Understanding App Monetization Strategies

Before starting any mobile app development project, it is important to understand the various monetization strategies available and pick the right one. Mobile app development projects are major undertakings and thus it is important to have revenue projections to complete and sustain the app in its lifetime.

Your app monetization strategy is the chosen method of generating revenue. Users are increasingly less willing to pay an upfront fee to download an app. In fact, less than 5% of all apps on Google Play and the iOS App Store have an upfront purchase fee. Therefore, developers are increasingly required to come up with viable ways to fund the building, maintenance, and continuous development of mobile applications.

In this article, we highlight traditional and emerging monetization strategies for mobile apps as well as important considerations when settling on each.

Freemium Model

A majority of mobile apps today operate on a freemium model where users can access a basic version of the app for free. The users have the option to make in-app purchases to access premium features. The main advantage is that the apps can attract a large user base whom they can target as potential paying customers. The conversion is likely to be high because these people already understand how the app works.

You may contrast this approach with one where money is used to advertise the app to people without the option of trying out the app for free. It might be better to sink some money into maintaining non-paying customers.  Still, a dilemma lies in finding the right balance of features to avail on the freemium tier and what to keep exclusive to premium customers.

Types of In-app Purchases

Over time, businesses have figured out different ways to raise money through in-app purchases. This largely depends on the nature of the business, but gaming apps are perhaps the pioneers in this field.

Consumables

These are limited purchases in mobile games that allow users to access things such as new lives, additional strengths for their characters, or any other feature built by the development team. Most games today have their in-game currencies which customers can earn while playing or through such purchases.

Non-Consumables

These are in-game purchases that users only need to make once, such as unlocking a level in a game.

Multi-Level Subscriptions

In this model, users pay a recurring revenue, often monthly, to access features they otherwise would not on the free tier. Besides additional features, they are also likely to enjoy an ad-free, hence smoother experience of the app. Paying subscribers may also have exclusive access to technical support in case of any issues while using the app.

Music and video streaming services such as Spotify, Apple Music, and YouTube are great examples of this model. The nature of the service they offer is such that is makes a lot of sense for people to pay for an ad-free experience. For instance, in 2019, it was claimed that Spotify was reaching a 46% conversion rate of free to premium users in some markets.

In many cases, customers set up automatic renewal of the services. This means that once a customer becomes a paying subscriber, the company can project with a level of certainty how long they are likely to stay on that tier.

If your business is considering using any of these strategies, it is important to build a good roadmap to keep customers happy. For example, gaming companies have to continually build new features and experiences for gaming enthusiasts to keep selling consumables. Subscription-based businesses must maintain a smooth experience for users and avail new content to minimize customer churn rate.

Advertising Model

The other most widely used model to keep apps profitable is through ads. Ads on websites were a popular model to monetize news websites and blogs before the smartphone revolution. Naturally, ads found their way into mobile apps. Today, ads are implemented in multiple ways to increase click-through rate.

Banner ads

In this approach, mobile app users are shown ads relevant to them based on factors such as demographics and location. In many cases, these banner ads are used to promote other apps.

For advertisers, banner ads are a non-expensive way to reach a large audience. However, the visibility comes with a low click-through rate, sometimes as low as 0.1%. There has been a new term coined in the digital advertising industry called ‘banner blindness’. It is the conscious or unconscious choice to ignore banner ads on websites and mobile apps. It has led to the need for and popularity of more native ads on mobile apps.

Interstitial Ads

These are ads the cover the entire screen as opposed to just a section like banners do. They are best placed at transition points in the user journey. For instance, an ad might appear between levels in a game. These ads have a much higher engagement rate than an ads which is good for advertisers. They also have a higher revenue-earning potential  (CPM rates).

If these ads become too intrusive in user journeys, they might lead to an app being penalised by Google or the App Store. There are guidelines publishers ought to follow on proper ad promotion.

Native Ads

Native ads are now a popular format of advertising on social media applications such as Instagram and Tiktok. Ads are displayed on a user’s social media feed as natural content would be. The effect is that ads feel less intrusive leading to greater interaction. Social media companies already have data on user profiles. They can therefore display the most relevant ads and content at the same time.  This may, in fact, enhance a user’s experience of the app.

