If you own or have developed a mobile app, you’ve probably thought about how to make money with it.
And if you haven’t, you should. Because there are more ways than one, and they can be easy to implement.
This guide will help you get the most out of your app, whether it is stand-alone or part of a larger business.
What is Mobile App Monetization?
Mobile app monetization means generating revenue from your app. We will explain different ways to do this. But know that different apps will benefit from different monetization strategies.
Why You Should Monetize Your App
Of course, your business may have a free app as a perk or a marketing tool. Think restaurant or airline apps, for example. In those cases, your business generates its revenue elsewhere and the app is merely subsidiary.
But even then, you may consider monetizing your app for the additional revenue. After all, mobile app usage is on the rise:
- People use their smartphone an average of 07 hours per day.
- 88% of that time is spent in apps.
- In 2020, global consumer spending on mobile apps reached 143 billion USD.
As people rely less on computers and more on smartphones, the mobile app market will only grow. And that means more opportunities for monetization.
Plus, 90% of time spent on mobile devices is spent on apps. With apps attracting more and more attention, they become a hotbed for monetization.
Types of App Monetization
There are several different types of app monetization that you should know. Some web monetization strategies are better suited for certain apps. So here they are:
A paid app is one that costs money to download. You set a price, and the app store typically takes a commission. While this is the most obvious way to monetize your app, it is also the least popular:
- 1 in 2 smartphone users has never paid for an app.
- As of March 2021, only 3.3% of apps on the Google Play Store and 7.1% of apps on the Apple App Store are paid apps.
The reason is simple: Users are getting used to apps being free. App creators figured out how to monetize apps without charging at the outset. This led to a domino effect in the app market with fewer apps costing money and more apps becoming “free.”
Of course, very few apps are completely free. As the adage goes, there’s no such thing as a free lunch. Just know that setting a price upfront is the least effective way to attract users, especially now that the app market is saturated with free alternatives.
Still, here are the pros and cons of paid app monetization:
- You earn immediate revenue with each new user.
- You know the exact value of each customer (the price of the app).
- Users are more committed to your app having invested in it upfront.
- User experience (UX) is cleaner with no ads.
- You have strong competition from free app alternatives.
- App stores will take a commission from the app price.
- There is no way to scale the revenue generated by one user. Once they buy the app, that is all the money you will get from them.
- User acquisition is difficult when you charge upfront. You need highly effective marketing to convince potential customers upfront that your app is worth the price.
- Users will have high expectations. Your app must stand significantly above its free competitors to justify the price.
Of course, many paid apps try to lure users in by offering free trial periods. This can be an effective way to offer paid apps, but it’s no guarantee that users will purchase once the trial period is over. For that, you need an app users can’t resist.
Popular paid apps tend to be games. Examples include Minecraft, Hitman Sniper, and Shadow of Death. But other popular paid apps include productivity apps like HotSchedules.
If you decide to go with paid app monetization, just make sure your app’s quality is top notch. If your product is good enough, people will be willing to pay.
Example: The Star Walk 2 app is a night sky view and stargazing guide for $2.99.
In-app purchasing means products or services are sold from within the app. This way, you can offer the app for free and use it as part of your sales funnel. Users benefit from a free app, and you benefit from their in-app purchases. Products and services offered can take various forms, including virtual currency, extra features, or bonus levels on a game. Each offers a unique way to make money from your app.
Here are some of the pros and cons of in-app purchasing:
- Offering your app for free attracts more users.
- If you sell digital products, you have the potential to make a big profit. Not only can you update the products and services offered, but you change their prices as needed.
- In-app purchases tend to increase customer loyalty. Once customers have invested in your app, they are more likely to use it.
- Since purchases are optional, revenue is less predictable. You may see gains one quarter and losses in the next. Keeping your in-app purchasing offers fresh and relevant is key.
- App stores like Google Play Store and Apple’s App Store take a commission from in-app sales.
In-app purchasing can be a powerful way to leverage a free app. Make the products or services you offer hard to resist, and you can make some serious money.
Example: In the Candy Crush app, users have the option to earn game currency or buy it with real cash. So the app makes money with in-app products.
The in-app advertising monetization model is perhaps the most popular. After all, advertising dominates much of the online industry. And apps are no exception.
