Top 6 App Monetization Models & When to Choose Each One

app monetization models

Mobile app development can often be a challenging, lengthy, and expensive journey for many businesses that want to establish their mobile presence. Before you even start building your app and deciding what features you can add to it, and see how much it’s going to cost, you will have to develop a clear and sustainable monetization strategy. What are you trying to achieve with your app? How are you going to drive more revenue for your business with it?

Today, we will see the best app monetization models that you can choose from, and which one would be the most adequate depending on your product, service, and business strategy.

app monetization models

1. In-app advertising (free with ads)

First on our list of app monetization models are the apps that are completely free to download, but they earn their revenue through in-app advertising. This model is great for getting more app downloads because it removes the cost barrier that many users don’t want to cross by purchasing the product without knowing whether they will like it or not.

This model is one of the most common that you will find among the apps on your smartphone. It aims to collect information about app users with the purpose of helping advertisers deliver specific, highly-targeted ads to your audience.

As an app owner, your goal is to build a sizeable userbase and get enough data so you can later sell it to app publishers who will place targeted ads within your app.

When should you choose this model?

While this one of our app monetization models can be highly effective for driving more app downloads (people love free apps!), it might not work for niche or utility apps that focus a lot on functionality. The main reason why is because ads can be quite intrusive, especially if they are not well-targeted, and are thrown all over the place.

For niche industries, it might also not be the best option because really particular industries have a smaller, very specific traffic – which might not give you the volume you need to earn a lot of money just from ads. Of course, you could always combine it with other sources of driving revenue, but if your niche is really that unique and specific, there are other app monetization models that may suit you better.

2. Freemium apps

app monetization models - freemium

Next on our list of app monetization models is the so-called Freemium, which is definitely one of the most popular on the app store market. Compared to in-app advertising, the app is offered for free as well; however, there are some major differences.

In the Freemium monetization model, the basic content or features of the app are offered for free, but certain functionalities are gated and you should pay additionally in order to unlock them. In other words, users will download the app and access it without any extra costs, but if they want to use the complete functionality, there will be additional charges.

The idea of this model is that you give users the opportunity to try out your app and see if it’s the right one for them. In most cases, the basic functionalities will not be enough for a complete and satisfying experience – for example, many game apps will only unlock particular levels, and you will not be able to advance much more in the game. However, this model is great to give people a rich preview so they can make a better informed decision if they want to spend money on the app.

When should you choose this model?

This business model is great for building a large user base and showcasing enough from your app to get people hooked. If users would have to pay for the app before even downloading it, most of them wouldn’t even cross the initial barrier just because of the costs; so they could be missing on something that they actually like.

Freemium is one of the most popular app monetization models, and this is for a reason. It is flexible, and can be easily adapted to any sector, especially games and high-tech apps with a lot of advanced functionalities. This way, you give people a taste of your app without revealing all of your cards, and you can easily get them hooked for more.

However, you should also be careful when implementing a Freemium monetization model. Offering too many features for free can result in higher churn rates, and it will be really difficult to convince your audience to upgrade to a paid plan. You should offer enough free features to give users a good idea of what they can expect from your app, but not too many as to remove the need for getting the premium functionality.

3. Premium apps (paid from beginning)

Next on our list of app monetization models is Premium, which was also the original method that businesses used when mobile app stores were first launched. As opposed to our previous two models – freemium and in-app advertising, you charge users directly for downloading your app, and they don’t have the opportunity to try it out before paying. Of course, users could ask for a refund in case it didn’t end up being what they expected.

Paid apps can vary in prices, starting from $0.99 to¬†$999.99, and brands earn their evenue from every new download. The key to finding success with this model is ensuring that you have correctly showcased the value and functionalities of your app with the right images, descriptions, meta data. You should make sure that you’ve positioned your app well within the app store with the right ASO keyword research.

When should you choose this model?

This model is not for everyone, especially if you are in a sector with a lot of competition. Unless your app is really standing out from the crowd, and offers additional functionalities that you can hardly find among competitors, setting an initial price on it might result in getting very few downloads. Another thing that could happen is that people download it, find out that it offers similar features to free apps, and simply request a refund on it.

