Entering the mobile arena benefits companies in a multitude of ways—it creates brand awareness, attracts new customers, and strengthens loyalty. However, mobile apps are not always as profitable as anticipated. A well-thought-out plan, or revenue model, is imperative in order to ensure that an app will yield a positive investment return. Because choosing the wrong strategy can negatively impact app users’ experiences, generating a decent stream of income without compromising the app’s overall quality is an important task. This article explores 7 monetization strategies that, when used creatively and correctly, will guarantee an app’s success in generating positive cash flow.
The commonly adopted “freemium” approach to monetization means users can download an app for free and pay for access to premium, gated features. Freemium strategies may be capacity-based (Dropbox, Evernote), feature-based (Buffer, Skype), or time-based (Spotify, Audible).
Developers should carefully design the app’s free package so that it is attractive enough to acquire a user base, yet limited to the extent that users will have a desire to upgrade. The success of this revenue strategy ultimately lies in the app’s ability to entice free users to upgrade to the premium version of the app by ensuring that the unlocked features will notably benefit and improve the user experience.
Evenflow, a meditation app developed here at Guaraná, was designed according to the freemium revenue model. The free version of the app delivers expertly guided mindfulness-based content on health, career, and relationship topics yet offer a limited amount of sessions. By upgrading to the premium version, users get unlimited access to hundreds of meditations on an even wider range of subjects.
When upgrading, Evenflow users can choose between making a $9.99 monthly subscription, a $6.25 yearly subscription, or a $199 lifetime payment. The flexibility of offering multiple purchase options is an appealing way of incentivizing users to decide to invest in premium features.
Ultimately, this monetization strategy is an easy way to build up a large user base. Furthermore, people who “try before they buy” are more likely to become engaged and loyal users later on.
2. Virtual goods
Virtual goods are in-app purchases that users can make once an app has been downloaded. This monetization strategy tends to be a popular choice among games apps, such as the immensely popular Pokémon Go. Players spend real money on PokéCoins and then exchange the virtual currency for features like power-ups, extra items, and other game enhancements.
In the Mood is a couples’ app recently developed by Guarana that allows users to bond with their significant other. In the Mood users can purchase “hearts” from the in-app store and use them to purchase unique date ideas, stickers, and other surprises for their partner. The store lists 1,000 hearts for $8.99, 700 hearts for $5.99, 300 hearts for $2.99, 200 hearts for $1.99, and 100 hearts for 99 cents.
With this revenue model, app developers should ensure that the in-app purchases are creatively incorporated into the app’s overall functionality and design. Providing goods with clearly-defined value is also an important consideration when considering this model.
Currently, the global market for virtual goods is valued at approximately $15 billion. While App Stores generally take a cut of the revenue for virtual goods, this revenue model is nonetheless a lucrative one. By not grossly interrupting an app user’s experience, virtual goods offer a low amount of risk. Furthermore, this flexible model can also be adapted to include affiliate programs and partnerships that drive additional referral revenue.
3. Paid Download
The paid download strategy is the clearest and most obvious monetization model. Essentially, a user makes a payment to download an app and the app owner receives direct income from the number of app downloads. A benefit to paid apps is that users tend to be more loyal, given that they have made a small investment in their digital product.
Most likely due to the surfacing of new and alternative modernization options over the years, the paid app model has become a rather unpopular monetization strategy. While 75.9% of app revenues were generated through paid downloads in 2013, this figure decreased to a mere 37.8% in 2017.
The success of a paid app depends on persuading users that the app’s functionality surpasses free apps’ offers. This showcasing involves strong marketing and PR efforts to demonstrate that the paid app’s value matches its price tag.
The paid download strategy might, therefore, be a good revenue model for a company bringing a truly innovative and unique product to the app market. Unique and outstanding design, functionality, or brand features incentivize users to pay up. On a similar note, paid applications produced by well-known and trusted software companies to stand a better chance of winning the market. Overall, apps offering undeniable and distinctive benefits to users are most likely to find success with the paid app model.
