How to monetize a mobile app?
You have a new mobile app and would like to know how to make money on it? Or maybe you’re considering creating one for your business? Anyway, you should know what monetization opportunities you have, from in-app advertising, through subscriptions and paid apps, to different types of partnerships.
Mobile apps users are more and more willing to make purchases through them. Overall consumer spending on in-app purchases, premium apps, and subscriptions grew 15.1% Y/Y. This is good news for you if you’re developing an app – it has a chance to become a fully profitable business! And to achieve this, you need to choose your right monetization model. Let’s dig into some mobile app monetization methods to help you choose the best one for your business.
Benefits of app monetization
Why is the topic worth considering? There are different reasons why people decide to create mobile apps and these are not always profit-driven. But if the app is a part of your business and you hope to make money on it, you should consider different methods of app monetization. Creating paid apps or enabling in-app purchases are probably the easiest ones, a user buys the mobile app access or simply does in-app shopping. But in this article you’ll also find out how to make free apps and still generate revenue from it. This can, for example, enable you to accumulate funds for further development as well as to satisfy your customers with new updates and solutions. Try to make it a mutually beneficial case between you, the users of your mobile app and other partners.
In this model, the app is available for free and offers full access to functionalities, but in return, it displays ads in various places so that the app generates revenue. There are different types of in-app advertising.
An example of an app using this type of monetization method is 2048.
Types of in-app ads
- Banner ads – banner ads look like notifications – they appear at the top or bottom of the screen in the app. They usually display a text and an image to attract app users to click.
- Video ads – these are short video clips (mostly from 5 seconds to 2 minutes) appearing on the screen. Video ads can also be rewarded – have an exchange value. The user who watches an ad gets a reward such as an extra life in a game. Rewarded video ads can be good for user engagement but can also be quite disruptive.
- Playable ads – they can often be found in games. Playable ads work by giving the user the possibility to try a sample of the app. So if you like these couple of seconds of using the app, all you have to do is download the app with one click.
- Native ads – native ads actually vary a lot and have different looks. The goal is to make the app almost invisible in the flow of content. It can be put between articles in your feed or it can look like a search result. Although it has to be marked as sponsored, they draw your attention by pretending to be the app’s content.
- Interstitial ads – these ads appear on the whole screen and don’t require any interaction from the user (the user doesn’t choose to see the ad, it appears suddenly). Remember that they can be really annoying, so it’s important not to put too many interstitial ads in the app.
How much money can you earn on in-app ads?
There are different app metrics to help you measure the ad revenue. For example, it can be calculated by multiplying ad impressions by eCPM (Effective cost per thousand impressions, eCPM is an estimate of the revenue you receive for every thousand ad impressions).
Ad revenue = impressions * eCPM
Most of the advertising networks follow the Cost per Click (CPC) model for their ads in mobile apps. So whenever a user clicks on the ads in the app, a few pennies will be added to your pocket. Optimal Click through ratio (CTR) for apps is around 1.5 – 2 %. It differs based on type of ads and app monetization model. Banner ads provide the lowest revenue per click (RPM), the average RPM is around $0.10. For rewarded video ads, the average revenue per impression is $0.02. The average revenue per completion is $0.16 for interstitials (full-screen ads which engage users at natural pauses in an app’s flow, like between levels) and $2.50 for offerwall (mini-store in an app, listing multiple “offers” that users can complete in exchange for receiving an in-app reward). Overall, video ads provide the best RPM, but it doesn’t mean you can use them in every app.
Conclusion: after doing some maths, you can definitely make money on free apps thanks to in-app advertising!
This mobile app monetization strategy implies that the app is usually free, but you can make purchases of digital or physical goods while using it. As mentioned before, it’s one of the easiest ways to make money on a free app.
Digital goods can for example include various upgrades, such as extra lives in the game, or premium features. Physical goods will mostly appear in e-commerce apps, where a customer doing shopping provides revenue for the store, so also for the app at the same time.
In-app purchases are available for example in VSCO app.
Paid mobile apps
Paid mobile apps have a set price and can only be downloaded after making a payment. This model is recommended for mobile apps that provide a unique value to their users, standing out from the competition. The condition is simple: the user must need or like the app so bad that they’re willing to pay. Otherwise, i.e. if the market is full of similar solutions that are free, it’s nearly impossible to convince customers to spend money for your product.
Things 3 is an example of a paid mobile app.
Free + paid apps
In this mobile app monetization strategy, the app is available in two versions: free and paid. A user can download an app free of cost and it may, for example, offer less functionalities. The paid version is more complex, thus the app users may be encouraged to choose the paid option for comfort. When a user decides to pay, they receive additional feature(s). Sometimes it’s called a pro or a premium account.
It can also be about the ads. Mobile apps often offer a paid version for those who don’t want to see the ads. The deal is also simple: the app can’t make money on ads you watch, so you have to pay.
It usually refers to content-oriented apps. In this monetization model, an app can be downloaded for free from the mobile store but it has some limits (e.g. 1 article to read per day, only 15 minutes of audiobook to listen) or even using it without payment may not be possible. To have full access to it, app users need to opt for a subscription, which will be renewed every fixed period.
Subscriptions are implemented for example in the Netflix app.
It is similar to the subscription model but it offers much more for free and only some of the functionalities are available after in-app purchases (e.g. additional content or other digital goods, or also: no ads).
An example app using the freemium method is Spotify.
If your mobile app operates in a specific niche market (e.g. fitness workouts) and you have gathered a large user base, other companies related to that industry (e.g. a sportswear store) may approach you with an offer of collaboration and sponsorship, e.g. by buying advertising space.
A good example of such partnership is Nike and Headspace Partnership: Mindfulness Training.
Affiliation and commissions
In this particular type of monetization model, revenue is generated when someone purchases another service or product through your app (in marketplaces) or a special referral link placed in your app. Then, you earn a commission fee from that purchase. This model is often used also apart from mobile apps, also by influencers.
An example of such an app could be a fitness app, where apart from free workout plans for app users, the app presents recommended outfits and exercise equipment with affiliate links of these products leading to the partnered store.
You can also find this monetization model for example in the Wish app (it’s a marketplace app).
Mobile apps metrics
Both free and paid apps should be under control in terms of the metrics that measure their performance. In this article you’ll find 17 useful metrics to track and some of these can also be used to see if your app monetization model works. Remember not to implement several methods at once, because then it will be very difficult for you to follow the results of a particular app monetization strategy. After applying one of the methods, monitor the results for a while and this way you can be sure what works best.
Free apps usually attract more customers than paid apps but on the other hand, some users will be willing to make in-app purchases e.g. to give up the ads. A great example of this strategy can be Youtube. Lots of customers decide to buy premium access to watch movies without disturbing video ads.
Users often decide to pay also for solutions that are especially unique, helpful at their everyday life or at work, or that they especially enjoy using.
Pay attention to the metrics and decide which strategy will be the best for your business. To choose a monetization strategy for your app, it is best if you look at three factors: empathize with the customer (what are their needs and how they will use the app), the type of your business, and which model was chosen by your competitors.
Now that you know how a mobile app can become a profitable business, it's time to get down to planning how to create one. Read this article to find out what you should keep in mind when starting this process. Good luck!