Here are all the different types of ads used for in-app advertising:
Banner ads are visual ads made from an image or a multimedia object. They are commonly used in apps that offer paid versions. In other words, users must choose between paying for the app or tolerating ads. Banner ads have gotten a bad reputation recently since they are not very effective. If anything, they are annoying and lead to low user engagement. Still, they allow you to make money from an otherwise free app.
Interstitial ads occur between separate user flows (e.g. between pages, stories, articles, levels, etc.). They can be display ads or video ads. Either way, they typically take up the entire phone screen while playing. But most apps offer a button to opt out of interstitial ads after a few seconds. That way, users can skip them if they want.
Native ads blend in with the rest of the app. For example, they can take the form of posts on a timeline (like on Instagram and Facebook). They are customizable to look native to the app on any device. This makes them less intrusive, protects the user experience (UX), and increases engagement. Just be aware that some mobile app providers have strict rules on distinguishing ads from regular content. If users can’t tell ads apart from regular posts, you may run into compliance issues.
Video ads are as the name suggests: videos. Typically video ads are interstitial, but sometimes they are placed within a longer video, similar to TV ads. Otherwise, video ads can take the form of rewards in an app, too. We’ll get to those next.
Reward ads offer a reward for engaging with an ad. They can be video or display ads. The idea is to offer an incentive since users are more inclined to engage with an ad if something is offered in exchange. Reward ads are most popular with gaming apps.
Affiliate ads are ads by third-parties. They allow you to earn a commission from other businesses who advertise on your app. These relationships are often called sponsorships or partnerships. If your customers like you, they will trust what you refer to them. So it can be a win-win. You can even fund your app development this way.
Now, to display any of the above ad types on your app, you will first need a mobile ad provider. Here are the best mobile ad providers out there:
- Google AdMob is free and easy to install and compatible with Android and iOS. It offers a variety of ad types, including banner, interstitial, reward, and video ads. They also provide templates for making native ad design easy. Fortunately, advertisers tend to trust Google. Plus, they offer free advertising analytics, and you get paid quickly in your own currency. You can sign up with any Google account, and it’s especially easy if you already have a Google AdSense or Ads
- Facebook Audience Network (FAN) also gives you access to big advertisers and offers different ad types, including banner, interstitial, native, in-stream video, and reward video ads. To get started, create a business manager and monetization manager account. You’ll also need to submit your app to Facebook for review.
- MoPub is a mobile ad provider company by Twitter. In addition to their own MoPub marketplace, they work with over 200 demand-side platform (DSP) connections. So you can use MoPub mediation to choose your own advertising partners. They offer video, native, reward video, rich media, and display ad types. Set up is developer and marketer friendly.
Every mobile ad provider will have multiple advertising metrics. These metrics determine how they charge advertisers for displaying their ads on your app:
- Cost per mille (CPM) is the price for every thousand views or impressions of an ad.
- Cost per click (CPC) is the price for every time someone clicks on an ad.
- Cost per action (CPA) is the price for every time an ad leads to specific action, like a registration, newsletter sign up, or sale.
- Cost per install (CPI) is the price for every time an ad leads to a user installing the advertiser’s app.
- Cost per view (CPV) is the price for every time a user plays a video ad.
These advertising metrics determine how much money the mobile ad provider makes, and how much you make by extension. So make sure you agree to the metric that best suits your app.
Finally, here are the pros and cons of in-app advertising to consider:
- Again, free apps will attract way more users. And in app-advertising allows you to offer the app for free.
- The more relevant your ads, the more revenue you can generate. So there’s plenty of room for optimization.
- There are several ad types to choose from. So you’re bound to find an in-app advertising model that works for you.
- In-app advertising takes little effort to set up and maintain because mobile ad providers take care of the logistics for you.
- In-app advertising allows you to tailor ads to users’ interests.
- In-app advertising can harm UX and push away users. So be careful with how many ads interrupt the app experience.
- Mobiles have limited space for ads. Their small screens significantly limit your options.
- Irrelevant ads are a waste of space. If nobody engages with them, you sacrifice valuable space without making any ad revenue.
- Many users view ads as unprofessional. So you must find a balance between looking professional and including ads.
In-app advertising is a huge opportunity that many industries have benefited from. Any app that has a decent amount of users can implement this monetization strategy to easily start making money.
Example: Some major examples of in-app advertising monetization include the Instagram, Facebook, and YouTube apps.
The subscription model is an attractive way to monetize your app because it generates continuous revenue. Users pay on a weekly, monthly, or yearly basis so long as they have the app installed.
