According to Steve Blank, a startup may be considered an organization formed to investigate a scalable and repeatable business model. In the absence of the ability to scale and grow, a startup will eventually fail. However, the growth depends on the money mobile app earns every month! It is not possible for a business to be sustainable if it’s not generating income. And don’t forget about app development expenses, you have to return those investments, right? In this article, we will discuss eight unique app monetization strategies, which are also known as “revenue models.”
Monetization is a means of converting an object or asset into legal tender or money in any form of operating business.
If the revenue coming into the business doesn’t exceed the number of expenses going out of the business (in other words “positive cash flow”), this can lead to bankrupt. However, if the expenses spent to acquire new client (the “client acquisition cost”) falls below the value that new client will bring to your business (i.e., the “client lifetime value”), then it will affect the growth of your business in the future.
App monetization model can be defined as a framework showing how a mobile app can earn revenue, generate profits higher than the average return on investment (ROI). In other words, app monetization model provides answers to two fundamental questions:
1. Which type of value will be accessible? At what price? And for whom?
2. What source(s) of income will be pursued?
An app revenue model is one aspect of a (comprehensive and more extensive) business model. Here are the eight different app monetization models that you can use to monetize your app to grow your business quickly.
Eight App Monetization Models Suitable For Your Mobile Application
Online advertisement is broad and growing gradually. Here are some facts:
- According to Business Insider, 2016, United States Internet promotion income increased to $72.5 billion exceeding the previous $69 billion spent on ads.
- The world internet advertising costs hit more than $200 billion in 2017
- In 2017, United States digital promotion exceeded a target of $83 Billion
There are many ways to implement mobile advertising. They include:
- Display the third party ads on your Android or iOS app.
- Create your ad networks like LinkedIn, Facebook, Twitter and Google
- If you want to operate the app as a marketplace like Craigslist or eBay, you can include a listing fee. Or/and
- On the ads, you can add job listings, similar to websites like Angel List and Stack Overflow.
The primary disadvantage of using the mobile app monetization model for advertising is the fact that many users don’t like ads on Android, iOS or any other device carrier. So says Hubspot, Business Insider, and Vieo Design
Many users respond with dissatisfaction or even anger when they come across in-app ads, especially when a business begins to use them at the early stage or startup process. This is also applicable to interstitial ads, pop-ups, and local advertisements. This can affect your client retention rates or adoption if you flood your users with many mobile ads too early or regularly. Also it’s not too smart to be aggressive with mobile advertising if you just launched a Minimum Viable Product. It can damage badly the reputation of your app, and the users won’t return back.
Recommended Reading: “What is MVP and how to build it right”
Also, if your app revenue model depends on the monetizing advertisement, you will be convinced to forfeit more user experience to generate more significant ad dollars. Business startups that involve advertising with another form of revenue models like premium service of Spotify are better than businesses that depend entirely on ad money.
2. Lead Generation and Affiliate Marketing
Lead generation and affiliate marketing is the second app monetization strategy that you can consider. Pat Flynn of the Smart Passive Income provides some useful description of “affiliate marketing.”:
“Affiliate marketing is a means of promoting other people’s (or business) products and earning a commission in return. If you find a product you are interested in, you can advertise it to others and receive a profit for each sale. What are the benefits of this app monetization strategy?
- You will be excited if you earn a commission
- The company will be delighted that they have a new sale from a client that they didn’t expect.
- Also, the client will be happy that they learned about a product directly from you that will meet their needs or desire.”
Affiliate marketing involves earning money anytime a user downloads or purchases a product/service by following a link that you host within your app or on your website. Podcast Addict make use of affiliate marketing through hosting in-app ads at the underneath its screen. However, you can combine affiliate marketing with selling leads or lead generation to concerned parties. The lead generation is a “marketing process of capturing and promoting a product or service to create a sales pipeline.”
Recommended Reading: “Guide to creating a successful app”
Also, lead generation involves catching the attention of potential clients to advertise them down the line. Apart from selling your products or services, how can you earn profit from leads? Selling leads to other interested parties, for example! Here’s how Mint.com, the popular website, and the app, implements this:
- Mint provides its users free personal finance management services. They enable users to track their credit card, investment, bank transaction, loan balance and also provide financial goals and generate budgets.
- Mint gathers all the financial data and then sells this data to credit card companies, banks, and other interested parties for a reasonable price (the interested parties will mine and target leads with their products and services)
- Also, Mint generates revenue through affiliate programs that offer users the opportunity to sign up for credit cards through the app, or Mint.com website. This process will enable credit card application to be processed.
Warning: If you are selling leads online or offline, most times it involves legal or ethical outcome to confirm that you are not violating any legal or moral principles that will affect your business operations or reputation. Also, this warning applies to the following app monetization model such as selling data.
3. Selling Data
The third mobile app monetization model involves the selling of extensive data to interested third parties. If your app can generate a significant amount of data on client preferences or habits, then it is possible that these data would be useful for other businesses, whose products relied on knowing people want and need.
