Why subscription-based app monetization is more relevant than ever
When thinking of the word ‘subscription’, images of video streaming platforms like Netflix or music streaming services like Spotify most likely come to mind. However, this form of app monetization has taken off in recent years across all verticals, from health apps to gaming apps. By 2021, the top 100 subscription-based apps worldwide were raking in a whopping $18.3 billion in revenue. With this undisputable success, subscriptions are projected to continue climbing in 2023, with the economic downturn sharpening the need for multiple revenue streams. But what makes this revenue model so profitable, and is it likely to be sustainable in the long term?
What is a subscription-based app?
Let’s start with the basics. Subscription-based apps are classified as any app that charges users a recurring membership fee. This fee is often charged as a monthly subscription, but can also be weekly, quarterly, or annually depending on the app. Because of this ongoing payment, subscription-based apps are almost always free to download on app stores.
Subscription-based app examples
There are three pricing models that are typically used by subscription-based apps. We’ll take a look at an example of a successful app from each model.
Pay to upgrade
Also known as a freemium model, the core function of the app is accessible for free. Users can then pay to upgrade their experience by accessing additional features, unlocking extra content, or removing the ads that would otherwise bring in revenue for the app developer.
Pay to upgrade in action: Duolingo
Education app Duolingo offers an ad-free experience for users who subscribe to Super Duolingo. Subscribed users also receive a personalized daily practice plan and unlimited hearts and gems.
Pay to use
The app may be free to download, but the core function of the app is not accessible for free. Instead, it must be purchased via a subscription.
Pay to use in action: feel better
Health app feel better lets users browse the food, workouts, and tracks available in-app. However, before the content can be accessed the user must subscribe. This strategy allows the user to see exactly what they will be getting before they sign up. It also facilitates the paywall at a natural point in the user journey.
Pay to save
More common among e-commerce apps, this app is free to use but provides a discount to subscribers on products or service fees, like delivery. Sometimes a bundle subscription is available, allowing membership to multiple apps from the same developer.
Pay to save in action: Amazon
E-commerce app Amazon allows users to save on products, shipping, its video streaming service Amazon Prime, and its music streaming service Amazon Music, as well as access thousands of free e-books when subscribed.
Why are apps subscription-based?
Simply put, companies prefer a subscription-based model because it provides a predictable recurring revenue. However, there are both pros and cons to subscription-based apps – for app developers and app users alike. They can be summarized as follows.
Benefits of a subscription-based model
- Apple’s incentive: App developers who make more than $1 million annually receive 70% of revenue made through the Apple Store, with Apple keeping the remaining 30%. However, this cut is bumped up to 85% for subscriptions that are renewed after the first year.
- Reliable, higher revenue: Not only can app developers more easily predict revenue to improve cash flow, but the revenue brought in by subscriptions is generally higher than other revenue models.
- Ad-free experience: Users can experience an uninterrupted journey without the need for an in-app advertising revenue model.
- Higher engagement: Because users want to get value for their money, they are more likely to stay engaged with your app on a more regular basis.
- Automatic renewals: Subscriptions automatically renewing removes one primary decision point where consumers would otherwise churn. This improves your app’s retention rate.
Downfalls of a subscription-based model
- Need for recurring value: Consistent payments on the user’s end means consistent value added is needed on the developer’s end. If a user is continually paying for the exact same functionality or content they will be more likely to look elsewhere for a free or once-off app purchase alternative.
- Subscription overload: With more apps moving to a subscription model, consumers are paying a higher volume of subscriptions at a time. This makes app users much choosier over where they spend their money, and how much they spend.
- Higher stake reviews: There’s a higher chance of negative reviews or word of mouth with subscription-based apps because users oftentimes review the value they feel they are getting, rather than the app experience alone. If your app was previously free to download and use – or charged a once-off lifetime payment to use – and you are now moving to a subscription model, existing users may understandably be upset. There is also potential for backlash from users who have forgotten about a subscription until it automatically renews, and they are reminded on their bank statement after the fact.
Pave the path to success for your subscription-based app
If you’re looking to create your own subscription-based app, we’ve gathered together our top tips for developers.
- Provide killer onboarding. App onboarding is oftentimes more important for a subscription-based app. This is especially true when using the ‘pay to use’ model. Avoid common pitfalls by exhibiting value before asking for a user to subscribe. If you are using the ‘pay to upgrade’ model, offer a clear exit from your paywall and do not push subscriptions too early in the user journey.
- Show what you’ve got on offer. If you aren’t opting to use the ‘pay to upgrade’ model, make sure you still include a free trial or show the content that will be unlocked when subscribing. A one-week trial is most popular among app subscriptions.
- Tread carefully when making the switch. If your app was previously free to use or required a once-off lifetime payment, make sure you respect your existing customers by clearly communicating the move to subscription-based and allowing them to remain on the previous model as valued customers.
- Choose your pricing model carefully. Your subscription price can make or break your app monetization. Pricing will vary depending on vertical, so begin with competitor research to see how much other apps on the market are charging. Then, take a usage versus pricing matrix into consideration. Lastly, consider how often you will be able to update the content on your app. Less frequent updates should equal a lower price point.
- Demonstrate savings. If you choose the ‘pay to save’ model, do the math for the user and show them exactly how much they can save by subscribing. E-commerce app ASOS does this very well.
- Consider different budgets. Not everyone will be able to afford the same price point. Offering monthly subscription and annual subscription options, with a discount on the larger annual purchase, is an easy way to account for this. On average, apps using this strategy offer a 49% discount on the annual subscription. Health app Down Dog has taken this to the next level by opening a line of communication with users around pricing.
- Measure your subscriptions. Leave the guessing to your competitors. Keep track of what’s working – and what’s not – so that you can confidently and continually optimize to create the best user experience while bringing in more revenue.
It’s clear to see that a subscription-based model can be very successful for apps across all verticals, while also contributing its own unique challenges. Interested in creating your own subscription-based app? Learn more about how Adjust can help your subscription-based app skyrocket to success.
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