App Monetization 101 - BuildFire
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Ian Blair

App Monetization 101

Tools like Buildfire make it easy and relatively painless to create a mobile app; even small businesses are racing to compete in the mobile app sphere. But creating the app is just the beginning; even if you created your app to function as another mobile marketing channel, you still want to recoup your costs and turn it into a solid source of revenue for your business.

Monetizing an app isn’t as easy as building it, unfortunately. Statistically speaking, about 2 percent of app developers are claiming over 50 percent of all app-driven revenues, and about 25 percent make nothing at all from their apps.

And…even though Candy Crush generates nearly $1 million a day in revenues, most mobile apps will be lucky to recoup their development costs, let alone become reliable revenue streams for their developers.

But that shouldn’t keep you from trying different models and techniques to monetize your app. Even if your app is achieving all your marketing goals, it’s always a good idea to try to turn a profit—and there are many paths to profitability for the savvy mobile marketer. Let’s take a look at the six most popular business models to monetize your mobile app.

How Do You Know Which Business Model to Choose?

Before we jump into the six main monetization models for your app, it’s a good idea for you to keep a few questions in mind, because they’ll help you weigh the pros and cons of each model as they apply to your app. It’s a good idea to settle on your monetization model before you actually build and launch your app, especially if you plan to use some form of in-app advertising.

Of course, your choice isn’t carved in stone; you always have the option to mix it up or add elements of other models as you see what works with your app.

Here are the questions to ponder:

➤What is your app’s value proposition? What problem will it solve for your customers/users?

➤Are there features and benefits users would pay to access? 

➤What models are competing apps in your niche using? Are they successful?

➤What is more important to you right after you launch your app: Attracting more users or immediately generating revenue?

These aren’t mutually exclusive necessarily, but some approaches are geared toward getting the most downloads post launch with revenue coming later, while others are geared toward achieving a revenue stream right off the bat. You need to decide what your timetable will be and what you will prioritize in your monetization model. Can you afford to wait to profit off your app? If so, how long?

App Monetization Models

1. Paid Apps

This method is pretty straightforward; you charge users a fee to download your app from Google Play or the App Store. You might think this is the quickest way to turning a profit and recouping your app developing and hosting costs, but you’d probably be wrong.

Consider this: Only 20 percent of paid apps get over 100 downloads, according to a study by Cambridge University last year. Even worse, only 0.2 percent achieved 10,000 downloads. On the other hand, over 20 percent of free apps reach the 10,000 download milestone.

So unless your app is astonishingly successful and beats all odds, your chances of recouping your costs, let alone achieving a reliable revenue stream, are pretty low, especially if your app is priced in the most common range ($0.99 to $9.99).

Of course, that’s not to say that you can’t monetize your app using the paid model. In fact, if you’ve created a truly unique and valuable app and done a great job promoting it on the app marketplace with amazing screenshots, descriptions, and plenty of five-star reviews, you can make a good amount of money from your app.

schematic-2

Image courtesy of darkskyapp.com

The Dark Sky weather app costs $3.99, but it handily competes against popular free weather apps. This is because it offers valuable, unique features that the app’s target audience is willing to pay for. The paid model might work for you if your mobile marketing team is able to convince your audience that the features and benefits you provide are better than competing free versions.

Pros

-revenue with every download

-users are typically more engaged with apps they pay for

Cons

-competition; it’s hard to beat the odds

-Apple and Google take a cut of the revenue

2. Free with In-App Advertising

Take a look at the free apps on your smartphone right now—chances are, most of them use in-app advertising to generate revenue. In fact, this model is fast becoming the dominant one for app developers. In a nutshell, you offer your app free in order to encourage more downloads and a wider user base.

Once you’ve acquired a stable user base, you collect data about them and use it to sell ad space on your app. You can do this on your own or partner with a mobile ad company.

Basically, you have a few choices for in-app advertising. Some of the most popular types of mobile app ads include:

  • Native ads
  • Interstitial ads
  • Video ads
  • Banner ads

Native ads blend within the content. They don’t interfere with the user’s experience.

Interstitial advertisements are the opposite. These images or videos typically take up the entire screen.

Users have to watch the ad or perform another action before they can continue where they left off.

 

 

Basically, you have two choices for in-app advertising: Banner ads and native ads. Facebook and Twitter have mastered the native ad approach within their apps with sponsored and promoted posts, but most consumer apps are better designed for banner ads.

