Before choosing a monetization model for your app, consider the following:

  • Think about what strategy will best suit your app and your user.
  • Understand the value you offer to your users. This will allow you to pinpoint which parts of your app your users will be willing to pay for, or the parts you can use for advertising.
  • Understand user’s behavior and expectations, and user preferences.
  • Specify your business goals as they relate to your app.

You can use more than one monetization model at the same time. For example, you can combine a freemium model with advertising, or advertising and in-app purchases. You can also test different monetization models to see which one works better for your app.

Most common monetization models

  • Premium/Paid (one payment model)
  • Freemium
  • In-app purchases (IAP)
  • In-app advertising
  • Subscriptions (paywalls)
  • Sponsorship (incentivized advertising)

Premium/Paid monetization model

You sell your app for a fixed price. The user pays a one-time fee for downloading and installing the app.

The cost barrier can prevent your app from reaching a large number of users. Since there are so many free alternatives out there, users avoid paying for an app that they can’t try or preview before buying.

As a long term revenue, once the user has paid to download the app, they don’t expect to be charge anymore. So this model will limit your revenue to the number of users downloading the app.

Some developers prefer this monetization model because there are less paid apps in the market and the competition is lower.

Having a paid app gives users the feeling that your app is legitimate and well-made. A paid user will have a high expectation, so you must work hard to create a high-quality app. Also, paid apps usually have a clean user experience because there are no ads.

Freemium (gated features)

You offer your app for free to download and use in its more basic form, but certain features are gated and cost money if the user wants to unlock them. The key is to offer the right amount of features for free. If you don’t offer enough features, the app churn can be very high. If you offer too many, then it will be hard to convince the user to pay for other features.

This model removes the initial cost barrier that premium apps have. However, it’s important to provide enough features in the free version so users get hooked. Also, the incentive to pay must be easily understandable and transparent. State clearly what the user will get when paying and the benefits of doing it.

This model is ideal for those users that like to try the product before buying, and it’s a flexible model that can be adapted to almost any vertical.

When the freemium model makes sense?

The idea of this model is to approach your free users as lead generation, as a part of your marketing side of the equation. One of the first things you need to consider before going for a freemium model is the market size. Is the market large enough that a small conversion of the people using the product is enough to make your company grow? For example, if you have an internet software company, the marginal cost of replication of offering services is very cheap and the size of the market is huge. If you have a very niche-oriented software and the cost of each new user or free user is extremely high, the freemium model may not be the best alternative to monetize your app.

In-App Purchase (IAP)

This monetization model is a great way to make money from free apps, especially in gaming. In-app purchases enable you to advertise and sell digital/physical goods or services right in your app. Some examples are: power-ups, unlocked features or faster progression through levels, booking flights and car rentals, buy credits to meet people on a dating service, or buying groceries. Since you can offer and engage the user with new digital goods all the time, in-app purchases have a great long-term revenue potential.

In order to monetize effectively using in-app purchasing, you will need a large user base, because research shows that only a minority of the users make these type of purchases.

Some apps are built around in-app purchases (e-commerce mobile apps, apps built to book a service), and other apps just use in-app purchases as another element of their monetization strategy.

In-App Ads

Another way to monetize your app is with ads that you can also combine with other options like in-app purchases.

Types of mobile ads available:

Banner Ads – Appear at the top or bottom of users’ screens and usually expand to full screen when tapped. Banners tend to be less invasive to users. CTR tends to be low and the quality of the install is lower compared to other in-app ads.

Interstitial Ads – Full-screen ads, appear in your app at natural breaks or transitional points. To some users, this type of ads can be off-putting. Usually, they have a high CPI but a higher CTR than banners ads.

Video Ads – These ads feature engaging videos and can be used to show off key app features. The ideal placement of video ads is full screen at natural breaks in the app (app launch, between game levels, or in-feed). Rewarded video ads are video ads that give users additional benefits (coins, lives, hints) if they choose to watch the video.

Native Ads – Native ads give you the flexibility to match your app’s form and function. These are ads that match the look and feel of the content a user is already consuming. Native ads have a high engagement potential and they usually don’t ruin the user experience. The ideal placement for native ads is in-feed, within the content of the app.

Incentivized downloads – ads that encourage users to take an action with advertiser content (like watching a video o install an app) in exchange for in-game currency. They are perfect for encouraging large volumes of users to download an app in a short period of time.

Contextual ads – targeted ads based on user data (location, search terms, and profile). One popular type of contextual ads is static offers that are related to the app’s content.

The best way to monetize your app with advertisement is by partnering with an ad network.

Subscription (paywalls)

It’s an app business model similar to the freemium model but focusing on gating content, not features. The user can view some content for free, and at some point, they have to sign up for a paid subscription to access more content.

Instead of buying an app for a single price, the user pays a fee on a recurring basis, for example, every month. It can be a good business model because users will continue to pay for your app as long as you are providing value.

There are two main types of payment methods: auto-renewal and non-renewing subscriptions. With the auto-renewable method, the subscription will automatically renew until the users decide to cancel it.

This is a good way to offer free trials to users where the user will not be billed until the free trial period is over.

Sponsorship (incentivized advertising)

Sponsorship entails partnering with advertisers who provide your users with rewards for completing certain in-app actions.

Brands and agencies pay to be part of an incentive system. Your app earns money by taking a share of the revenue from redeemed rewards.