Building a custom app is expensive. And unless it’s for charity, you’ll need a plan to monetize your investment so you can turn a profit.
Having this end in sight from the beginning is very important. If you’re seriously considering generating revenue from your app, it means you’re effectively running a business. Your app is the product and your users are your customers.
Have a winning product
The first and most important thing is for you to have a good product. Your app is your product and it needs to solve a specific problem for a specific group of people. Apps like WSJ, Uber, Airbnb, Skype, and even Facebook, all solve day-to-day problems people face.
If your app requires you to invest a lot of time and painstaking effort to explain before people understand what it’s about so they can download it, you’re going to have an even harder time trying to make any money from it.
Winning apps require skill and precision at every stage of planning and development. Don’t know how to create a winning app? Watch our Ultimate Guide to Building Winning Apps in 2019.
4 Common App Monetization Techniques
Below are several ways you can make money from your app. Each of them is unique, but some can be combined to create a hybrid monetization scheme.
Let’s take a look at each one.
1.The Subscription model
This model is the most popular and most sustainable way to generate a steady income flow from your app. Big names like Spotify, Adobe Creative Cloud, Microsoft Office, and even Salesforce are built on this model.
If your app is something people will use every day for exclusive entertainment content or productivity, this model is ideal for you.
To get customers to sign up, you’ll need to lower the barriers to entry by offering a free trial of your app with full features for a limited time. This is the same way Adobe Creative Cloud does it.
A lot of people usually drop off between the trial and the subscription commencement. To minimize the potential losses, capture credit card or other payment details at the very beginning of the trial so you can begin charging automatically at the end of the trial.
This works best when you target the working class, not children below 18.
2. Paid app (premium app)
This is a common monetization model among game developers. A developer creates two apps, one free and other pay-walled. The free version is a damped down version of the premium app.
Before subscriptions became popular, this was the defacto monetization model across the board. It’s very simple and straightforward. But in its traditional form, it has a major drawback. The lifetime value of your customer is usually limited to a single purchase of your premium app.
This drastically increases the cost of marketing with strong potential to force down ROAS. The solution? Developers usually combine this model with in-app purchases. Users can buy access to bonus app features.
By doing this, they increase the lifetime value of each customer. They can then run highly targeted in-app marketing campaigns to sell more to their existing clients.
Rotors is one good example of a developer that started with free and premium apps and then transitioned to a hybrid model where their paid apps include in-app sales for access to additional features. These features are downloaded and installed onto the premium app upon purchase.
As you can see from this example, the model you begin with doesn’t matter because you can adapt your monetization scheme to meet your changing needs.
It’s usually easy to find people to download your free app. After using it for a while, a lot do become dependent on it to such a point that a switch to premium is necessary. There is less friction.
Converting a long-time free app user to a paid app is not as difficult as getting someone to pay for a premium app at the onset. Marketing can also be directed to people using your free app. It has the potential to generate a very high ROAS.
If you launch your free app well in advance of your paid app release, it will be much easier to get people onto your paid app.
The freemium model is an improved version of the premium app model. It’s a free app that comes with all the features of a premium app but access to the extended features is pay-walled by an in-app purchase.
When a user wants to upgrade, they simply make an in-app purchase and the extended features are unlocked. They don’t need to download a separate app to access the added features. In the premium app model, users must download the premium app separately. Freemium simplifies the process for both users and developers by combining them into one dynamic app.
Freemium apps can utilize any of several payment models such as a one-time purchase or subscription. In essence, it is a hybrid monetization model. Instead of a limited-time free trial, it offers lifetime free use of the app with limited features.
Popular apps using this model are Slack, Podio, Klaviyo, Gmail and Trello.
Getting customers for a freemium is identical to the process in the Premium app monetization model. The only difference is that they don’t need to download a separate app to access new features.
Does this make a difference for you as a developer?
Yes. You don’t need to release and maintain two instances of your app in the app store. You can direct your resources to manage one app. It saves you time and money.
In-app advertisement, affiliate marketing, sponsorship & in-app purchases
If you plan to make your app free forever and still generate revenue, you’ll need to pay attention to this point.
Apps like Youtube and Facebook are good examples of platforms using this model at scale.
By serving ads to their users, they generate a very healthy revenue stream. To make this model work for you, your app needs to be one that users interact with on a daily basis. There’s no way you will generate money from ads if your app is only used on rare instances. Don’t get this wrong.
As a rule, daily content and social media apps are ideal for this model. The model dictates which types of apps can benefit from it.
You can increase your income channels by accepting sponsorships and becoming an affiliate for brands you trust and believe in. You can also add e-commerce as in-app purchases.
When choosing which ads to serve and offers to promote, be sure to select only the one most relevant for your users.
Free apps have the most users. Just look at Facebook. There is no barrier to entry. People love free things; especially if they offer real value. In this model, your users are your product and your app is just a platform on which you connect them with your customers – advertisers.
Payment Gateways to use for recurring payments
Apple Pay and Google Pay are also excellent payment gateways. They offer great integration with their hardware and operating systems. You need to check whether their fees and policies suit your needs.
When you shouldn’t monetize and why
If you are just starting out with a consumer app, not an enterprise app, and creating a proof of concept, monetization should be the least of your worries. Of course, it should form part of your long term plans but pay-walling your app too early will push users away.
If it’s an enterprise solution, you can charge right from the get-go because you’d have to have dedicated business development personnel to sell the app. But a consumer app, no.
Do you want to build a winning app and make real money from it? We’ve helped startups start from zero and turn into multimillion-dollar businesses. Is yours next? Get in touch with us here.