For example, the famous free check-in-app Foursquare permits users to share their locations to the public (i.e., “check-ins”) with other parties. This data usually complies with huge databases; later Foursquare sells the data to interested third parties.
Thus, Foursquare has gathered check-in data on more than 9 billion check-ins. This is a massive and valuable amount of data! For instance, the heat map from Japan, Tokyo contains check-in data that cover a week in 2012:
Which parties are in need of these data? Maybe, Starbucks is planning to open up two new coffee shops at the busiest routes in Tokyo. These data would enable Starbucks to make a decision where to site their new stores by visually evaluating the population in the regions. But keep in mind that if you want to go with this app monetization model, you have to be ready to invest a lot of money, to generate enough data for anyone to get interested.
Recommended Reading: “iOS or Android: Which app you should build first”
4. Transaction Fees
If your business startup operates in the form of digital marketplace or platform that allows financial transactions to occur regularly (just like Kickstarter, the international crowd-funding platform work towards creativity), the transaction fees will represent the app monetization model.
Presently, the online payments processing startup, Stripe, is estimated to be $9.2 billion. The company generates revenue by charging users reasonable fees for every completed transaction. Airbnb, Uber, ebay, Amazon, Etsy and many others also work this app monetization model.
The “freemium” app revenue model helps to create revenue in the web-based services, including digital apps. This basic approach is simple to understand. All you have to do is to offer users with a functional, basic and full free version of your product or service sample. After some time, this will persuade potential clients to become regular clients by providing them a premium, advanced, feature-rich version for a price.
Most “Software as a Service” (SaaS) based products make use of the freemium business strategy. For instance, the cloud-based file hosting service called Dropbox provides new users free storage of 2GB with premium versions that enable users to buy extra space. Dropbox makes use of freemium revenue model to acquire more than 500 million users globally. There are many ways in which new business can implement the unique freemium approach to app revenue. The three of the most common approaches include:
- Storage-Based freemium: It is a free version of your service or product that provides some unique capacity like a number of users or usage amount. This allows users to pay for the premium version to continue using the service just like Evernote and Dropbox, etc.
- Feature-Based freemium: This is a free version of your service or product that is provided to clients. But its functionality is limited to paid users to unlock the full range of features, i.e., Skype and Buffer.
- Time-Based freemium: The free version of your service or product is offered for a limited time frame, i.e., the standard “free trial” offer, such as Shopify and Audible.
e-Commerce is another app monetization model option you can consider even if your startup doesn’t operate as e-shop. This is a right place for many business startups, especially people with committed user communities, selling promotional materials (like t-shirts) on their websites.
Apart from this, it is possible to combine m-commerce with freemium-based app monetization model via selling services or products directly to what you offer. For instance, the Evernote app takes note, organizes and archives data, up till 2016 was combining the freemium app monetization model with extra e-commerce revenue in the form of product sales through the Evernote Market. Sadly, Evernote was unable to generate much profit via its market. Due to this, the company doesn’t continue with its e-commerce operations in 2016.
Recommended Reading: “The Rise Of mCommerce”
7. Virtual Goods
The world market for virtual goods ranging from avatars, stickers, weapons and unique levels is estimated to worth approximately $15 billion. Practically, any electronic good can provide monetizable virtual good including video games (Farmville, Angry Birds, etc.) which are the usual type of virtual goods. The super popular Pokémon Go provides users the opportunity to purchase different types of virtual goods such as “PokéCoins.”
8. Subscription/Software-as-a-Service (SaaS)
Software-as-a-Service is a subscription-based app monetization model that offers a good option for startups, as long as their services are well-matched to the subscription plan. Subscription permits your company to lure users into long-term payment approach (either monthly or yearly plan) to increase the lifetime value of clients.
Also, the recurring revenues involve a subscription-based approach that represents a secured and predictable earnings stream on which you can rely. The two most common options among the different approaches to Saas-based revenue include:
- PAYG (Pay as you go) plan: You can charge your users based on each usage rate. Previously, this approach was the common among mobile phone plans. Many companies like Twilio and Amazon Web Services use this model to provide their users flexible pricing plans today. The downside to the PAYG model is intrinsically based on the number of services a client uses; it is usually difficult to maintain highly anticipated revenues (this can lead to uncertainty into your business).
- Tiered pricing: You can split your services into different levels (or tiers) according to the usage amounts and features that the clients require more and expand. Tiered pricing is the most popular model used by the Software-as-a-Service companies.
There is one huge benefit of Subscription app monetization model is that users see that their necessities can be fulfilled, either now or in the future, even if their needs change.
Congratulations! Now you are armed with information about all possible monetization models for mobile applications. With this info you can understand what app monetization model would fit the best for your mobile application and make it successful.
If you need any help to make a choice concerning app monetization model or any other question about creating high-quality mobile application contact us for free 60 minute Skype consultation.
Here you can find app development services that we provide.