How To Monetize Mobile Apps
In this article, we’ll talk about app monetization, how to choose the right monetization model, and the types of ads and subscription formats. You also will learn how to assess mobile app monetization efficiency and get a grasp of the major metrics.
How to monetize apps
Mobile app monetization is a set of tools that developers can use to earn revenue based on details of users who have installed the app. The decisive impetus for the mobile app market growth was the development of 4G (LTE), which resulted in an increase in the communication channel bandwidth and mobile Internet connection speed (hello from Japan and South Korea who already enjoy 5G).
By 2020, the number of app installs had reached 216 million (for comparison, it was 140 million in 2016.) During the lockdown, the time people spent in apps increased to 87% compared to 13% time spent online, and the numbers keep growing, which, in turn, will result in more money spent in apps.
iOS users spent over $72 billion and Android users spent over $38 billion in apps. Gaming app developers made the greatest profits. Do you find these figures convincing? Well, we describe in detail below how to monetize your app right.
Ways to monetize mobile apps
Right now, there are five major types of monetization: paid (Premium) apps, apps with subscriptions, Freemium apps (free apps with basic functionality), Free-to-Play games (with in-app purchases), and apps with ads.
We touched upon the topic of the major monetization types for free apps like In App Ads (IAA) and In App Purchases (IAP) in this article. Now let’s talk about paid apps and how to monetize them.
At the dawn of mobile apps for both iOS and Android (2007-2008), in-app purchases were almost the only source of revenue for developers. Revenue used to depend on installs only. As apps grew in number, competition grew too, prompting developers to improve their apps in order to win over more users.
Today, the average cost of an app is $3 to $5. As a rule, apps offering exclusive content and functionality remained paid. For example, the Top 3 premium apps for Android and iOS are intended for tracking DPS cameras and radars.
Paying for an app also means no ads, but today’s consumers find it more comfortable to spend $1 to remove ads than $5 to buy an app that doesn’t have any ads at all. Anyway, if you’ve decided to offer a premium app, make sure you do some research on the competition in your field to get the best prices for the feature set you’re going to provide.
If an app is monetized through a subscription, it offers some functionality available for a certain period of time (one month, one year, or a lifetime.) Today, the profitability of this type of monetization is 2-3 times higher per user and 50% higher compared to apps that use in-app purchases. By the way, in 2017 Apple, and then Google, cut subscription fees for developers in half. This means that both of them take interest in this type of monetization.
- Low subscription costs for the first 2-3 months may attract users (ivi, Okko, Netflix and many other services do that) and increase customer trust before the first purchase, which, in turn, increases user loyalty.
- Customers find it more comfortable to pay several smaller amounts from time to time than make a one-time, larger payment, which increases their LTV.
- ‘You can unsubscribe at any time’ sounds more convincing than ‘If you don’t like it, we’ll refund your money.’ In 2020, vc.ru published a translated version of a study concerning various categories of apps that use subscriptions as a monetization model — one might say, instructions for use, albeit based on data from the US AppStore.
By subscribing to a certain plan, users may enjoy the corresponding functionality. Everything is simple — the more expensive the subscription, the wider the functionality, but it depends. For example, along with monthly and annual subscriptions, Apple offers a free trial for a month: Pay As You Go and Pay Up Front.
The Pay As You Go subscription type offers a low cost in the first month of use with an increase in monthly fees that come after. Pay Up Front gives you a discount on long-term subscriptions if you make a one-time payment. You can cancel your subscription through iOS settings, in AppStore, or by sending a request to Apple support.
Along with in-app subscriptions, Google introduced Google Play Pass in 2020, which provides access to a set of games and apps without any ads or in-app purchases. If you opt to pay for 12 months up front Play Pass typically costs $4.99 per month, but the new annual subscription will cost $29.99 in the US. You can cancel or freeze Google Play Pass and in-app subscriptions on PlayMarket under My Subscriptions.
