while;
  • Native. It simulates part of the application. Its task is not to attract users’ attention, but, on the contrary, to make them click on the ad without understanding what it really is;
  • Embedded. For example, inserting an ad at the video beginning is an effective way to monetize your app. However, use it wisely;
  • Interactive (game). This involves performing simple actions. This method helps pass the time and increases interest in the ad;
  • Intermediate. This type is displayed in transitions between screens or levels within the application; It is often animated or interactive.

Advertising in Instagram
ip-app ads
Ads in applications

Advantages of in-app advertising monetization:

  • Users spend more time in their apps;
  • Higher clickability rates;
  • Better targeting;
  • More memorable ads.

Flaws:

  • It's easy to ruin the user experience.

In-App Purchases

In-app purchases allow users to buy content, services, and extra features.

Types of In-app Purchases

Consumable (for example, in-game currency such as gold coins, tokens, additional lives, and game boosters).

Non-Consumable (advanced video tutorials on training courses, individual training plans, presets in photo editing applications, sticker packs in messengers, and so on).

In-App Purchases
Purchases in applications
Purchases in Viber
In-App Purchases

Statista predicts an 8.4% increase in revenue from in-app purchases on the global market by 2022. As well as 7.9% growth in 2023.

revenue from in-app purchases by years
revenue from in-app purchases in billion USD

In-app purchases should complement the user experience, not degrade it. Therefore, first, focus on the value of the purchase for the user, and then on making money. Find that balance.

Do not forget to indicate in the App Store or Google Play that your app includes in-app purchases despite it’s free.

To succeed, you need a smart strategy that keeps users engaged and encourages them to make in-app purchases. Here are some of our case studies showing how to do that using mob pushes:

  1. ROCKET strategy: retention in mobile apps 
  2. Marketplace Increased Purchases by 1.5x with Mobile Push Notifications 

Benefits of monetization from in-app purchases:

  • Convenience of buying in apps;
  • Flexibility of the monetization strategies;
  • High efficiency and profitability with a well-chosen approach.

Flaws:

  • Repelling users;
  • Impacting your brand.

Freemium Model & Subscriptions

Such a monetization system implies that the price of the application depends on the functions provided to the user. The basic version is usually available for free and the full version after payment. Thus, users get a chance to take a product before paying for it. 

Based on this, you might think that freemium allows users to stay on endless free trials. This is true but app monetization strategies have certain pitfalls. Companies realize that the costs of servicing free users should be leveled. That's why the freemium model is often a mix of:

  1. Use limitations, e.g. Airtable allows 1000 free entries, and then they are followed by a $5 plan.
  2. Feature limitations, e.g. LinkedIn limits the search filter in the classic version.
  3. Ads, e.g. Spotify showing its advertisement. 
  4. Cross-selling, e.g. Gmail is free but you'll be asked to buy more Google Drive storage if you exceed the 15GB limit.

A successful freemium strategy requires fairly easy training and onboarding experience. The product must constantly attract customers so that they can eventually upgrade to the premium version, which often implies a monthly/annual paid subscription. A very striking example of such an approach is Duolingo, an app for language learning.

Duolingo preium
Freemium Model in Duolingo
Freemium Model Duolingo
Freemium Model
Duolingo in-app purchases

Users have two options to access all premium features: recommending the app to friends or starting a premium plan after 14 days of the trial. 

To persuade users to switch to premium, in-app ads often tell them about useful features. In addition, mobile notifications and emails are extremely useful to return users to the app.

Duolingo is constantly growing. Now there are only a few features that were 2 years ago. And those that remained have improved significantly. Subscriptions allow creators to gradually develop a product according to a monthly budget.

Duolingo constantly conducts micro-testing of features to see which ones are relevant and attractive and which are not.

Grapevine and referrals allow Duolingo to convert a decent part of free customers into paying ones.

Freemium has its pros and cons, which you should consider when choosing a monetization strategy.

Pros:

  • It allows you to evaluate the advantages of the application and increase loyalty;
  • It gives users a choice;
  • Such applications attract more interest than completely paid ones;
  • This flexible approach allows you to adapt to different categories of customers.