If you offer a really unique, distinctive and high-tech app within your niche, this might be a good model for you because people will probably not find a lot of other options that offer the same quality. However, considering that app stores are currently overcrowded with millions of apps, you should evaluate Premium really well. It is one of the app monetization models with the highest entry / cost-barrier, so it might not deliver the desired results for everyone.

This barrier, as well as the fact that most app stores will take a commission of up to 30% for each purchase, makes it a difficult for most businesses to achieve success with this particular model.

4. In-app purchases

Next on our list of app monetization models are apps that drive their revenue through in-app purchases. This strategy revolves around selling either physical or digital goods within your app – a good example of that is the famous game CandyCrush, which allows you to purchase extra goods such as gold bars so you can continue advancing in the game.

In-app purchases don’t necessarily have to be real-life goods – they can also be virtual goods that are applicable only within the app. Another example of this is The Sims Freeplay, in which you can purchase clothing and furniture for your sims’ houses, or additional currency with which you can continue purchasing goods.

When should you choose this model?

Among all app monetization models, this one is particularly great because it allows you to turn your app into another sales channel – which can be really effective if you managed to make it feel like a natural part of your app.

This app model works particularly well for brands within the ecommerce sector, although it is flexible enough to apply to other sectors and verticals as well. A model that includes in-app purchases is also great for getting nice and comfortable profit margins, mainly due to the fact that it doesn’t have the traditional expenses of the regular brick and mortar stores.

However, it is also important to keep in mind that app stores usually take a cut of the revenue from the virtual goods as well, just as we saw with the Freemium model.

5. Paywall apps (Subscription-based)

Our list of app monetization models continues with Paywall or the so-called subscription based model, which means exactly what you would imagine from its name. In other words, users will typically pay on a monthly or yearly basis for premium app services, bringing in recurring revenue for the company, driving a predictable stream of earnings on a regular basis.

There are various approaches to the Paywall model, the most common ones being PAYG (Pay as you go), and Tiered Pricing. With the first model, you can charge users based on the usage rate of the service – the more they use, the more they pay. With tiered pricing, what you can do is split your services into different levels depending on the features and usage amounts of each level.

When should you choose this model?

This model can be particularly great for companies within the Software as a Service (SaaS) industry, and in general for technology services that can be easily scalable to different tier plans. However, it is not always easily translatable to other verticals such as lifestyle, news and entertainment because they can limit the content consumed on the app.

6. Incentivized advertising

Out of all the app monetization models that we just discussed, incentivized advertising is probably one of the newest ones on the list. This model revolves around partnering with advertisers who reward users with incentives for completing certain in-app actions. As the app owner, you will earn money from taking a share of the revenue from the redeemed rewards. By doing so, you can actually incorporate ads into your app while simultaneously enhancing your app’s ability to engage useres.

When should you choose this model?

This one on the list of app monetization models is particularly innovative, and it can be adapted for companies across many verticals. It is also an advertising strategy that is typically well received by users because it is relevant to the purpose and the content of the app without being intrusive.

The incentivized advertising model is highly beneficial for everyone – it drives revenue for app developers and marketers, advertisers receive more and well-targeted ad space, and on top of that, users benefit from free rewards as well.

Progressive Web Apps

These were the most effective app monetization models on the app store market. However, as we saw in many of them, one of the huge problems that companies face when it comes to native mobile apps are the high commissions that app stores impose on revenue. Which, of course, are not the only issues revolving app stores – they add extra steps for users, often worsen customer engagement and conversion rates, end up in more costs for the business, and it is difficult to gain visibility with so much competition around.

For this reason, Beezer created a no-code Drag & Drop app builder that allows companies to develop progressive web apps without any coding skills. Progressive web apps are essentially websites with the functionalities and the look and feel of a mobile native app, and without the hassle of an app store. They are extremely light, fast, flexible, and will offer the basic content of your app regardless of the users’ electronic devices, network connectivity or browser.

Progressive web apps use a revolutionary technology to combine the best of the mobile and web world, and solve the issues that many companies are facing as a result of publishing their app on a third party – the app store. With Beezer, you can create your own app in less than 1 hours, and for a fraction of the cost of native app development.

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