Mobile users, however, won’t stick around long if your banner ads are too intrusive. A recent study by Medialets showed that ad size and placement make a huge difference in conversion rates and how well the advertising is received.

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Image courtesy of Medialets.com

Pros

-grow your user base faster, free apps are more widely downloaded

-mobile ad spend is a high growth industry; you should be able to sell ad space

Cons

-higher churn, users get tired of ads

-not good for important utility apps; intrusive ads interfere with essential functions

3. Freemium

Consider how you’re going to price your app.

Are you going to charge users to download it or will you list it for free?

Keep in mind, the majority of apps offered on the Apple App Store and the Google Play Store are free to download.

 

There are pros and cons to each method.

If you charge users to download your app, you’ll get revenue up front. People who are willing to pay for mobile apps will likely be more engaged than users who download it for free. It’s unlikely that someone will buy your app and then never use it.

But if the app is free, it’s easier for users to lose interest because they don’t have any monetary investment in the download. With that said, charging just to download your app can potentially turn people away.

Since there are so many apps available on the market, there’s a good chance that users can find something similar for free.

Personally, I’d recommend offering free downloads.

As the name suggests, this is a hybrid monetization model that combines a free app version with basic functionality with gated functions the user must pay to access. The idea is that after customers download and use the basic app features, they will be enticed to want to purchase all the premium features to experience the app’s full functionality.

Many gaming apps are very successful with the freemium model. Rovio, for example, released a free version of the addictive Angry Birds game, which let users play through a few levels and tempted them with hidden features. Once the customers were hooked on the game, it was a small leap to get them to pony up for premium features.

This model requires a delicate balance, however. If your free functionality is skimpy, you’ll wind up with a great deal of churn. Give away too much with the free version, however, and you’ll have trouble setting your premium features.

Pros

-easy to implement if your app has advanced levels or features already in it

-“try before you buy” is generally a good business model

Cons

-it’s tempting to give your free user base an inferior product

-only works with highly engaged users

4. Subscription

The basic difference between subscription and freemium models is that unlike freemium, where functionality is gated, subscription models place content behind a pay wall. Most subscriptions are recurring and frequently auto renew.

This model doesn’t work well with all verticals, however. It’s best suited to entertainment, lifestyle, and news-type apps, where you can logically wall off content and limit the amount of content consumed (number of videos watched, for example, or number of recipes or meal plans downloaded).

Like their freemium counterpart, subscription apps, which are basically “try before you buy,” do better on the app marketplace in terms of revenue generation. It’s important to make sure that you test your subscription plans to get the right mix of free and paid content, and to give your users a superior on boarding experience.

 Pros

-lower churn due to engaged users

-regular, ongoing revenue stream due to auto renewals

Cons

-curating and/or creating the type of high-quality content your users will pay for

-not appropriate for all verticals

5. In App Purchases

 

share_of_worldwide_revenues1

Image via Statista

In-app purchases are the largest source of revenue in free apps; it’s expected to reach nearly $10 billion this year. In-app purchases work with a variety of different verticals, because you aren’t limited to selling virtual goods, such as lives for a character in a game. You can sell just about any physical good, as well, especially if the in-app purchase feels like a logical extension of the app experience.

While this model works well with mCommerce and eCommerce retail stores, in-app purchases of physical goods aren’t restricted to this vertical. Any business can offer branded merchandise through its app, for example.

Pros

-low risk/high profit, especially with digital or virtual goods

-flexible enough to support affiliate and partnership programs

Cons

-most app marketplaces take a sizable cut from digital and virtual purchases (up to 30 percent) in-app

-safeguards necessary to prevent accidental/unauthorized in-app purchases

How many users have downloaded your app?

Here’s a look at the average in-app purchase for iOS and Android platforms.

Based on this information, if you can get 1,000 users to download your app on the Apple App Store, you’ll get your first $1,000 right there.

Not sure how to go about setting up an in-app purchase? Don’t worry, I’ll show you how.

Basically, it will depend on your industry and what type of app you have.

For example, if you’re an ecommerce store, the in-app purchases will consist of actual products offered by your business. But if you’re not selling anything specific, you’ll have to come up with clever ways to entice purchases.

Let’s use the gaming industry as an example. Mobile games generate the highest profits.

They accomplish this by offering in-app purchases that enhance the user experience.