Regardless of the subscription type that you want to implement in your app, there are four aspects to consider.
- Arrange profound welcoming for new users. It’s important to explain how your app works, as well as what users will get by subscribing. Stay away from reminding them of the subscription every day — it is enough to do it once a week for new users and once a month for those who use your app for a longer time.
- Decide on time and conditions of a free trial. They may depend on your app type. It can be a month of using either all app functionality or several features only. For example, a news app can have a limited number of publications available for reading. Once the limit has been reached, the user can be asked to subscribe.
- Offer discounts on package proposals. Users are more likely to pay for a discounted annual subscription than a shorter-term one with a higher cost.
- Pay attention to stay on good terms with users. Improve your product, introduce innovations, and communicate them right. The more attention you pay to users, the higher their loyalty, and loyalty means revenue.
The name suggests that this type of monetization is most often used in gaming apps. F2P is free app monetization through in-app purchases. On the one hand, developers should carefully consider what in-app purchases will be in their games and at what level they should be offered; on the other hand, large investments are not required at the start.
Your app can have 20% to 50% of the planned content at the time of release. As the audience grows, developers can add new content while fixing bugs. The free content percentage can be up to 90%.
Two principal rules for F2P apps
- Users should get instant gratification after installing your game. In a highly competitive environment, developers’ goal is to make an app interesting and retain players from the very first minute. Onboarding should take as little time as possible. The game interface should be as simple and convenient as possible, so that users make as few steps as possible before they start playing. A complicated sign in or setup process is the most common reason for abandoning an app.
- Frequency of app use can be increased with extensive gameplay. Users will come back over and over again, increasing the chance of a purchase. Sooner or later, the moment will come when the player won’t be able to do without your app, which means it will be easier for them to part with their money in order to continue to enjoy the game. According to Localytics, the percentage of those who make a purchase doubles after they login to the app for the tenth time and further on.
Differences between Freemium and Free-to-Play
The Freemium model, unlike F2P, leaves no chance for the user. Purchase is a prerequisite for using the full app version. Users have only limited functionality, the so-called demo version, while premium functionality is available after they purchase the app. On the one hand, this is an advantage because of an opportunity to study the demand. On the other hand, there are drawbacks — some people will find the demo version enough and won’t let you earn revenue. The developer’s goal in this case is to create a product that users would be willing to pay for after the free trial. The user’s goal is to try several apps for free and choose the best one. The number of users is the key to success in this model, despite the fact that, according to statistics, only 6% of users who install the app buy the premium version. The larger your audience, the higher your revenue from that 6%.
Developers who succeeded with this type of monetization claim that the keys to their success were:
- app simplicity (easy to install and use);
- app benefits (to buy the premium version, users should understand why they need it);
- user engagement, which, in turn, makes the product go viral. The more viral the product, the more users will want to share it.
Keeping users in mind is a key factor in successful monetization of such apps. Developers should be patient, as this monetization model is profitable in the long run. But one thing is for sure: the customers whom you manage to retain will remain loyal, if not forever, then for a very long time.
Big 5 Freemium features
- App usage limit. A free app always has a limit like number of hours, free features, or content. Examples: NYTimes, Dropbox.
- Additional functionality. Fee for virtual items, process acceleration, content, add-ons, improvements, services, and enhancements. Examples: Clash Royal, Line, Skype.
- A combination of several methods. Examples: Spotify (functionality and user experience)
- Free trial. Full functionality for a limited time. Once the time is up, a fee will be charged for the full version. Examples: Netflix, The Wall Street Journal.
- User impressions. Free app with ads that can be disabled against payment (more likely F2P) or installing the paid version.
61% of app publishers / developers use the functionality method. Of these, 75% use it in gaming apps, and 54% in apps not related to gaming. The most promising, especially for non-gaming apps, is a combination of several methods, because, with user information to the extent that is characteristic of Freemium apps, you can retain loyalty by studying how users react when certain methods are introduced.
