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Mobile app monetization: The ultimate guide to monetizing mobile apps

Making money is the primal force driving all kinds of businesses.

The mobile app market is no different. Companies running apps seek to establish monetization channels to recoup their investment and turn a profit.

In simple terms, mobile app monetization refers to making money from an app by leveraging its userbase. The ways app developers can choose to leverage their user base can vary. From publishing ads to selling products within the app or offering subscriptions, the monetization opportunities are endless.

This article covers the concept of mobile app monetization and the various strategies and channels associated with it. Anyone using a free online app maker, hiring an agency, trying to convert WordPress website to Android app, or using any other means to create an app must study this piece closely.

Mobile app monetization – An Introduction

Mobile app monetization is not as prevalent as many other channels of monetization online. There are many reasons behind this. The drawn out nature app development drives away many from the prospect.

The rate at which mobile app usage continues to grow only strengthens the case for using apps to make money. Just as websites are the prime sources of revenue for many online entrepreneurs today, mobile apps will hold this mantle in the future.

Definition

What is mobile app monetization?

App monetization involves leveraging an app’s userbase to make money. Like a convenience store makes money by selling products to incoming customers, an app makes money by monetizing app visitors.

App monetization works in many ways. Companies can either extract value directly from their users or use third-party networks to earn money. The following section offers complete clarity on these subjects.

Why is it becoming important?

Mobile app monetization is becoming important because apps are becoming the most preferred medium of content consumption.

From edtech to BFSI and healthcare to entertainment, mobile apps are everywhere. They are becoming a key part of every major sector. In fact, it is difficult to find a sector where there aren’t many prominent mobile apps.

These trends are a response to the preference for mobile apps amongst smartphone users. A study recently showed that 85% of shoppers prefer doing their business on ecommerce apps instead of mobile websites.

App downloads on app stores have grown globally, and while the rate of growth varies, the trend is clear.

top countries by app store downloads

The story doesn’t end at ecommerce. The number of mobile gamers are expected to grow to 2.4B in 2020. For reference, that is nearly eight times the population of the United States of America.

All these numbers tell the same story. The future lies in mobile apps and smartphones. Any business that seeks to monetize a digital asset has to think about how to make an app.

Some numbers of app monetization

The following stats highlight the relevance of mobile app monetization.

  • Worldwide spending on mobile apps in 2019 touched $120B. The number has been on the rise in recent years (Statista)
  • Global consumer spending on mobile apps grew significantly in Q1 2021 compared to Q1 2020.

Global consumer spending in apps

  • In-app purchases, paid apps, and in-app advertising are the most common app monetization models for non-gaming apps. Each ranges around the 50% mark. In gaming app, in -app advertising is the most popular at 81% followed by in-app purchases at 79% (Business of Apps)
  • 5.2% of all app users actually spend money on mobile apps. (Appsflyer)
  • 67% digital advertising spending is expected to go towards mobile (eMarketer)
  • One in two people have never bought a paid app (Google)

App monetization strategies – How to make money with a mobile app?

There are many app monetization options for companies to explore. Each offers its own set of benefits and drawbacks.

There is nothing stopping companies from utilizing multiple strategies for monetizing apps. However, it is first wise to understand each app monetization channel.

The following sections explain the different ways companies and entrepreneurs can monetize their mobile app. These methods are helpful for anyone with a mobile app.

From someone with an app developed from scratch to a person using a free online app maker, monetization channels are essential to all

Paid apps

Most app users are used to going to an app store and installing any app they like for free. This is partly because most mainstream apps are free.

There is however a big market for paid mobile apps. People are growing used to the idea of paying money for an app on an app store. Reports continue to show that the paid app model is growing.

Does this mean launching paid apps is the easy way towards app monetization?

As far as app monetization strategies go, implementing the paid app model is the easiest. All companies have to do is specify a price while submitting their apps to the relevant app store.

The real challenge is actually making people pay.

While the paid apps model is growing, there are concerns about its adoption amongst Android users. iOS users are more likely to adopt paid apps over Android.

