In this post, we provide a beginner’s guide to all of the top app monetization strategies, including comparing freemium vs premium, in-app purchase vs paid apps, and subscriptions.
Many eager entrepreneurs and developers choose to create mobile apps because they believe they can make “easy money.”
Although there is plenty of money to be made from mobile apps, it doesn’t come easy. You must have a solid app monetization model in place in order to become profitable. And this revenue strategy should be integral to the app design and development process, not an afterthought.
Here are the pros and cons of some of the most common app monetization methods:
Premium/Paid Apps
The most familiar method to monetize apps is the premium model (a.k.a. paid apps). Under this strategy, the user purchases your app directly from an app store for a one-time fee.
Though this strategy results in a higher average revenue per download, premium is not the most profitable model.
[For more information on which revenue strategies are the most profitable, check out our post on app monetization statistics.]
One problem with paid apps is that, even with plenty of positive reviews, users are unlikely to purchase an app that they can’t try or preview before paying. There is such an abundance of free apps available, why purchase?
Of course, the likelihood users will take the leap and pull the trigger on a paid app depends on your product and audience. The more compelling the content or service you’re offering, the more likely they are to give in to premium apps.
Freemium and Free-to-Play
The freemium strategy (and more recently free-to-play model) has been proven to be the most way effective way to monetize apps.
In the freemium model, users can download an app for free, but they cannot access the full set of features without upgrading to the paid version.
Freemium apps typically make more money than paid apps, but it may take more time to build profits. If users choose to keep using the free app version, you can still earn some revenue by offering upgrades and premium content.
In-App Purchases
Although offering in-app purchases (IAP) is not a stand-alone model to monetize apps, it can be combined with free or paid apps to generate increased revenue. In fact, the dominant business model in the mobile space is currently free apps with in-app purchases.
Keep in mind, however, that in-app purchases are not a guaranteed money-maker. If implemented poorly, they can lead to bad reviews, frustrated users, and customer service nightmares. Consider these potential drawbacks before pursuing this app monetization strategy.
Advertising
Some entrepreneurs choose to make their mobile app completely free by using advertisements to generate revenue.
Like in-app purchases, advertising is a monetization model that is often combined with freemium or free-to-play apps. In general, users are willing to deal with ads in exchange for accessing your service or content at no cost. But this is usually contingent upon the way ads are integrated into the app.
Subscriptions
Subscription apps offer users access to a particular service or content for a weekly, monthly, or annual fee.
Subscription apps haven’t gained the same popularity as other options, but they do offer significant revenue potential. Subscriptions offer the benefit of a steady stream of income, but this model only works well for apps that continually offer fresh content.
Concluding Thoughts
Which method is the best fit for your product? Before choosing an app monetization strategy, make sure you do your homework!
Savvy developers and entrepreneurs design mobile applications after deciding how to monetize in order to build the app to match the revenue model.
Users are not very forgiving when it comes to mobile apps, and you won’t get a second chance to make a first impression. But with a carefully chosen revenue model and an awesome developer, your app could be the next big success story.
