Five App Monetization Models to Know

  • Luke Richardson
  • October 10, 2019

Global mobile app revenue is projected to reach $188.9 billion by 2020, an increase of more than 200% from 2016.

Last year, global revenue from in-app purchases was projected at a staggering $71.3 billion— it makes sense, considering that 98% of app revenue comes from free apps with in-app purchase options. But how do you begin monetizing an app or finding a business model?

Here are the six main sales/business models for apps broken down by our Lead Opportunity Explorer and things you should consider when choosing how to monetize your application.

Free with advertising

Mobile advertising is expected to exceed $70 Billion in 2018 and make up 75% of all digital ad spend. This seems to be most often used for applications with a broad user base. Mostly for general consumer applications, some examples include Facebook, Instagram, Snapchat, etc.

One major consideration to keep in mind according to Luke: you’ll always be on the lookout for advertisers.

A few more of Luke’s considerations on choosing this model:

  • This often takes longer and more capital to get to a breakeven or profit generating point. This introduces more risk
  • On the other hand, the market size is often so large that the upside can be quite good
  • If you have access to a lot of capital and an extended time horizion this could be a good model
  • If you need to show profits quickly before capital will dry up I would suggest another option
  • This works best when users spend a lot of time engaging with the app with a broad user base.
  • This model seems to be losing favor with venture capitalists for the SaaS or monthly subscription model

If you are using ads, be sure to make them relevant to your target market users.

Freemium with In-App Purchases

A great way to bring in new customers or users can be to let them try something. People just don’t know what they want or like until they try it.

If you make the barrier to trying a new product or service too high then you are likely missing out on what could be a much larger user or customer base.

Examples in this category can be games or consumer services. Think of things like Spotify that can be free with ads but you can pay to have the adds removed

Most often you would need to continually update content:

  • Think levels or features for games or new songs or podcasts for streaming services
  • This continues need for content can be costly to produce and provide
  • Remember that if you have in-app purchases of “digital good”s” then Apple and Google will take a 30% cut off the top of that transaction

There has been a recent push from developers to reduced the percentage of these fees but it is yet to be seen just where the fee structure will go in the future

Many big players like Netflix and Spotify are finding ways to avoid the fees all together by requiring purchases through their website rather than the app store.

You will need to be aware of these fees and this will help determine if you will allow users to sign up for your digital service inside the app or not.

Unfortunately is seems that the app stores are purposefully vague about just what qualifies as a purchase that will justify a percentage “commission.” Generally consider those things as digital goods like music, audiobooks, or gem/coins in a game.

You can find information here from Apple on in-app purchases but unfortunately they do not disclose with clarity what they will take a cut of and what they will not: https://developer.apple.com/in-app-purchase/

Subscription Model

  • SaaS model… example is an event app with a template
  • Caution with white label apps being removed from the App Store
  • This can bee a good model when you are targeting a very specific group that gets continues value from using the software solution
  • This is common for B2B applications more so that B2C.
  • Some B2C examples could include digital subscriptions to music services, new content
  • Some B2B examples could include CRM’s, team messaging (slack), storage (Google Drive), Notes (evernote), password keepers,
  • This is such a popular model and the recurring revenue it generates seems to be very highly values by business leaders and investors alike.
  • I think you should really make sure that you are providing a consistent value that makes sense to be a subscription
  • Some iffy examples:
    • Food
    • Ink
    • education
  • Some good examples:
    • TV
    • News
    • Entertainment in general

Paid Model

  • Users/customers pay for the app wen it is downloaded
  • When you can make a compelling offer where users and customers will see lots of value before they try the app
  • When you can afford to cough up the 30% to Apple and Google
  • The price has to be low enough that users will buy
  • You have to constantly on-board new customers to be viable
  • You will probably spend more on marketing for new customer acquisition

Paymium Model

  • Users pay to download the app and then premium features can be added at an additional cost
  • You should never charge and then have in-app purchases be required to get use from the app. This is a bit and switch method and will create a terrible users experience.
  • Benefits of on-going revenue opportunities
  • Downside of more difficult customer acquisition because of upfront charge

Improve business process

  • Not a monetization model exactly but improving the processes in a business can significantly impact your revenue.
  • A great example is Fandango – their revenue increased by 57% after they launched their mobile app in 2012.

User Acquisition

  • Get a bunch of users and then get acquired like Instagram and WhatsApp
  • A risky no revenue business model
  • Great if you anticipate acquiring a lot of users
  • This goes along with the add based model I think