Part 1: How Does Your App Make Money?
What is a mobile app to you or your company? For users it is a simplified means to receive a service, complete a task, find an answer or simply be entertained. But for the company it’s an opportunity to acquire new customers and generate sustainable revenue but let’s be honest, it’s also a war zone of fickle customers, ruthless competitors and an ever-evolving landscape to somehow navigate your way through. The demand side economy at its finest.
Everything is focused around balancing the revenue the app makes with its ability to acquire & retain customers – Comprehension of the intricacies of these two fundamentals will lead to the success or failure in a notoriously exciting yet volatile industry.
So you have an idea, you know that it solves a fundamental problem and you know that people are willing to pay you to solve that problem but making sure that money gets to you whilst gaining and retaining users, well that’s the game and I hope this gives you a sniff of victory.
Lookout for Part 2 where we detail the latest mobile techniques used in user retention and engagement.
7 App monetization strategies
1. In-App Advertising
The app is free to download therefore encouraging a high adoption rate by users. The more users that app can attract and retain, the more user data the app can organize and filter into valuable information and sell on. A large user base, with data to prove there is a viable reason to sell adverts will encourage a steady revenue stream. In-App advertising is the most popular mobile monetization method and must be carefully timed and planned to avoid a high user turnover/drop-off rate due to flooded and poor quality advertisements.
2. Freemium (Gated Features)
‘Free plus Premium’ Apps are downloadable for free and let users explore the rich features and functionality that the app offers but limits their excitement to the features that encourage retention (Daily use if possible). To get the premium/full experience users can pay for additional features and this is where the value lies. Once again user retention strategies will be pivotal to monetization of these gated features.
3. Paid Apps
It has taken a massive knock over the last while but the upfront payment model has its benefits – Exactly that, you get money upfront. Getting users to pay for your app is not easy but paid apps do have a premium element to them. Building a strong case for users to download this app must be done by providing excellent screenshots, user reviews, branding etc. Failure to do this will send users to a viable free option (With a smarter monetization model). Once paid, users do tend to use your app seen as they have forked out for your feature set and you probably won’t have to flood your app with advertising to bring in revenue.
4. In-App Purchases
Your app provides a service and users then pay for it through the app.. In this instance the app is really an enabler of a far more important ‘behind the scenes’ business model, the goal with this model is to ensure recurring service opportunities (therefore users) and a frictionless payment method for users. In-App purchases usually carry the highest profit margins and flexibility in the product offering therefore optimizing your CLV (Customer Lifetime Value)
Users can get the app for free and explore a basic feature set (similar to freemium) but you will need to pay monthly to receive the full application services. Subscriptions, otherwise known as Paywalls, are an extremely successful business model because it hits the revenue and user retention fundamentals. The model normally focuses around content distribution (As opposed to features in the freemium model) and access to premium content for users willing to pay. At the end of the day it is access to better information that justifies our daily decisions and opinions, so on average Paywalls have received top spot for app monetization models over the past few years.
6. Incentivized Advertising
Once again, free to download. This model requires partnerships with various advertisers who incentivize users to complete various actions by providing redeemable rewards upon completion. Advertisers fund the rewards and users keep coming back to receive the rewards, so the model is fairly self-sufficient – Look out for more of these going forward, it is an exciting model with allot of scope.
A blended approach will incorporate a healthy mix of the 6 most frequent monetization models. Incentivized with paid, Freemium with In-App Advertising, In-App purchases with In-App Adverting, there are a number of very profitable strategies to blend at different growth stages of your company. Flooding your app with monetization techniques may be detrimental to user engagement so be sure to incorporate a healthy yet watertight balance of revenue to user engagement.
Examples: SnapChat (Incentivised & In-App Purchases)
Beware, Apple will take 30% on Paid, In-App Sales and Subscriptions but we will discuss smart techniques to avoid that in upcoming weekly blog posts.
With all the monetization models used in the market it is important to remain innovative, to make use of the knowledge about your customer and blend and test all possible models to ensure a consistent and sustainable source of revenue for your app.
At SovTech, we help businesses and teams optimize business model strategy in the mobile environment – For more info on mobile app development and detailed monetization strategies for your app visit www.SovTech.co.za or email andrew@SovTech.co.za