Native ads are complex to implement properly into an app. A small mobile app project may not be suited for native ads. You would also need a large user base with lots of data on users to enable proper targeting.

Sponsorships

Sponsorship is a unique approach to monetization which involves finding partners whose brands align with your content and users. You promote and integrate their brand within your app content in return for a fee. If you have a strong user community, many brands will want exclusive access to your audience.

Subway is an example of a major brand that has taken this route to advertise itself to a gaming app community. They partnered with a gaming app called Preplay football around the Superbowl season when user activity on the app is likely to peak.

There should be an organic connection between the target audience and the brand being promoted to have a consequential effect. In fact, it may be important that the values of such a brand be in line with those of the brand.

Sponsorships present opportunities to develop new synergies between brands and partnerships can last for years. For instance, a gaming app that has characters can use storylines, mentions, placements, and many other things to increase the visibility of a partner brand. Similarly,  fashion brands with their own e-commerce apps can engage in collaborations and cross-promotion activities.

Affiliate Programs

Affiliate programs present an opportunity for smaller app developers and owners to promote other apps for a commission. The revenue expected from this model is not high and would ordinarily be used alongside other monetization methods.

While picking brands to promote as affiliates in your app, it may be important to research their reputation. It may be necessary to give a disclaimer if you cannot vouch for the quality of goods or services they offer.

Crowdfunding Monetization Strategies

Crowdfunding is a fundraising method for niche apps in their early stages. Using platforms such as Kickstart and GoFundMe, apps that are looking to solve a unique problem can leverage their user communities to develop implement a roadmap. While this sounds easy, the truth is that thousands of apps are competing for such funding. Getting user attention is quite difficult. However, if successful, a strong community almost guarantees long-term success.

Best Practices in App Monetization

It is important to appreciate that the success of an app relies heavily on many factors beyond your control, including luck and correct timing. There are apps that go viral quickly after launch while others are sleepers. Still, some best practices are likely to help in the monetization journey.

Prioritize User Experience

While the need to maximize revenue through ads is understandable, you must ensure that the implementation results in minimal disruption in the user journey. Pick the right format between banner ads, interstitial ads, and native ads. Poor ad implementation can result in the failure of an otherwise valuable app. Users have an ongoing debate about whether they can put up with the ads or whether to switch to an alternative app.

Use Multiple Monetization Methods

By studying trends in user behavior, it is possible to take advantage of more than one monetization method. For instance, you can use both banner ads and affiliate marketing on a content-heavy app. Sponsorship revenue is a popular secondary way of generating revenue for apps that have reached or are approaching a maturity stage in their lifecycle.

Pay Attention to Analytics

Relying on statistics to objectively understand different aspects of your monetization strategy is important. Such things as geographical location, demographic factors, and in-app behavior can unlock insights that can unveil new ways to generate revenue.

SMS Marketing and Email Marketing

Access to user information such as mobile numbers and email addresses is substantial in marketing. Through SMS marketing, you can extend current and upcoming offers on in-app purchases to your users. SMS are powerful because they allow you to reach offline users who may not have logged into your app for a while. This can contribute to a decrease in your churn rate.

With email marketing, you can send personalized offers quickly, with the necessary branding and a call-to-action button. You can quickly speed up the buying process, especially with products and services that have an authentic connection with customers.

Considerations When Choosing Monetization Strategies

The choice of a monetization model for your app will depend on a cocktail of several things. First, the nature of your app will dictate whether certain monetization strategies are viable. For instance, people may not be will not be willing to pay a subscription for an entertainment news app. However, people might be willing to pay a premium to read expert opinions and analysis in the business world.

Your competitor’s actions can influence your monetization strategy. For instance, if a competitor offers more value on the free tier of their service, this might force your hand.  However, customer loyalty may work in your advantage if their demand is price inelastic.

Work with NS804

There are many more things to keep in mind when doing business analysis work before an app development project. An experienced app development company would help paint a clearer picture of what to expect, especially if they have domain knowledge in your industry.

At NS804, our team brings many years of experience from building projects for clients in different industries. We can help hypothesize, build, test, and implement clear monetization strategies for your app. For more information and a discussion on your project, schedule a conversation with us through our website.