If you do indeed decide to adopt the paid app model, it’s wise to have alternative ways to make money on Google Play with your Android app.

paid apps

To make people download a paid app first requires companies to know how to create an app worth paying for.

People love some of the apps they use, but they would feel very differently if asked to pay for them. Thus, creating an app that users are willing to pay for is a real challenge.

Let’s say you manage to create a mobile app worth paying for. The next crucial step is marketing the app to the right audience. Since the app is paid, you need to think about it like a product on an ecommerce store.

Identify the right marketing channels and use the best techniques to promote your app.

There are many advantages in using the paid app strategy as one of the mobile app monetization models of an app. It promises direct revenue to companies and reduces the hassle of moneiting an app through in-app purchases.

Tip: Implement a robust customer support system for app users. This will help build trust amongst prospective users. People will download a paid app with more confidence if they know that they will receive a decent level of customer support.

Explore this visual guide to learn more about mobile app monetization:

Five ways to monetize mobile apps

In-app purchases

In-app purchases are one of the more common mobile app monetization models. Amazon, Flipkart, literally any mainstream ecommerce app basically uses in-app purchases. Mobile games also commonly use in-app purchases for monetization.

There are many reasons the in-app purchases model for app monetization is the most reliable. People feel much better about making a purchase after downloading the app. This is because it reduces the risk a typical user feels while making a purchase.

Think about it. Users already have a clear idea about an app before they make a purchase within it. They are willing to put their money on the line because they trust the app.

Many popular apps use this model to monetize their apps. From the most popular games to the top ecommerce giants, in-app purchases is the most preferred model of app monetization.

Driving in-app purchases naturally takes a lot of effort on both the marketing and development side. Marketers have to organize their approach and use funnels to bring app users closer to making a purchase. Developers on the other hand need to develop a system where making in-app purchases is easy and their benefits are obvious.

In-app ads

Despite other monetization models coming up, advertising remains the most popular way to make money with a mobile app. statistics

There are a lot of free apps that use ads to monetize their app. Ads are an easy way to make money and apps have a lot of ad networks to choose from. Google AdSense is an obvious choice and there are many others.

There are many different payment structures within the in-app ad monetization model. These include-

  • eCPM (Effective cost per mile) – This is the most preferred ad monetization model. Apps are paid a certain amount of money for every one thousand ad impressions. The scale of the monetization doesn’t depend on any user action. Ad publishers (apps in this case) are paid a fixed amount of money for every thousand ad impressions
  • CPC (Cost per click) – This revenue model is more common in the mobile app market. Apps stand to gain a certain amount of money every time a user clicks on an ad.
  • CPA (Cost per action) – Apps stand to gain a fixed amount of money when someone clicks on an ad and performs an action. This type of revenue model is least desirable because the scale of monetization depends heavily on the actions of the user.

It is vital for apps to choose the right ad network. If in-app ads are the only channel of monetization for an app, it is vital to identify the most profitable ad network possible.

Subscriptions

Subscriptions are slowly becoming the most profitable forms of app monetization. Paid apps only extract a certain amount of money from users once. Subscriptions offer a consistent flow of revenue and represent the future of mobile app monetization models.

Consider the various OTT streaming platforms now nearly ubiquitous. All of them come on a subscription basis. Users are given the choice to opt out at any given point. However, continuous flow of quality content ensures an easy way to keep the opt-out rate down.

Domain and web hosting services also effectively work on a subscription basis. Customers have to pay a certain amount of money in a given period of time to continue getting access to services.

App stores are making concerted efforts to push users towards subscription-based apps. The numbers tell the same story.

Global consumer spending

As far as app monetization strategies go, subscriptions offer a fairly long-term opportunity to apps. The prospect of recurring payments through subscriptions is enough to convince any company to choose a subscription model.

There is one thing companies must ensure while taking this mobile app monetization option. People only remain subscribed to a service if it continues to update itself. If Netflix stopped adding new content to its platform, people would eventually stop subscribing.

