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A successful mobile application is not only about cutting-edge mobile application technologies and a unique selling proposition. Without a viable app monetization strategy, your best app idea will likely fail due to the lack of funds for new features, releases, and bug fixing. Any seasoned software development company would agree that establishing a steady and consistent app revenue stream is vital for the long-term viability of any application.

However, the challenge lies in selecting an app monetization strategy that doesn’t betray your values and delivers the utmost user experience while also creating an income stream. In this article, we will take an in-depth look at the best app monetization strategies and consider their advantages and disadvantages. 

What is Mobile App Monetization?

Mobile app monetization refers to generating revenue from a software solution. All types of monetizing can be divided into two groups: 1) revenue acquired from app end users and 2) through advertisements. Companies that deliver mobile app-building services conduct market analysis to identify the most suitable app monetization plan for their clients. Comprising of various factors such as target audience, app category, functionality, and purpose, businesses can choose one or several strategies to generate revenue. 

Whether you choose cross-platform development or native, regardless of the type of product you create, you can find an effective way to monetize it. Establishing income through a software solution not only benefits app developers and the business but also the end users. Through acquiring cash flow, app owners can improve functionality and design to deliver a great user experience. 

Top 10 Mobile App Monetization Strategies

Choosing between multiple app monetization strategies can be challenging. Do you create revenue with advertising or opt for in-app purchases? In this section, we will delve into the ten most common mobile app monetization methods as well as their benefits, drawbacks, and best practices. 

Mobile App Monetization

In-app Advertising

In-app advertising is among the most popular and effective methods of mobile app monetization. If executed well, it can seamlessly immerse users in the ad without interrupting the app experience. Let’s explore the various types of in-app advertising and their benefits, as well as cover some best practices that will help you maximize efficiency. 

Mobile App Monetization

Types

  • Interstitial Ads

Interstitial advertisements are full-screen ads disguised as regular app content. The most common example is interstitial ads in a gaming app. Users have to watch an ad before playing the next level but they can usually skip after a few seconds. 

This type of monetization strategy circumvents banner blindness and is more likely to engage the user in exploring the ad’s content. Paired with user data that allows app developers to offer personalized suggestions, you can tailor these ad formats to particular customers. As a result, you can increase the efficiency of each advertisement without annoying app users with unwanted content. 

  • Native Ads

Native ads seamlessly integrate into the app’s design, tone of voice, and graphics to practically become a part of it. Commonly used in communication, lifestyle, and social media solutions, you can often see such ads in your feed. They look indistinguishable from other posts in the feed which incentivizes the viewer to engage. 

The best quality of native ads is maintaining the flow of the app experience. In other words, these app monetization methods do not interrupt the interaction and come off as more organic. This can also increase user retention as customers tend to abandon applications with intrusive ads. Furthermore, the seamless nature of these ad formats makes it more likely that users will perform the call to action. 

  • Banner Ads

Mobile app banner ads are typically small rectangular ads displayed in the corner or at the top of the screen. This ad format can be a static image or text, a short video or a GIF, or an interactive piece of content. Commonly displayed throughout the user’s entire session, banner ads are likely to be seen or interacted with. 

Although not a solid standalone app monetization strategy, banner ads can be a great low-cost addition. Moreover, they are quite easy to integrate since they don’t require any customization to fit into the mobile app design and flow.

  • Video Ads

Among the most enjoyable ad units, video ads have become integral to coherent monetization models for mobile apps. Short entertaining videos can be a great way to generate app revenue without overwhelming users with information. This ad format can also be used as an in-app reward system. For example, you can allow users to replay the level after watching a video ad. 

Video ads increase engagement since videos are played outside of the app experience. Either between lessons or mobile games levels, high-quality video ads are likely to be watched in full or at least until the skipping option becomes available. 

  • Playable Ads

As the name suggests, playable in-app advertising allows users to interact with the ad to experience the offered service. This monetization method is especially common in gaming apps and provides a short demo version of the full playthrough. Companies strive to be creative when it comes to playable ads and utilize sound, visual elements, and device features to immerse users in the app’s experience. 

  • Offerwall Ads

Offerwall is a type of in-app advertising that rewards users for watching an ad, taking a survey, or offering their information. For example, an application only allows you to lose mobile games three times per day. Instead of waiting until the next day, users can simply watch a short video ad and win an extra heart to continue playing. Not only do you acquire income from the in-app advertising but also increase user retention and satisfaction. 