4. In-App Advertising
With in-app advertising, companies can eliminate the cost barrier (pay per download), making their app more attractive to users. In-app ads can come in a variety of forms from pop-ups to banners to videos offering rewards.
Some ad formats are more effective than others. Banner ads, located at the top or bottom of an app, are often considered more distracting than other ad formats since they sacrifice an app’s screen space and can disrupt a user’s experience on the app. Interstitial ads, inserted at transition points in an app, are popularly chosen among games apps and function like TV commercials. When implemented properly, they can be immensely successful.
Alongside offering virtual goods, In the Mood also has a store tab that allows users to purchase candles, jewelry, and other romantic gift ideas from actual online stores in an Amazon-like fashion. In this win-win setup, store owners gain potential customers from In the Mood’s user base and In the Mood benefits from a cut of purchase profits.
While in-app advertising is an effective monetization method, it can easily sacrifice the overall user experience. Collecting demographic and behavioral data on users can help ensure that ads have at least partial relevance to the user base. Furthermore, matching the ad to the app’s form, function, and feel is important, as smoothly integrated ads aren’t as disruptive to users.
The in-app advertising strategy is the best choice for apps that result in frequent visits or long sessions. The Facebook or Instagram ad model is a successful case study. Ads show up in users’ newsfeeds that are relevantly chosen and minimally intrusive.
A “white label” refers to a fully supported product or service that’s made by one company but sold by another. Because white label products and services are brand-free, a reseller can customize the product with their own unique brand, logo, and identity.
The mobile app development process is time-consuming and expensive, meaning that white-labeling and packaging an app’s structure to sell to other businesses is a quick and easy source of revenue. This monetization model can be beneficial at the very start and bitter end of an app’s lifestyle when the app isn’t receiving proper user acquisition or retention figures.
White-labeling is a mutually beneficial practice, saving customers time and energy while providing a reliable stream of revenue for app developers. An established application that has received positive user feedback and is supported by top-notch code will be sure to profit from white-labeling.
6. Transaction Fees
For apps delivering services or operating as marketplaces, revenue can easily be generated through the charging of transaction fees. This monetization strategy requires simply connecting a resource to demand, handling the transaction, and taking a percentage of the transaction for profit.
FinTech start-ups have successfully taken advantage of transaction fees to generate app revenue. Stripe, the online payments processing startup, is currently valued at 9.2 billion. All of Stripe’s profits are gleaned by charging users small fees for every completed transaction.
The charging of transaction fees is a simple revenue model involving no bothersome need for advertisements or charging a fee upfront. While a smart and obvious strategy for certain apps, excessively high transaction fees can deter users for either monetary or even moral reasons.
GoFundMe, for example, has recently come under attack for its business model, which takes 5% of the total sum of money raised from a user’s personal campaign. As a crowdfunding site commonly used after crises, personal disasters, and the like, GoFundMe’s fee has received criticism for “profiting out of the pockets of those in dire need.” In response, YouCaring has emerged as an alternative, tip-based crowdfunding platform.
7. Data monetization
Data monetization means selling customer data to third parties. Keeping privacy and security laws in mind, there are many legal avenues for applying this strategy. This revenue model is ideal for apps that collect big data on customer habits or preferences since many companies’ products rely on or heavily benefit from insights into what people do and want.
Foursquare is a widely-used and free check-in app that allows users to publicly share their “check-ins” with others. After compiling this information into massive databases, Foursquare sells its data to interested third parties. With data on more than 10 billion check-ins, it’s safe to say that this monetization strategy is a lucrative one for Foursquare.
On a per-user basis, the amount of revenue generated through data monetization is much higher than any other app monetization strategy. While other methods require the user to be in the app for monetization to occur, data monetization allows an app to generate income even from users that haven’t been active for a while. By occurring in the background, data monetization also protects the quality of user experience, as there are no intrusive ads or irritating payments required.
Application development and monetization need to be part of the same overall strategic plan. These 7 tactics and strategies offer successful ways to transform your app into a profit-generating machine.