App monetization models are critical to the success of your mobile app. Whether you have developed a paid app or an app that can be installed for free, you need to develop a monetization strategy that satisfies your users while ensuring your company is profitable. For example, news apps are better suited to subscription services and gated content while gaming apps can profit from in-app purchases. In this article, we will cover everything you need to know about how to monetize your app, sharing different app monetization models and definitions for essential terms.
How to monetize your app: Where to begin
According to Business of Apps, free apps make up 90% of those available in the App Store and 95% of all Google Play Store apps. When analyzing the best ways to employ app monetization models, it’s important to consider your user journey and how the overall experience will be affected. Choosing to monetize in ways that frustrate users will lead to a poor reputation and an increase in churned users.
Discovering which monetization methods are best suited for your mobile app can be a complicated process but it’s also a critical step in your journey to profitability. Below you will find several of the available monetization methods, how they work and how you can use them to reach your company goals.
Developing your strategy: Popular app monetization models
Offering your users opportunities to make in-app purchases is a great way to monetize your app. If your product is free, like 95% of all Google Play Store offerings, in-app purchases offer an unobtrusive monetization method that can enhance the user experience. Take mobile gaming phenomenon Pokemon GO, for example. The app’s in-game shop allows users to purchase Premium Items using PokéCoins. “Trainers” that frequently use the app can earn up to 50 PokéCoins per day or they can purchase PokéCoins using real money through the user’s preferred app store. According to Pocket Gamer, Niantic’s Pokemon Go made over $2 billion through in-app purchases within two years of the app’s launch.
Before making in-app purchases available to your users, consider ways in which you can enhance the user experience. The best in-app purchases will also reduce churn because of the additional benefits gained by the user. With this in mind, it is worth your time to find the right balance between a great free app and affordable benefits via in-app purchases.
In-app purchases: consumables vs. non-consumables
When determining your in-app purchase options, you must know the difference between consumables and non-consumables. The difference between these two in-app purchases is that consumables are temporary and limited while non-consumables only need to be purchased once. For example, in-game currency such as Pokecoins are consumables while paying to unlock a gaming level is a non-consumable purchase.
3 ways to optimize your in-app purchases set up
- Pre-planning your in-app purchase model will save resources further down the line. By considering your in-app purchases during the development stage you can lay out the roadmap your app needs to successfully monetize with this model.
- Your in-app purchases’ name and description is critical. This is a branding opportunity that will make your monetization model more engaging – so be sure to consider ways in which you can include creative copy that is unique to your brand.
- Consider implementing bundle offers. This enables users to purchase multiple in-app items at a cheaper rate. Some users will prefer to spend more for a better deal, so don’t lose out on these opportunities to boost ROI.
How mobile marketing automation can help
You can use mobile marketing automation to encourage users to move down the user funnel and spend money inside your app. This can also be done by automating push notifications, emails and in-app messages.
Even if your app is free to download, you can monetize your mobile app by offering a subscription service to your users. This enables you to offer a different experience to paying users and those using your freemium service.
When setting up a subscription package for your mobile app, you aren’t limited to an all-or-nothing approach. Depending on your app’s offering, it may be smarter to set up multiple subscription packages with different levels of value. For example, you may want to offer a free service, a basic subscription, and a premium service for different types of users. This is a model used by leading dating app, Tinder. Although the app is free to download, Tinder also offers Tinder Plus and Tinder Gold. Here’s how its subscription service works for different users:
- User without a subscription: These users can download the app for free but also have a limited number of Likes and Super Likes.
- User with Tinder Plus: These users have unlimited Likes, can rewind their last swipe, can swipe up to 5 Super Likes per day and have Passport — allowing them to view potential matches outside of their current location. These users can also use Tinder without being exposed to ads.
- User with Tinder Gold: In addition to the benefits above, these users have exclusive access to the dating app’s Likes You and Top Picks features.
These subscriptions are also available to purchase for 12 months, six months or one month.
