The mobile app market is booming. With approximately 247 billion global app downloads in 2020, it's no surprise that everyone wants to get their hands on a piece of this pie.
Mobile apps are an investment and can take time to grow into something substantial. There are many different ways to generate revenue from an app — choosing one that best suits your needs can be difficult. Let's talk about the most popular models of app revenue generation, how they work, and which one to choose for your business.
There are many app monetization models out there, but we’ll focus on the five most popular app monetization models available for developers:
In the in-app advertising revenue model, app developers display ads inside applications. The advertisers pay the developer every time an ad is displayed. The potential for this mobile app advertising revenue is essentially limitless. If your users spend enough time in your app, advertisers will want to buy the ad space.
For example, even though Instagram is a free social app, they generate revenue from advertising. By delivering highly personalized ads based on data acquired from its users, Instagram’s revenue has been growing rapidly. It’s projected to exceed $18 billion in ad revenue in 2021 in the US alone.
Still, even Instagram can overdo its advertising endeavors. The algorithms are smart at firing highly (and sometimes eerily) accurate ads, but the growing number of ads sparked multiple debates on Reddit and in media outlets. So the key to doing Instagram right is to make the ads feel natural and unique — you want your users to stop and enjoy the storyline of the ad, just as they would the content of someone they follow. And yes, this advice applies to B2B selling as well, both on Instagram and in mobile ads.
In-app purchases are a pricing strategy in which basic services or products are provided for free (or at lower cost) while more advanced services or products require additional payment. The idea behind this is that the company will make up losses by monetizing other features of its service.
When it comes to long-term revenue streams, subscriptions are often the best choice. Oftentimes users are either given free access to a limited amount of features or access to all features for a trial period.
One of the most profitable non-gaming apps that utilizes this model is Tinder. It offers two paid tiers and the option to boost or sponsor your profile.
Freemium is a type of app revenue model that offers an application for free and then generates revenue from in-app purchases. The freemium model has been widely adopted by app developers, as it allows them to distribute their applications for free while still generating significant revenues.
Spotify is a great example of a freemium model. They have a free, ad-supported tier that is available to all app users. If people get tired of ads, the premium tier packs additional features and eliminates ads. Spotify also offers a free 3-month trial for a premium version, which builds a stronger relationship with the product and convinces many to continue paying for the app.
Paid apps, also known as premium apps, are the least used app monetization model. Developers charge users a one-time fee to download the app from the mobile app store. The upside is that it's easier to plan expenses in advance if you know how much revenue is going to be generated from the start of the project. There are rarely any surprises later once users start using the app. The biggest downside is estimating how many users will actually pay for the app.
In a world where we’re bombarded with low-quality digital products, make sure that what you’re trying to sell has a laser-focused target audience, is tested, well designed, and delivers what it promises.
Currently, one of the most successful paid apps is Forest. For a one-time fee of $2,29, Forest gamifies productivity and focus. When users stay in the app for a set period of time, they get to plant a tree — both inside the app and in the real world.
Sponsorships are one of the least known app business models. While online banners or video ads improve brand awareness, they don’t necessarily give the customer anything. Sponsorships, on the other hand, operate on an app monetization model where users receive rewards by completing tasks in the app.
Sweatcoin is doing an amazing job when it comes to creating revenue and engagement through sponsorships. It’s a free step counter app that pays its users a made-up currency (sweat coins) for their steps. Users can use the digital currency on the app’s marketplace and grab discounts or even free products.
To choose a revenue model, first consider why you’re developing an app at all. You also need to know who you're developing your mobile application for. In other words, what is your mobile app's ideal customer persona.
Given that over 90% of apps are free, you might be tempted to go that avenue. However, it all depends on the long-term strategy you have for your app.
For example, you might develop an app for controlling your IoT (internet of things) device with the app being a complementary addition to the paid device. As the app matures and gets more refined, and you’ve attracted enough loyal and invested users, you can start charging for your app. This is especially valid for businesses that want to grow and scale with enough stickiness and financial capacity.
But again, the app monetization advice highly depends on your app and target audience. So it’s best to always start with the customer in mind. Try to talk to a few of your customers about their experience with the app: how much would ads spoil their experience; would they be willing to support your app by paying for it.
More app developers are leaning towards the hybrid model by including several monetization strategies. For instance, your app could be free with ads and an option to remove them via an in-app purchase.
Global mobile app revenues are projected to grow to almost a billion dollars by 2023. However appealing this number may sound, these numbers can be misleading. According to SurveyMonkey Intelligence, the top 200 apps make on average $82,500 daily, whereas the top 8,000 make $3,500.
To be able to predict how much revenue your app could generate focus on the following:
With mobile app advertising, you're able to reach your target audience in a much more personalized way and get them to interact with your brand. It has been 30% more effective than traditional advertising which comes as no surprise since mobile currently represents the majority of digital media consumption.
Here are some statistics about the average in-app CPM (cost per impression) in 2018:
Even though only 52% of users have games on their smartphones, they comprise the biggest category in mobile app stores. Mobile games generate the most revenue accounting for 72.3% of all revenue generation in March 2020.
While non-gaming app revenue is on the rise, it has seen a sharp decrease when giants, such as Netflix and Spotify, stopped offering subscriptions through the app stores. The top revenue-driving non-game apps in 2019 are from the Photo & Video category, followed by Entertainment.
According to a Think with Google report, the pandemic caused a shift in the global mobile gaming trend — users are inclined to play more and continue to spend money on games and watch in-game ads. However, a report by SensorTower shows that smartphone users are expected to spend more on non-gaming mobile apps by 2024.
Still, whichever app type you're developing, make sure that you've done your homework and learned how to market a mobile application.
You don’t have to decide on one monetization strategy and stick with it. If you know your business needs well, then there are a few strategies that work best for different types of businesses. For example, if you sell products online but also offer services or membership perks, consider using both in-app purchases and subscriptions.
A hybrid app monetization strategy can be the perfect solution for a business that doesn’t want to rely on in-app purchases or advertising alone. The financial benefits of this model are unmatched — with so many options available, you can experiment and look for a combination that brings the best result. If you have yet to come up with an app monetization plan, we recommend going hybrid.