Types of in-app purchases
In-app purchases come in two types: consumable and non-consumable products.
These are items that can be bought and re-bought. Example: content (designs, ‘power’, coins) and quality of life (extra attempts, leveling up). Depending on the country and audience for whom your app is designed, a set of items may differ.
For example, in Asia, in-game power sells well, while in Europe and America, buying power is perceived as a deception but good designs are quite popular. Japan has its own kind of product, the so-called gacha, or a lottery. By buying it, users receive a random item.
How to increase consumable IAP
The more people buy, the greater their chance of winning something really special. Don’t be limited to one product — offer a set of products with a discount. These may be the items that players buy the most. Such a set can include rare items. After trying them out, users may want to buy them.
Whatever product you offer, give it an outstanding, memorable name and description, and pay attention to visual design. Create a store in your app so that, first of all, it would be convenient for the players to choose the products they need in a standalone environment, and, secondly, so that you have the opportunity to replenish your store with new products as your app develops, and monitor sales statistics.
You can stimulate sales not only with vivid product descriptions, but also by limiting the time for decision-making. For example, you can set a period of time during which you offer a discount or a rare item.
Non-consumable, or durable products
These are products that users buy once and forever. For this type of monetization to work successfully, it is important to keep in mind the price of in-app purchases as it must be competitive and adequate.
Types of non-consumable products in mobile apps
Personalized items (ability to name an item or personalize its design).
Option to disable ads if, along with in-app purchases, the app uses ads as a way to monetize. If the app has a lot of installs and a stable user base, you can offer real-life merch (owners of AngryBirds, for example, sell T-shirts, backpacks, and other goods with their unique symbols).
Important to know! A new user is more likely to abandon a purchase at the start than after a week of using the app. And, last but not least, the purchase should not become a necessity. Buying in a F2P app is an addition, not a prerequisite.
Maybe this one is the most efficient mobile app monetization strategy. Why? The trend of increase in time spent in apps has resulted in an increase in advertising budgets that large companies are willing to spend on promoting their products in apps. Apps can provide data about the habits and preferences of customers, based on which the advertisers can promote better. The only thing developers need to do is configure ads in their apps properly so as not to scare away either customers or advertisers.
Types of ads in mobile apps
This is an ad image displayed in a certain part of the screen that does not cover the main content. Depending on ad banner size and placing, there are 3 types of ad banners:
- standard banner (rectangular ad unit of fixed sizes 320×50, 320×250, 320×100);
- smart banner (adjusts to the screen width and has a fixed height);
- adaptive banner (adjusts to the screen resolution).
Advantages of ad banners include easy implementation, while disadvantages include lack of options to display more information, and so-called ‘banner blindness’, which is now very common in users who get used to where ad banners are placed, and simply stop paying attention to them.
This format is starting to generate more revenue for developers compared to other types of advertising, so you may want to pay close attention to it.
The main advantage of native advertising is its visual side and options to adjust to the app interface. Ads can look like photos, videos, social media articles (In-Feed Social), or news (In-Feed Content). In a shopping app, native ads will look like an In-Feed Product. Of course, after some time, users will start to notice the ads, so to avoid users being annoyed, the ad content should be really useful and valuable.
Interstitial full-screen ads
Ads of this type usually appear in between app screens. Users can close them on the spot or watch them to the end, and sometimes they should wait (usually 5 seconds). Interstitial advertising allows advertisers to place a large amount of content like static images, videos, or animated images. Such ads won’t go unnoticed, but this does not mean that they will retain and increase user loyalty. Therefore, make sure you adjust their display frequency right.
Types of video ads in apps
- Rewarded videos
Users receive a reward for watching a video. This type of video advertising is very common in gaming apps where players can receive in-game bonuses like extra lives, attempts, or hints. It happens that players are ready to view such ads several times in a row. Rewarded videos can also be used in non-gaming apps — the main thing is to understand how you can reward the users.