Cons:

  • A small percentage of users pay;
  • It's hard to find the right balance between basic/trial and paid options.

According to Free The Future of a Radical Price, only 5% of your entire customer base will pay. Thus, the revenue generated from this 5% should compensate for the remaining 95% of your free base users.

Types of customers
Customers of apps

Premium Model

Paid health and fitness apps ask their users to make an advance payment. While numerous apps provide users with a free trial to show their value, there are premium solutions that require payment before downloading.

For instance, users who want to download Streaks, the habit-forming to-do list app, have to pay $4.99. 

Premium Apps

Publishers, when implementing a premium monetization model, must convince users with their branding, features, and impeccable reviews to win their interest and trust before they pay. Catching signs we can find on the Streaks product page are as follows:

  • High rating (4.8 out of 5);
  • #6 popularity in Health & Fitness category;
  • Concise user interface with colorful screenshots;
  • A list of features with short review quotes.

In this case, Streaks has already whetted the user's appetite by releasing 9 screensavers, and also became the winner of the Apple Design Award. For most iOS users, it works. Otherwise, why is it in the top 10 health & fitness paid apps?

Pros:

  • Ease of creation;
  • Clear and instant income from every new user.

Cons:

  • It is necessary to implement an application of outstanding quality or mechanics. Users are unlikely to pay for a “pig in a poke” when there are dozens of free alternatives;
  • Promoting paid apps is many times more difficult;
  • User’s LTV is determined by a single purchase;
  • Piracy. Paid games and applications are often stolen. As a result, companies suffer financial losses.

Sponsorships & Partnerships

You enter into an agreement with advertisers who provide rewards to your users for performing certain actions in the application. Then, the revenue generated is split between you and the advertiser.

Pros:

  • Suitable for any niche;
  • High level of user engagement.

Cons:

  • It is difficult to find sponsors with a similar target audience.

Affiliate programs

Many leading companies, such as Apple, Google, and Microsoft, have affiliate programs for app developers. These programs involve promoting other apps within your application. And in return, you get a commission. Аpp developers have a choice of which apps they want to promote. It can encourage users to associate their apps with promoted brands.

Pros:

  • Users don't pay for anything;
  • You build good relationships between your brand and clients.

Cons:

  • It takes a lot of time to keep in touch with partners;
  • There are some risks due to high competition;
  • The approach may ruin the user experience and brand credibility.

How Do I Choose the Right Monetization Method?

Actually, there are only two options you should consider when choosing an appropriate monetization method: subscription / non-subscription, freemium / non-freemium. Other models are usually combined. For example, freemium is complemented by advertising. And subscription access, of course, can exist through in-app purchases.

We certainly live in a world of winning subscriptions. Even the mobile gaming market is largely switching to a subscription model. But such a monetization model is suitable for applications that will constantly evolve. If your service is content-based, then the content should be updated regularly. Not to mention the fact that you will need to monitor user reviews from time to time.

The next step is to figure out if it will be a freemium or free trial strategy.

The choice of the freemium model or another one is determined only by your product. Answer yourself a few key questions:

  1. Is there a market for my product? (if there is no large target market, the product should not be offered for free. You will lose money serving free users who will never make a purchase).
  2. Will the users of your product be able to serve themselves? (a complex product that needs sales assistance or user training may not be scalable enough)
  3. Will users want to upgrade to premium? (Show users ads with outstanding new premium features to encourage them to purchase).

Summing Up


Your business goals will help you identify more appropriate monetization methods.

It is unlikely that you will ever find the only monetization option, which would be 100% suitable for you. Combine, analyze efficiency, and turn on creativity!

You can create a limited edition add-on or style (for example, Halloween or a superhero), let users set their own fee (yes, this works pretty well), and find out their profession and income by asking them to fill out a questionnaire while the onboarding. It will allow you to extend or restrict access to certain functionality.

Of course, do not forget to conduct tests and confirm your hypotheses with specific data to make a profit in accordance with your honed strategy and app monetization plan.

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