From in-app purchases to monthly subscription plans, considering the best monetization models is a vital step that app developers need to take. It’s a tricky balancing act to find a model that includes sustainability, profitability and providing a quality user experience - and in this guide, we’ll cover everything marketers need to know about using a freemium model for mobile apps.
What is a freemium app monetization model?
Freemium is a pricing model that offers users an opportunity to use a mobile app free of charge, with certain features withheld for paying customers. The user can then choose to continue using the app for free or spend money to gain a superior experience, either through a subscription service or by completing in-app purchases.
A big benefit of the freemium monetization model is that marketers can acquire users on a much larger scale than apps which require users to pay to install. The model is also gaining in popularity, with Sensor Tower showing that U.S. revenue for the top 100 subscription apps grew by 21 percent in 2019 – an increase from $3.8 billion to over $4.6 billion. Because app developers are providing a basic service for free, freemium modeling can put a brand ahead of their competitors for audience growth. Even if you and your competitors are both freemium, users still have an opportunity to try each app and keep the one that offers the best experience.
When implementing a freemium model, you’ll need to extensively test, review and optimize your monetization strategy - such as identifying how users want to spend their money, and which additional features would encourage them to subscribe. Analyzing customer feedback is also a smart way to find new ways to generate more revenue and spot issues with your user experience.
Benefits of freemium modeling
There are a whole range of ways a freemium model can help you achieve your marketing goals. Below are four essential benefits to consider.
1. Reaching a larger audience
Users are more likely to download an app they can try before spending their cash, which leads to several benefits for mobile marketers. For example, there will be a percentage of your audience who would never install a paid app, but can still be persuaded to spend money on a freemium app’s subscription once they have become familiar with your brand. Another benefit is that with a larger audience, you gain more data that can be analyzed to optimize your marketing strategy.
2. Maximizing your potential revenue with a mixed monetization strategy
App marketers can still monetize users who aren’t interested in a subscription: in-app ads and in-app purchases are monetization models that can be used in conjunction with a freemium app to provide multiple sources of revenue. Offering users the opportunity to remove ads or a discount for in-app purchases can be an effective incentive once the user is invested in your app experience and wants to upgrade.
3. Offering more opportunities for virality
Most marketers should expect the majority of users to never select an upgrade, but this isn’t necessarily a cause for concern. With more users opening your app, there are many ways in which your app can gain free viral advertising. In addition to generating revenue through in-app ads, these users can help increase organic installs through brand awareness and positive word-of-mouth.
4. Making the most of positive reviews
In theory, users will be more likely to give a free app with a quality service a positive review in the app store. This will help your ASO efforts and boost your overall ranking, increasing the number of organic installs generated through your app store rating.
Three examples of freemium apps and their app subscription models
There are several ways mobile apps can use a freemium model, and much of this will depend on your app vertical. Here are three examples of popular freemium apps and their subscription models.
With users on Tinder swiping an estimated 1.6 billion times per day, the popular dating app estimates that this activity results in a million dates every week. The company has also registered 20 billion matches – a figure that can be attributed in part to the dating app’s free access.
Tinder has multiple subscription offers to choose from. Users can download the app, swipe through potential matches and set their age and distance preferences free of charge. However, once a user swipes left (to avoid matching with another user) that profile is gone forever. There is also a limit to the number of Likes a user can perform per day. With these features all free of charge, here’s how Tinder offers several services as upgrades to its dating audiences.
- Tinder Plus is a premium feature that gives users unlimited Likes, the ability to ‘rewind’ to find a previously swiped user, and more “Super Likes”. These are limited Likes that are designed to stand out from regular matches, increasing a user’s chances of matching. Users can also boost their visibility on the app once a month, and have an ad-free experience.
- Tinder Gold offers all of the features as Tinder Plus, with additional access to features such as Likes You – where users can see who has liked them before matching – and Top Picks.
- Tinder Platinum offers even more features to users: Priority Likes, whereby the user’s profile is fast-tracked into a potential match’s stream, and Message Before Match. This allows users to attach a message to their Super Likes.
Spotify has quickly established itself as a music streaming giant, with 286 million monthly active users and 44 percent of its audience using the streaming platform on a daily basis. Spotify also counts 130 million users who have subscribed to their premium service.
Spotify’s freemium version means users can stream over 50 million tracks for free, with ads playing after a set listening time or after a certain number of skipped songs. Users with a subscription gain an ad-free service. Spotify Premium is initially available as a free trial, after which there are different pricing plans for individuals, pairs, families and students.
Spotify’s diverse range of subscription plans is a great example of how to cater for users’ individual needs. This approach pays dividends: Spotify’s quarterly revenue in Q1 2020 stood at $2 billion. Of that total, $1.84 billion was generated by Spotify Premium subscribers.
Health and Fitness: My FitnessPal
MyFitnessPal is a health and fitness app with 180 million users. Last year, the app made $108 million in revenue and $17 million profit. Users can install MyFitnessPal for free to gain access to meal logging, while those interested in a superior service can subscribe to MyFitnessPal Premium for customizable goals, guided fitness plans and more in-depth performance analysis and insights. Subscribers can also export CSV files of their progress and adjust daily calorie goals. The experience for subscribers is ad-free and, according to MyFitnessPal, Premium members are 65 percent more likely to reach their weight loss goal.
How to make a freemium app: Five best practices
Define your KPIs:
Defining your KPIs will help you reach your overall targets faster, and will also help you understand which events should be tracked. Freemium models mean advertising to a large audience, so you may want to consider KPIs such as Cost Per Acquisition Channel (CAC), retention rate and churn. This will help you bring non-paying users back to your user funnel with the hopes of turning them into a paying customer.
Tracking the right events also means you can identify ways to improve your app’s services. For example, if Spotify changed the frequency of their ads per number of songs and noticed an increased churn rate, they can readjust this frequency based on that analysis.
Set a free trial period for your app’s subscription plan
For users, there’s a considerable difference between a free service and a paid service - so offering a free trial is a smart way to bridge the two offerings and let users better understand the benefits of your premium version. Free trials can assure users they are spending their money well while also giving marketers more insight into the number of users who may be interested in subscribing long-term.
Because your freemium model requires a large audience, it’s important to identify ways your app can be adjusted to drive growth - such as opportunities for users to share your brand across their social media channels. If you have a mobile game, for example, you could enable users to share their high score on Facebook, Twitter and Instagram to improve brand awareness and increase organic installs.
Don’t undervalue the free version of your app
Although your goal may be to generate revenue by driving subscriptions, don’t underestimate the importance of your app’s free version. Instead, consider it as an important step in the user funnel. A user will need to appreciate an app’s functionality and UX before commiting to a subscription further down the line. Both your free version and subscription packages should provide a positive experience, with the option to upgrade to something even better.
Closely observing your competitor’s performance as a freemium app is a smart way to learn both pitfalls and successful practices for your app. You should also consider which features are not being offered to users within their free version and subscription packages. From there, you may decide to include certain features in your own free version, offering a more comprehensive service to your competitor’s users.
Grow your subscription business with more accurate data
To make sure you’re investing in the right channels, preventing churn and increasing user LTV, you need to understand the life cycles of your customers and how they’re generating revenue. With subscription tracking solutions from Adjust, you can grow your subscription business with the most accurate data, all in one place.