Let everyone download and play your game for free. But give users the option to purchase certain items that make the gameplay easier for them.

6. Partnerships

If you have a customer base that’s a natural fit for another business, partnering with that business to offer their products or services in your app in exchange for a referral fee can be a simple but lucrative revenue source. It’s important that the other company’s offerings have value for your customers, however, and can be naturally integrated into your app.

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Sponsorship is a variation of this monetization model that works especially well with event apps, for example. Businesses partnering with or sponsoring the event can pay to have their content included in the app, up to and including product lists, website link, etc.

Pros

-works with any vertical

-usually well received by users since content is relevant and/or valuable

Cons

-challenging to find partners whose customer base aligns with your users

-revenue is limited to value of partnership agreement

Blending Models

More app developers are using blended models to achieve their revenue goals. The free version of your app, for example, can include in-app advertising that goes away once a user has upgraded to premium features or content. Paid apps can offer in-app purchases, as well, to enhance monetization. And partnership arrangements can be integrated with all the business models.

Just keep in mind that the best monetization strategies don’t interrupt the natural flow of the app experience and aren’t so intrusive to the user that they lead to churn.

Growth and Re-Engagement

No matter what models you choose to monetize your app, you’ll need to have steady growth in your user base—and you’ll need to keep your users engaged. In mobile gaming, for example, just 2 percent of the most active users generate 90 percent of the app’s revenue, so you’ve got to find ways to keep your big spenders and active users engaged if you want to effectively monetize them. That means continually looking for ways to keep your features and content fresh.

It’s also important to watch your marketing metrics (lifetime customer value, free to paid conversions, churn rate, for example), so you can spot weaknesses and target your marketing, engagement, and retention efforts more effectively.

Ultimately, however, your most important monetization strategy should be to ensure your business goals, target audience, and user base are in alignment. If your app is meant to grow awareness and engagement with your brand, you may not want to include in-app advertising, because the app itself is earning its keep by giving your customers new ways to find and interact with your business.

Keep in mind that very few of your free app users will ever click on a banner ad or cough up extra money for add-on features or content, so if you choose these monetization models, you need to have a deep understanding of what attracts your customers and motivates them to take action. This requires a deep dive into market research and your buyer persona.

In the end, however, successful monetization often comes down to trial and error, testing each of the models with your user base to see what works best, and adapting the most successful models to match your app experience.

Examples of App Monetization

Remember earlier how I said you can combine different strategies?

Well here’s an example of how you can combine advertisements with subscriptions

Let’s look at how My Fitness Pal does this.

The free version of their app has advertisements.So they can generate money that way.

However, they offer a premium upgraded experience where users can navigate without ads if they make an in-app purchase. I love this strategy because it’s a way to generate revenue from different sources.

Consider this combination option if you’re going to use both of these techniques to generate money.

Here’s another example from a popular mobile dating app, Bumble. Anyone can use Bumble for free.

But users can access premium features by making a purchase.

This upgrade lets users gain access to people who have already liked their profile.They also get unlimited extend time and the ability to rematch with users who they didn’t connect with initially.

Employing this strategy is more than just an in-app purchase.

Charging people a monthly or annual rate becomes a subscription.

I love this strategy. Subscriptions are a great way to increase customer loyalty. Plus, you’ll have a chance to get constant revenue from the same user.

When you’re trying to come up with a subscription plan, consider your target market.

Try to make your app as appealing as possible to people all over the world.

For example, mobile users in Asia spend 40% more in apps than other areas across the globe.

Development Strategies

One of the best pieces of advice you’ll hear regarding your development strategy involves adaptability.

Not everything you do will go as planned. You’ll encounter some hiccups along the way.

Don’t let those speed bumps get you flustered or overwhelmed.Make the necessary changes and move on.

Here’s a hypothetical example. Based on what we’ve discussed about pricing strategy, let’s say you’ve decided to launch an app that charges users to download it.

But you realize that nobody is downloading your app. You’re all done, right? Wrong.

Adapt and move on. Allow users to download your app for free.

Set goals to help measure your success.

Let’s say you want to get 1,000 downloads this month.If you only get 200, you’ll need to adjust your marketing strategy.

As you’re developing the app, make sure that it compliments your existing marketing strategy.

For example, if your current business has an ecommerce store, you should drive customers to download your new app as the primary outlet for online retail.