Mobile App Monetization

Benefits

  • Versatility: While not every app can offer in-app purchases or monthly subscriptions, advertisements can be seamlessly integrated into every solution. As long as you create a high-quality piece of content that complements the app experience, you can easily generate revenue with video, banner, native, and other types of ads. 
  • Preserving user experience: Natural integrations allow app developers to maintain a competitive level of usability. For example, native ads and interstitial ads keep the organic flow of the app without disrupting user experience with intrusive ad reads. At the same time, offerwall ads provide additional incentives to play the ad while retaining users. 
  • Targeted approach: Utilizing behavioral data, companies nowadays can tailor ads to target a particular demographic. When users see content that speaks to them, they are more likely to interact with it or at least watch and enjoy the ad. 

Drawbacks

  • Spammy feel: A large amount of non-targeted ads can interrupt user experience. If not executed correctly, in-app ads can actually drive people away from the application. 
  • Ad fatigue: People see advertisements every day on the streets, on laptops, on TV, in magazines, etc. Expanded over a decade, this has created debilitating ad fatigue. Research shows that after seeing an ad for the first time, viewers are 5.7% more likely to purchase the product, while after the 11th time, the number shrinks to 4.2%. Be mindful of that and don’t bombard your audience with too much advertisement. 

Best For

In-app ads can be a suitable mobile app monetization option for virtually any application. However, organizations need to conduct a thorough investigation into their services and target user base to choose the correct type of ad. 

Best Practices 

Much like with any type of advertisement, it’s highly recommended to test frequently and across platforms. When you monetize an app with ads, make sure your ad type and pricing model generate the best results for your application. Both for customer retention and satisfaction and your app revenue, the chosen ads should create this balance.

Additionally, companies that achieve success with in-app ads invest in quality. Non-watchable in-app advertising will significantly decrease the overall appeal of the application. Create high-quality advertisements that are easy and entertaining to watch. Besides that, focus on the creative part to offer visually appealing content. 

In-app Purchases

Another popular app monetization strategy includes in-app purchases. This approach allows app developers to acquire income by selling virtual items and services within the app functionality. From literally obtaining in-app currency to unlocking additional mobile app features, in-app purchases are a viable way to monetize mobile solutions across industries. 

Mobile App Monetization

Benefits

  • Long-term engagement: By shopping for additional features or in-app purchases, users are incentivized to continue using the application. If orchestrated correctly, paid app features can enrich user experience thus increasing retention. 
  • User data collection: Data associated with in-app purchases allows app developers to identify what content their user base prefers. Based on these findings, you can release new features or remove low-performing ones to improve the overall user experience. 
  • Low costs of implementation: Unlike ads that require additional coding and integration, in-app purchases have a low barrier to entry. App developers can simply choose which features or goods to offer for free and which to charge a fee for. 

Drawbacks

  • User frustration: If users have to make an in-app purchase to advance, this can create hostility and frustration. It’s also important to identify the acceptable frequency of upgrading requests. When seen too often, they can deter people from using the application altogether. 
  • Issues associated with payments: When dealing with in-app purchases, developers need to provide the utmost data security to avoid breaches and leaks. Besides that, paid apps items and features need management to ensure users receive what they were charged for. 

Best For

The in-app purchases model can be applied to practically any application, including gaming apps, eCommerce, social media, tools, and more. 

Best Practices

Instead of dividing all features into free and paid, a seasoned app developer offers multiple tiers of in-app goods and services. This type of in-app purchase strategy helps you to reach a wider range of users and provide them with a unique experience. Furthermore, keep track of user behavior to measure user engagement and discover why people choose to buy or opt-out.

Finally, it’s imperative to ensure that your app remains usable even without making additional in-app purchases. In other words, every in-app purchase should make the experience more interesting and enjoyable without becoming necessary. 

Freemium Subscription

Freemium is an app monetization strategy that breaks down the entirety of the application functionality into two parts: free and paid apps. Free users have access to a limited set of features while premium users are granted full access. This approach lowers the bar to entry and allows anyone to benefit from your services.

If users like your solution, they have the option to pay a monthly fee for additional features without risking investing in something new and unknown. Paid app features may consist of enhanced functionality and upgrades, unlimited storage space, monthly credits, full-fledged support, and others. 

Mobile App Monetization

Benefits

  • Scalability: The freemium app monetization model enables scalability without the overhead costs that traditional marketing requires. 
  • Predictable cash flow: Paying users will generate a constant flow of cash that can be used to cover your costs and improve app functionality. 
  • Informed purchasing decision: Using an app subscription model, users can make an informed decision when buying a subscription. As opposed to offering a temporary trial version, this approach provides access to the app’s main features without any time constraints. 