When using this type of advertising, developers should pay attention to several nuances.
- The videos should not be more than 30 seconds long. Otherwise, the users won’t want to rewatch them.
- Don’t embed the ads in every app section so as not to cause a bad response.
- Usually, such ads have sound, so the app section should have no sounds.
- The user should understand that the video they’re watching is an ad (label your video with the Ad icon), and indicate terms and conditions for remuneration.
- The remuneration cannot be physical in nature.
- Playable ads
This type of video ads has gotten popular quite recently. Those are ads that you can play. They last 1 minute at most, allowing the user to get acquainted with app features and decide whether to install it or not.
A good mini-game has 3 components: a how-to-play instruction, a short game demo, and a call to action (CTA). The game snippet can replay the best moments once the player has bought the game and unlocked everything. In non-gaming apps, a mini-game can, for example, offer several filters to process a photo.
If users like the game, they should get to know how to install it. Usually, at the end of a mini-game, the user sees ‘load game’ or “stay in app” buttons on their screens. This type of advertising is more effective because the user can clearly see the merits of the app before they install it. Of course, this advertising is expensive, but user engagement is much higher and user churn is lower.
A good example would be BurgerKing when promoting a new product. They asked users to assemble a new burger in a minute from the ingredients that fell down the screen. Those who succeeded received an exclusive discount. In the first two weeks, 300,000 people tried the mini-game, and the CTR was more than 40%, compared to the usual rate of 2%.
Advertising networks will allow you to correctly set up ads in the app. They can be both highly specialized — that is, dealing only with video advertising – and universal. There are ad networks operating only in the Asian market.
Depending on geography and profile, ad networks can use the following methods for evaluating ad campaigns:
- CPA (cost per action);
- CPI (cost per install);
- CPC (cost per click);
- CPM (cost per millenium, that is per 1000 views);
- CPV / CPVC (cost per video/completed).
This rating of mobile monetization platforms can help you choose the most suitable monetization model based on your app type and audience.
How to choose a monetization model
You may want to study your audience first and then think about which monetization model is best for you. Also, you can always try different models or use several at once. Combining models is a great strategy.
It is also important to understand that sometimes you will not be able to get immediate profit, so a long-term strategy and, accordingly, a gradual increase in income is suitable here.
Advertising is one of the most flexible sources of income, but sometimes you can just scare the user away. Be sure to think over the ad format and its appropriateness.
How to track app monetization success?
App developers often wonder how to measure the success of app monetization. To find this out, companies typically track overall performance metrics such as installs, subscriptions, active user retention, and more.
However, the number of installs is not the only metric to track the success of your app. At the end of the day, all you need to know is if your app brings revenue. Take a look at the metrics in the next section and rate the ones that are right for your business.
Useful metrics for mobile app promotion
App monetization trends
There is no doubt that the global mobile app market is growing. According to Allied Market Research, it is expected to have grown by over $400 billion by 2026.
Based on the report, we can see three main trends in app monetization for 2021 and beyond: targeted ads, subscriptions being the new normal, and virtual products.
- Targeted ads. Personalization has become a major trend in recent years. Relevant ads provide maximum engagement. That’s why most mobile apps use AI algorithms and services to display relevant ads.
- Subscriptions being the new normal. Netflix, Prime Video, and gaming apps lead the way in terms of subscription and update models.
- Virtual products. Updates and game packs can be purchased in apps.
Conclusion: App monetization
The mobile app market is constantly evolving, and monetization strategies are evolving along with it. Developers could make money just from app purchases earlier on, but today the competition is too high — that’s why you may want to combine different strategies. For example, develop a paid game and provide the users with unique bonuses if they watch video ads. Or (and that’s very common) release a free game with in-app purchases and insert ads in it. The more monetization options you combine, the higher your chance of success. It’s important to develop a strategy for monetizing your app along with app development, and not after. This affects app quality and retains user interest.