This model ensures that the app is generating revenue from all users: while most users will generate revenue by viewing ads, Plus and Gold users generate revenue through their subscription. This can satisfy different user types because they are given a fair choice — to pay for your service or be exposed to ads.
Monetize your app with ads
The most common way to monetize your mobile apps is by running in-app ads. This method offers a valuable source of revenue for apps that want to remain free in the app store. However, if you’re going to be running ads in your mobile app, you have to learn the industry’s terminology and how to approach advertising monetization.
There are three types of ad revenue: Cost per Thousand Impressions (CPM), Cost per Click (CPC) and Cost per Action (CPA). To avoid common pitfalls you also need to ask critical questions before running in-app ads. For example, ads that don’t align with your brand can damage your reputation. Slow, inefficient ads can ruin the user experience, frustrate your users and fail to deliver satisfactory conversion rates for the advertiser. However, 78% of consumers will happily accept mobile advertising that is relevant to their interests, so these pitfalls are avoidable by offering the right formats and working with relevant advertisers.
6 ad formats you should consider implementing in your app
Banner ads: This relatively simple ad format enables advertisers to place static or animated ads across a banner within your app. Quality graphics and the advertiser’s call to action (CTA) are critical for banner ads.
Interstitial ads: This format is similar to banner ads but with the additional benefit of an expanding, full-screen experience. For this reason, interstitial ads are more likely to avoid “banner blindness” – where users have become so used to banner ads that they aren’t registered by users. Interstitial ads also give advertisers an opportunity to share full-screen videos and store locators.
The possibility to take up a user’s full screen can be disruptive. It is therefore essential that these ads are placed at natural pauses, such as in-between levels of a gaming app.
Native ads: These are paid ads that are designed to match the mobile app’s user experience. For example, take a look at this native ad for online retailer Very, which has been designed to fit within a selection of user-created content on Pinterest.
Because native ads are less disruptive, this ad format becomes more popular year over year. In fact, native ads receive 53% more views than traditional display ads and increases purchase intent by 18%.
When running native ads in your app, you can help advertisers by letting them know about the user behavior specific to your app. For example, how important is sound to your app? While more than 65% of Snapchat users view video with audio, only 15% of Facebook and Instagram users have audio on while active. The audio of native ads on Snapchat is therefore of higher concern than when advertising on Facebook.
- Video ads: Video ads are another popular choice because they can be highly engaging and deliver some of the highest CTRs of all formats. eMarketer believes U.S. mobile video ad spending will reach $24.81 billion by 2022, attributing the increasing spend to the fact that users’ time watching mobile video is creeping upwards.
- Rewarded video ads: You can also enhance the appeal of video ads by rewarding users for finishing a video. Known as rewarded ads, video ad network Unity Ads called this monetization method the “hottest revenue generator” on the market. A study by OpenX also found that 77% of users would watch a 30-second ad if they were rewarded with a discount from a retailer.
- Playable ads: These ads are a try before you buy method that exposes users to interactive gameplay. Users gain a limited look at the advertiser’s app before sending a call-to-action. This is a great way for advertisers to reduce uninstall rates because paid users will have a strong impression of the game’s user experience.
Sponsorships and partnerships
Also known as influencer marketing, sponsors and partnerships can be an effective way to monetize your mobile app. If you have a large user base or have built an audience in a particular niche, brands may be interested in using your mobile app to connect with their target audiences.
Exposing your users to sponsors and trusted partners can be a win-win scenario. Not only can you monetize your app, but you are also connecting your users to a brand they may find useful. For example, if you have a cooking app for vegetarians, you can work with partners that share those values — giving users a valuable recommendation while generating brand awareness.
For best results, use multiple monetization methods
To ensure you are generating the most revenue possible without disrupting the user experience, you need to develop an overall strategy that includes more than one of the techniques discussed in this article. Running ads while also offering users the option to pay for an ad-free experience is a great example of how two monetization methods can be extremely effective.
For more insights into monetization, read our guide for attribution and the economics of mobile marketing. You may also be interested in “How to streamline the user funnel and boost sales with social commerce trends in 2020” and “Everything you need to know about A/B testing for mobile apps.”