Drawbacks

  • Lack of incentive to upgrade: Depending on how many features you allocate to the free app version, users may decide not to upgrade. There is a fine line between not offering enough features and granting too many. In the first case, users are likely to become frustrated with the app’s functionality and abandon the solution. If you provide access to too many features in the free version, you are risking not upselling them at all. 

Best For

The freemium subscription model is suitable for businesses that regularly deliver content such as dating, fitness, video streaming, and productivity, news, and entertainment apps. 

Best Practices

Much like in the in-app purchases model, in order to perfectly execute the freemium mobile app monetization strategy, you need to figure out which features should go into the free app version. You can monitor data usage to learn about customer behavior and pinpoint what value they are getting. Additionally, you can offer short-term access to a full-featured paid version to show users what they are missing out on.

Another common practice involves offering discounts to long-term users to further incentivize them to upgrade. Finally, make sure to regularly remind users about the paid version and its capabilities without getting on their nerves. 

Premium Subscription

Similar to the previous monetization app approach, a premium subscription model operates without a free app version. Instead, it offers a trial for newcomers with access to all premium features. Subscription-based apps can usually be paid weekly, monthly, quarterly, and yearly, with each tier unlocking additional discounts. One of the most popular mobile app monetization strategies among streaming services, this approach is used by Netflix, Disney+, Hulu, and others. 

Mobile App Monetization

Benefits

  • Bonuses from Apple app store: Apple’s App Store awards subscription-based apps with a more lucrative revenue split. The conventional rate charged by both Apple’s App Store and Google Play is 30%, but Apple offers more incentive for subscription-based apps by charging only 15% if users stay subscribed for at least one year. 
  • Reliable cash flow: Subscription apps can take advantage of stable and predictable income. Especially considering that 42% of app users forget to stop the payment even after abandoning the service, you can rely on steady cash flow. 
  • Elevated customer engagement: If a user decides to invest in an application, they are more likely to actively use it compared to a free app. Before purchasing a subscription, users have familiarized themselves with the app functionality and found what spoke to them. This is why they will probably continue to use it in the foreseeable future. 

Drawbacks

  • Need for new features: Since users will be paying a monthly fee, they expect your solution to continuously release new premium features to keep them invested. These monetization models for mobile apps require a close relationship with the user base to deliver consistent updates and new content. 
  • Short-term trial: As opposed to the free app version, the trial period is commonly short. To help users understand the true value of the required fee, you need to provide an exhaustive onboarding process. 

Best For

The most appropriate app categories for this app monetization option include content apps such as video streaming, music, and new services, as well as service apps like social media scheduling and digital storage. 

Best Practices

One of the most common tips for this app monetization model is delivering several tiers of service. It’s recommended to identify your target groups and provide different options to each of them. Make sure to remind your users of other tiers and allow them to up or downgrade at any time. Finally, establish robust security measures to protect financial app user data. 

Pay-per-download

The most old-school mobile app monetization model is pay-per-download where users are asked to pay a one-time fee to gain full access to the application. Unlike the in-app purchases approach, this model enables all features at once. Developers may also create a separate, free version of the app that works as a free trial or ‘lite’ version for users to try before purchasing the paid version. Although the market is shifting toward subscription-based solutions, some applications can still benefit from a paid app download model. 

Mobile App Monetization

Benefits

  • Measurable metrics: The nature of pay-per-download makes it a lot easier to calculate the app revenue and user base. Based on how many payments you have received, you can quickly identify user retention and churn, among other vital indicators. 
  • Uninterrupted user experience: Without banners, videos, and other ads—as well as constant reminders to upgrade—paying users can enjoy a smooth and undisturbed app experience. 
  • Increased user loyalty: Upon investing in your application, your customers are more likely to stick around and continuously use your solution for a longer period of time. 

Drawbacks

  • Brand recognition requirements: This type of monetizing requires a strong and well-known brand name backed by solid content and trusted reviews. Since a one-time payment is often a larger sum of money compared to a monthly fee, users are reluctant to make the purchase without robust brand recognition. 
  • Slow ROI: Having access to instant revenue halts long-term consistency. As opposed to receiving monthly payments from your app user base, you will only get one. This requires more advanced money management and further establishment of your brand. 
  • Strong competition: The abundance of free apps makes it significantly harder to appeal to the right audience. Without a solid reputation and unique features, you are likely to be outperformed. 

Best For

Companies that will benefit from the pay-per-download app monetization models are businesses with recognizable brands and one-of-a-kind products or services. 