Furthermore, consumers spend three or four times longer using a mobile app than they do on a desktop page or mobile site.

Even after your app is released on the App Store, it’s not too late to continue making changes.

Make sure you give users the option to rate and review your app.Not only do those ratings help boost your search ranking in the App Store, but they also provide valuable information for your development strategy.

Use comments about the user experience to constantly create better versions of your app. You can also do beta testing to help work out any bugs or glitches before your app is released.

Outsourcing this testing is your best bet. Biased opinions can impact these tests if you’re running them in-house. Your developers may be hesitant to say there are problems with the experience if they are the ones who designed it.

Making sure your app is always running smoothly will help ensure users keep using your platform.If users are frustrated with the performance of the app, it could be the reason you’re having problems generating a profit.

Promotional Strategies

Now that you’re pricing and development strategies are in place, it’s time for you to promote your app.

You can’t get any money if users aren’t downloading it, so getting downloads fast should be your number one priority. But where do you start?

If you have an existing business, use all of your marketing channels to promote the app to your current customers. That’s the place to start.

These people are already familiar with your brand, services, or products. For the most part, this app should be welcomed with open arms.

Look how Internet usage has been trending across the globe over the past eight years.

In 2016, mobile usage finally surpassed desktops.

Based on this graph, it appears as though mobile and tablet devices will continue to rise. So give the customers what they want. Next time you send out an email marketing newsletter or promotion, include a link for your subscribers to download the app to the phone.

More than half of emails get opened on a mobile device, so your customers can have your app on their phone in just seconds if your email gives them a reason to download it.

Offer some kind of incentive.

Take 20% off your next purchase if you use our app to complete your checkout.

Something to that effect should do the trick.

I’d also recommend using your social media channels to promote the new app. For the same reason. Mobile users in the United States spend 51% of their mobile time using social media.

So it’s only logical that you promote the app on here as well.

Here’s a great example of Jasper’s Market doing this on Facebook.

It’s a simple and effective way to get more people to download your app. In turn, this will help you generate more money.

How BuildFire can help with these strategies

Once you have your pricing, development, and promotional strategies in place, you’ll need to implement them into your app.

Looking at all of this on paper is one thing, but putting it to the test can be intimidating if you’ve never done it before.

Don’t worry. BuildFire’s Pro Services Team can walk you through the process.

The platform makes it super easy for you to build the app and publish it to the App Store, even if you don’t know how to code. As an expert in this space, I can attest to how smooth this process is.

Here are some of the top reasons why BuildFire is one of the best available options for you to consider.

  • Your app will hit the market faster.
  • The platform will save you time and money.
  • It’s easy for you to continue making changes even after the app is released.
  • Risk gets reduced since the investment amount is less.
  • Critical thinking experts can help bring your plan to life.

All of these points hit the mark on the topics we’ve discussed earlier. BuildFire can ensure that you’re going to generate your first $1,000 fast.

From your dashboard, navigate to the “Monetize” option on the left side of your screen.

Now you can set up in-app purchases, which as we discussed earlier is a top option for your pricing strategy.

For $134 per month you’ll have a Professional Membership, which is our best value.

I highly recommend this if you want to add in-app purchases. It’s a much less expensive alternative to learning code and developing the app yourself.

Plus, the upgraded plan comes with other great features like push notifications, an iPad, and Android Tablet.

Conclusion

Generating your first $1,000 for your mobile app is a monetization milestone that can help you build confidence for continued success.

Don’t let that number intimidate you. It’s easily attainable if you implement the methods that I explained earlier.

Start with a pricing strategy.

How do you plan to make money?

  • Subscriptions
  • Advertisements
  • In-app purchases

If you want to implement in-app purchases, BuildFire lets you set that up through their platform.

Make sure your development strategy is adaptable.

You’ve got to be ready to make changes on the fly.

Next, you’ll need to find a way to get users to download your app.Use your company’s existing marketing channels like email and social media to inform customers about your new app.

The more downloads you get, the easier it will be for you to make money.

Follow this plan, and you’ll be on your way to large profits in no time at all.

Are you going to charge users to download your app or use an alternative pricing strategy to generate revenue?

 

 

Ian Blair

BuildFire Co-Founder. I'm a digital marketer by trade and an entrepreneur at heart. I'm here to help businesses go mobile and build apps more efficiently than before.

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