Once you have your app developed and ready to launch, the question of how to make money from it becomes a priority. The two main models are: free apps with in-app purchases or paid apps. In this article we will explore both options along with other monetization strategies which can be implemented to complement them.
Free Apps With In-App Purchases
This is the most used model by far. It consists of offering your app for free, but giving users extra content or premium features if they pay for them. Research by EEDAR shows that 77% of consumers are comfortable paying for upgrades within an app (such as extra levels, lives, hints or coins).
There are many ways to implement in-app purchases. For paid apps, you can offer a free trial version with the full content locked and an in-app purchase to unlock it. Another option is to allow users just to buy individual levels instead of having to make the purchase for the entire app (e.g., in strategy games).
In the case of free apps, you can offer a range of different items for purchase such as coins, lives or hints through which users can progress in the game. You could also use advertising to monetize your app, but this is not recommended if you want to keep your user base.
Paid Apps
Apps that require payment from the start might seem like a risky move, but with more than 350,000 apps on iOS and 300,000 on Google Play, it is actually one of the best ways to improve your app’s discoverability. As with any other business model, there are many factors to consider when choosing between paid or free apps:
Revenue Possibilities
A free app will typically generate less revenue than a paid one, but there are may other ways to increase revenue such as in-app purchases or advertising. In the case of paid apps, you have to take into account that users who download your app might not be prepared to pay for it, so you need to offer a free trial or a price that is as low as possible.
Frequency of Purchases
Paid apps should be paid for once, but with in-app purchases and other options the frequency can be higher (e.g., users might pay for coins, lives, hints etc.). Therefore it is important to consider how often users are willing to make an in-app purchase.
Target Audience
Depending on if your app is free or paid, the demographics of users will be different. For example, a game with in-app purchases should aim for younger audiences who are more willing to make in-app purchases than older ones. However, in the case of paid apps, it is important that you target a specific audience who has a high likelihood of paying for your app.
Portability
With paid apps, you have the option of releasing the same app on different platforms and charging a single price for it. This not only makes your monetization strategy more efficient because all users will pay the same amount for an app regardless of which platform they use, but also makes marketing easier because you can make announcements about updates and new content on all the different platforms at once.
With free apps, if you update or add new features it can be very difficult to target users of other platforms (e.g., get them to download the latest version when they are already happy with the current one). You could try putting in-app purchase options into older versions, but this will cause some users to complain about having to pay twice and considering that the revenue received by Apple and Google is a percentage of purchases made on their platforms, you are missing out on extra revenue.
Monetization Strategies to Complement Free Apps With In-App Purchases or Paid Apps
Although in-app purchases are the most common way of monetizing an app, there are other options that can be implemented as well.
Subscriptions
Users can pay for access to content or services on a regular basis (e.g., monthly, quarterly or yearly).
Freemium
Users have access to a free basic version of the app and can optionally download or purchase paid content (e.g., extra levels, coins, etc.).
Ads
Using advertising as a monetization strategy can be effective but it is important to consider the user experience. You should implement banner ads that don’t distract from the app and only appear in non-crucial parts of the user interface.
Loyalty Programs
Loyalty programs are a strategy that many big companies use to increase customer retention (e.g., Starbucks or Amazon). In the case of apps, there are two options: Reward users with points for doing something they normally do (e.g., game app where users get points for playing). Allow users to earn virtual currency through tasks that take time (e.g., Foursquare or Swarm).
Integrating New Monetization Strategies Into Your Existing Apps
If you have an app already live and generating revenue, it is important to consider the logistics of adding a new monetization strategy. Since different strategies require different methods of implementation, it is important to do this at the right time.
If you are planning an update for your app, then you should add new monetization opportunities in that version. If adding a new strategy or changing the existing strategy requires extra resources (e.g., redesigning elements of the user interface to be more suitable for ads), then you should do this based on the priority of both updates.
A free app can be a good strategy in some cases, but it is important to keep in mind that free apps with frequent advertisements or in-app purchases are not the best choice for monetization. For example, an advertisement every few minutes can distract users from the app or they might get annoyed and stop using it after a while. However, if an app is basically free to use (e.g., reading articles in a news app), then there is no harm in using this strategy.
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