Best Practices

Before even considering this monetization method, make sure you are a market leader in your sector with a widely known brand name. Additionally, do market research to identify potential competitors that offer their apps for free or significantly cheaper. It’s also recommended to apply ASO techniques to improve your ranking. 

Affiliate Marketing and Sponsorship

Affiliate marketing is an app revenue model that rewards affiliates for referring customers to the company’s products. Affiliates could be both individuals and other businesses that have a platform to promote your product or service. Commonly using a link or promo code, affiliates can display it in a blog post, social media account, banner ad, etc. The link is individually generated for each promoter to track their leads and conversions to appropriately reward them for referrals. 

This model is vastly different from in-app purchases or advertising techniques as it involves third parties in the promotion. Here, you have to rely on other actors to describe what benefits your solution can bring.

Mobile App Monetization

Benefits

  • Lowering user fees: Since affiliate marketing can generate an additional stream of income, companies can lower the fees to make their solution more accessible. 
  • No initial investment: The affiliate app monetization model only rewards promoters whose referrals generate real sales. This means that you don’t need to make any investments before acquiring new users. 
  • Reaching wider audiences: Affiliates are people or organizations with an established audience. Working with them gives you access to potentially new customers that would have never heard about you otherwise. 

Drawbacks

  • Lack of promotional control: Allowing an affiliate to promote your service on their platform takes away some control. Even though you can dictate how you would like to be advertised, the affiliate still holds a lot of influence over your brand representation. 
  • High competition: In order to create an effective promotion, you need to find an affiliate who operates in your niche. The more niche your product, the higher the competition for affiliates. 

Best For

Monetization models for mobile apps that include affiliate marketing work best for new products that want to reach wider audiences through partnerships. 

Best Practices

First of all, choosing the right affiliate is key to maximizing the success of your marketing campaign. Consider their audience, industry, content, and general values before hiring them to promote your application. Furthermore, provide your affiliates with extensive product descriptions, promotional materials like banners and graphics, as well as full access to the app. Lastly, keep track of how well your affiliates are performing to ensure timely payments. 

Email Marketing

Email marketing remains one of the most effective monetization models for apps and beyond. The vast majority of internet users still conduct a big portion of their communication over email. Commonly, businesses collect user email accounts to send out reminders, bills, newsletters, and important announcements. In conjunction with personalized suggestions, this type of monetization strategy can yield great outcomes. 

Mobile App Monetization

Benefits

  • Easy to implement: All you need is an email address from a consenting user to begin an email campaign. Using various marketing tools, you can automate and personalize email content to create a successful promotion. 
  • Incredibly high ROI: Studies show that email marketing delivers 42 dollars on every dollar of investment. Considering the affordability of launching a campaign over email, this number can bring lucrative results. 

Drawbacks

  • Spammy reputation: Be mindful that people receive an obscene amount of emails every day which can be frustrating and discouraging. Make sure you are sending informative content every so often. 

Best For

Anyone can add email marketing to their strategy, regardless of the app category. 

Best Practices

Before launching a campaign, make sure you are exclusively using emails collected from customers who opted for receiving emails. Additionally, take advantage of various marketing tools to identify the best time to send letters as well as to add personalization to the content. To tailor your email content more precisely, consider audience segmentation techniques. Finally, add visuals to your emails in the form of native or video ads to grab user attention.

Licensing 

Licensing is a suitable mobile app monetization option for solutions that aggregate large amounts of user-generated data. This information can be utilized to build other tools and software. However, collecting and selling user data requires explicit consent from customers paired with approval from app stores like Apple and Google Play store. Additionally, the accumulated information needs to be anonymized to protect the identity of your user base. 

Mobile App Monetization

Benefits

  • Stable income: Data licensing is a reliable and consistent revenue that acts as a passive income stream to support your solution. 
  • No impact on UX: Since data monetization happens behind closed doors, your users will not suffer from constant mobile app advertising and notifications. This will improve user experience and allow your customers to focus on the core functionality of the app. 

Drawbacks

  • Time-consuming: Data licensing can be quite time-consuming for a new business that doesn’t yet have partnerships with data providers. However, once you have found the right buyer, the process will become self-sufficient. 
  • Limited monetization models for apps: Selling user-generated data can pose a threat to establishing other ways to monetize an app. 

Best For

Data monetization is a viable mobile app monetization method for any company with at least 50,000 daily active users who generate data. 