The subscription model only works if the product keeps changing and improving. Thus, any app following the subscription model should have a strong team in the background that keeps bringing new stuff to the app.

This brings us to the challenges of the subscriber model. While offering subscriptions is a great way to grow your ARR and enhance your brand value simultaneously, it brings its own set of downsides.

Firstly, subscribers bring churn. When you’re selling products priced on a one-time basis, you don’t need to worry about customers leaving the product.

With subscriptions, it is a different ball game. The average churn for subscription-based businesses is 6.12%.

For new apps that don’t have a storied background, churn can be even higher. Managing churn can thus become problematic if you don’t have a team to constantly improve your app.

Banking and transactional apps

There are a number of apps that allow users to complete transactions and charge a small price for the service. Such apps are not just popular in the Bitcoin domain.

For example, India is home to a number of wallet-based apps that allow users to complete transactions. While transferring money to a bank account, these apps charge a certain percentage of money.

This form of mobile banking is still relatively new. And yet, it holds one of the biggest app monetization opportunities for the future.

Transactional apps are very popular now. Cash became less important when credit and debit cards came around. Now transaction apps are making transactional cards look pointless.

The challenge in monetizing transaction apps is down to development. Companies must create transaction apps that are unique enough to stand apart in the market.

The ubiquity of mobile phones makes the transaction app market one of the more exciting prospects for the future. The challenge lies in developing an app good enough to play its part.

Affiliate apps

Affiliate marketing enables you to make money by recommending external products to your audience. Website owners, especially bloggers, lean on affiliate marketing to make money by promoting products being sold on external websites.

You can similarly sign up as an affiliate and promote third-party products and services in your app. Compared to ad monetization, affiliate marketing is subtle and doesn’t share its obvious downsides such as ad fatigue and quality control.

As a strategy, affiliate marketing meshes perfectly with some of the other techniques mentioned here. Generally, affiliate links are inserted in blog links and are not an overt attempt to make money.

Even if you’re following a different monetization model, you can easily incorporate affiliate links within your app and start making money.

It is a simple way to insert valuable links within your app that can passively increase your app’s revenue. Based on your app category, you can sign up for an appropriate affiliate program and promote products that fit your niche.

Best practices for mobile app monetization

Creating an app monetization model is only the first step. The long term goal should always be to optimize earnings.

Each channel of mobile app monetization has its own challenges and opportunities. There are however some common methods to optimize app earnings that work across every model.

The following sections cover the same.

Use multiple monetization techniques

One mistake app owners make is depending on one monetization model for app revenue.

This is especially common amongst app businesses that find success with one particular model. There is too much inertia amongst businesses who find a monetization technique that works for them.

Herein lies the problem: relying on one monetization model is too risky.

Let’s say you run in-app ads in your app. You rely on users clicking on the ad in order to make money. What if the quality of ads published by the publisher you’re working with declines?

In addition, how do you react when customers start getting fatigued by app ads?

Having a different avenue for monetization reduces your dependency on one particular technique. In other words, if one fails, your app will not go bust.

Optimize user retention

The easiest way to increase earning opportunities is making people come back to an app. This means optimizing the user retention rate.

There are a number of tactics companies have to deploy to maintain a steady user retention rate. Factors such as app performance, user experience, navigational factors, user engagement, and app speed all play a crucial role in enhancing user retention.

More people coming back to an app creates more situations where a monetization opportunity comes up. Whether an app offers in-app purchases or serves in-app ads, a greater number of users always ensure more revenue.

A high user retention also improves the visibility of an app on all relevant app stores. Thus, paid apps and subscription-based apps can also increase downloads with an optimal user retention rate.

Focus on mobile app analytics

Data is generally forgiving to those who study it. A company today really has no excuse to not focus on mobile app analytics. The market is simply too competitive to allow data blind mobile apps to survive.

How can companies focus on app analytics? After all, not every company in the mobile app market has the resources to hire a top notch data analyst.

The answer lies in using the best mobile app analytics tools.

App analytics today is possible with the help of the right tools. Even a novice in data analytics can do the needful with tools that fit the bill.