Often, the subscription model gives users a trial period in which they are not required to pay. Otherwise, it’s often combined with the in-app advertising model, where the subscription unlocks a “no-ads” feature.
Overall, the subscription model offers a steady revenue stream. You only lose revenue when users stop using your app. This gives you a more reliable income in the long run.
Just be aware that users have higher expectations for apps with premium subscriptions. You also need to strike the right balance between the free and paid version of your app to inspire customers to upgrade.
Example: A great example of a subscription app is the Wall Street Journal (WSJ) app. It offers users daily news for a monthly fee.
Big data is a growing industry, and apps are a huge part of it. After all, people take their mobile phones everywhere. Apps are the prime place to mine data because users generate data with them everyday. And this data can be sold for profit.
Of course, you need to be upfront with users. Data collection should be transparent and respect users’ privacy. So allow users to opt out of providing their data. But most users are happy to provide data, especially if your app provides great value.
Keep in mind that you can use data without selling it, too. For example, first-party data helps you personalize the customer experience and improve UX. You can also identify location data to better understand consumer behavior and habits.
Data monetization allows you to have no ads on your app. Plus, the app platform (e.g. Android, Apple) becomes less relevant. By monetizing data, you don’t have to pass costs on to the users. So it’s a win-win.
Example: Google Maps is a major example of app monetization. It collects and sells user location data on a massive scale.
If your app is a marketplace, you can charge transaction fees to make money. You can offer free listings as an incentive to use your app and then charge for transactions between sellers and buyers. What’s more, transaction fees are easily automated and scaled.
Or if your app allows users to trade in shares or currencies, consider charging a percentage for trades in shares or currency conversions.
Different types of transaction apps are easily monetized because money is already flowing through them by nature of the app.
Example: The PayPal app is a great example of a transaction app. They charge a small percentage on transactions through their app.
App Monetization Best Practices
There are a few things to keep in mind before getting started with any kind of app monetization:
First, if you haven’t created an app yet, develop one with a monetization method in mind. That way, you can design the app around that monetization model, whether it be ads, subscriptions, data, or something else.
Consider hybrid monetization. Why settle on just one monetization method when you can be generating revenue from multiple? Just make sure your hybrid strategy makes sense. For example, you don’t want to combine a paid app with an ad model. Users expect an ad-free experience if they have to pay for your app. However, combining data monetization with an ad model works great together because you are already collecting data for advertisers anyway.
Protect the user experience (UX). Often, monetization requires a trade-off between good UX and amount of ads. Don’t sacrifice the former for the latter. Find the right balance. If a monetization model hurts the UX too much, users will stop using your app and the app monetization will have been in vain.
Invest in user acquisition. Consider partnering with other relevant companies to market your app. The more users, the more money you make. It’s that simple.
Once you have users, focus on increasing user engagement. If those who download your app don’t use it, you won’t make any money (unless it’s a paid app).
Measure and monitor monetization with analytics. Analytics can tell you the return on investment (ROI) of your app, allowing you to adjust and adapt as you go. There are plenty of app analytics tools out there, including Apple’s App Analytics.
If your company is big enough, negotiate commissions with app stores. Often, they will compromise on their standard rates if your app attracts enough traffic to their platform.
Finally, focus first on providing value with your app. Then monetize it. If you prioritize app monetization over the app itself, your app won’t attract enough users to make any money. No matter how good the monetization strategy is.
Mobile App Monetization Market and Trends
The market for mobile app monetization is growing, and app revenues are steadily going up. See the recent growth by quarter below:
This upward trend isn’t slowing down anytime soon. After all, users are spending less time on computers and tablets and more time on mobile apps:
And some trends to know:
Subscription and freemium monetization models are on the rise, while paid apps are on the decline. In our free-to-download culture, paid apps are just becoming harder to justify. Nobody wants to pay an upfront fee anymore.
Ad blockers are also on the rise, which threatens how effective native ads are. So although native ads are nicer than other ad types, we may see a decrease in their ROI if too many users adopt ad blockers.
Working with Dev.co
Monetizing your app can be a process. But with the right know-how, you can take advantage of untapped revenue streams. How you go about it will depend on the type of app you have and your goals.
If you prefer to bypass the effort and time it takes to monetize your app or you want help preparing to develop the mobile app in the first place, Dev.co is here to help. We know how to turn your mobile app vision into a reality. Plus, we provide ongoing support for any of your mobile app needs in the long run. Contact us today to get started.
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