Since there are so many top free and paid app analytics tools available now, companies really don’t have an excuse. They have to use proper analytics to optimize their earnings.

Various tools are geared towards helping companies enhance their earning potential. The key lies in choosing the right tool to open up monetization opportunities.

Take on multiple app monetization channels

There are a number of apps that don’t just focus on a single channel of monetization. Take Amazon for instance. It uses both in-app purchases and subscriptions to boost its revenue.

It is vital for any business to diversify and have multiple revenue streams. The same is true for a mobile app. Nothing is stopping an ecommerce app to also have in-app ads.

The key lies in striking a balance. If a paid app starts publishing in-app ads, users are likely to grow cold on the app. This is because they have already paid a premium to use the app. The same is true for subscription-based apps.

When apps charge their users money for the privilege of using the app, adding in-app ads can alienate and anger existing users.

Companies must know which monetization channels work well with each other. For instance, in-app purchases and subscriptions can work well together. However, ads are a more direct form of monetization and must thus be used carefully.

Take app marketing beyond downloads

App marketing plays a defining role in monetizing an app. For models such as in-app purchases, subscriptions, or paid apps, marketing holds the key. This is because the audience has to be moved closer towards the conversion stage.

The need for app marketing to accomplish this is apparent.

Currently, most companies lean on app marketing to drive downloads. However, the eventual aim of marketing should also be to bring direct revenue.

App marketers must evolve and become better at optimizing app monetization. They have to end their laser focus on enhancing downloads and take on more challenging goals such as app monetization. A good marketing team can have a huge impact on revenue. The key lies in training marketers to become more attained to monetization goals.

The challenges to expect in app monetization

Everyone wants to make money with their mobile app. If it was easy, nobody would have such a desire and there would be no need for this blog post.

There are some clear and obvious challenges in app monetization. We discuss some of them in the following points –

  • Ad averse users – Modern users are adept at avoiding all kinds of advertising. People are trained to close an ad and not even notice its content. This makes in-app ads a challenge for companies. If app ads do not deliver the traction advertisers expect, they will soon stop coming. Thus, those currently using in-app ads are in danger of drowning on a sinking ship.
  • Retaining users – User retention is becoming a big problem for smaller apps in the market. Most major apps now are consolidating and muscling out smaller players. Even users find it easier dealing with branded apps that come with a certain level of trust. Thus, apps today have to offer something extra special to stay alive in the market.
  • Defining premium – When app users pay money today, they expect something truly premium. This expectation is even more apparent when the app is not necessarily one of the biggest names in the app market. Thus, finding and developing premium features is becoming a big problem. Companies using a free online app marker do not necessarily have the bandwidth to survive. Even when trying to convert WordPress website to Android app, users must consider choosing premium app builders.

Some new trends

There are always new app monetization trends on the horizon. Here are a few trends currently changing the field –

  • Native advertising – Native ads allow advertisers to publish ads within the framework of an app without disturbing the experience of an average user. They represent the future of advertising. People today are trained to avoid adverts. Native ads will allow advertisers to showcase their offering within the content of the ad itself.
  • Ad-free premium version – Many apps today serve ads as a way to monetize their content. They also offer users a way to avoid ads altogether by subscribing to the premium version. Many free apps are turning to this freemium model as a way to diversify their monetization strategy.
  • Ads mixing with AR/VR technologies – We could find native ads running in a simulated VR game in the future. The possibilities with both AR and VR technologies are endless. Advertisers can reach their audience while they’re using an app through seamlessly AR/VR setups.

In conclusion

App monetization is crucial in driving revenue. Companies don’t just build apps out of the goodness of their hearts. They need real revenue streams from the app to justify its development.

While learning how to create an app, you may not think about monetization. However, it remains a crucial part of the puzzle. There are a number of channels that offer companies ways to monetize their app. The key lies in choosing the best possible option to make returns.

This piece provides a complete overview of mobile app monetization. The strategies covered here are not an exhaustive collection of monetization opportunities, but they certainly represent those with the most potential.

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