Best Practices

When looking for a potential buyer, pay attention to their demands related to demographics. For example, if you are largely operating in Germany, search for a data collector that is interested in the German audience. Additionally, always ask for user’s consent before capturing their information to avoid lawsuits and reputational losses. Finally, evaluate how you gather and share data to ensure compliance with data protection laws like GDPR. 

Transaction Fees

How can you create a mobile marketplace that generates consistent revenue? Transactional fees are widely used by various marketplace, online payment, and eCommerce organizations. A taxi app like Uber can also be considered a marketplace since it offers an array of services in exchange for a fee. Another example is fintech businesses that take a fee for each transaction. 

Mobile App Monetization

Benefits

  • Scalability: The more businesses use your platform to offer their products and services, the higher your overall revenue per period. 
  • Free access to end users: Since transactional fees are charged to vendors, users can enjoy free mobile apps. They only pay for the product itself as well as associated delivery fees. 

Drawbacks

  • High entry threshold: Before you can consistently monetize your solution, you need to accumulate a decent audience, including both vendors and consumers. Without a well-established user base, your app will not generate any income. 

Best For

Transactional fees can be used in a variety of apps such as fintech, eCommerce, travel, marketplace, etc. 

Best Practices

Developing a marketplace application is a big challenge that requires extensive market research and analysis. To learn how much delivery app fees are and what to charge to individual vendors, you need to investigate your main competition. Additionally, it’s recommended to combine app monetization models to generate income before you build a vast user base. 

Crowdfunding

Crowdfunding is the process of generating investment from people who are interested in your app business idea. Businesses that raise money through crowdfunding commonly reward their “backers” with early access, discounts, and other perks. This app monetization strategy is especially beneficial for organizations that lack initial capital to build or revamp their software application.

Mobile App Monetization

Benefits

  • Access to a large audience: While collecting investments, you will be able to reach a wide pool of potential buyers. Also a user acquisition strategy, crowdfunding allows you to build a community interested in the success of your project from day one.
  • Initial capital building: If you lack funds to improve your application, this app monetization approach is a great way of securing extra investment. 
  • Idea testing: Unlike other types of monetization like in-app purchase or freemium, crowdfunding is also a great way to test the feasibility of your project and see how many people are intrigued by your solution. 

Drawbacks

  • Competitive marketplace: In the abundance of businesses competing for funders’ attention, it can be challenging to attract people to your idea. To successfully implement this strategy, you need a unique idea with a functional prototype or MVP. 

Best For

Any application that offers something unique that will grab people’s attention can benefit from monetization models for apps that utilize crowdfunding. 

Best Practices

Let’s find out how to monetize an app using crowdfunding? Start by developing a story that tells funders about your application. The story should include why you decided to create this solution and how it can benefit the potential funders. The best way to grab people’s attention is by making a high-quality engaging video about your company and product. Finally, invest some resources into promoting your crowdfunding page across social media, Google Ads, and other app monetization platforms. 

Combining Multiple Monetization Methods

Most companies don’t stop at only one monetization app strategy. Commonly referred to as hybrid app monetization, app owners can combine in-app purchases with ads or transactional fees. However, make sure you are not overwhelming your users with constant in-app advertising and upselling notifications. It’s crucial to find the right balance when mixing different app monetization strategies and to continuously prioritize user experience. 

How to Identify the Best Strategy for Your Mobile Apps

Before delving into various methods to acquire money from launching an application, you need to evaluate your software, target audience, and the market. This preliminary analysis will aid you in selecting the most appropriate app monetization models to drive sales from your app. 

Mobile App Monetization
  • App category: The correct mobile app monetization option is heavily contingent on the type of application. For example, gaming apps mostly create revenue from in-app purchases and ads, while eLearning apps benefit from subscription-based plans. If you want to offer some features for free and charge for others, it’s also vital to identify which functions are worth an extra payment. 
  • Target audience: Another important consideration is your target demographics. Take into account their age, occupation, interests, income level, location, spending habits, and other factors to detect which app monetization approach fits the best. 
  • User engagement: How much time users spend using your application also plays a crucial role in determining the way to monetize. For instance, apps with high user engagement can generate revenue from in-app purchases and subscriptions. If your solution is struggling to sustain a good level of audience retention, opt for a free app monetization model. 
  • App goals: Determine the main objectives of building your application. Outside of generating income, what goals are you striving to achieve? Perhaps, you would like to reach a wider audience or expand to other countries. 
  • Legal considerations: Depending on your location, you may need to comply with various laws and regulations associated with monetization models for mobile apps. Investigate the legal requirements in your area to avoid repercussions. 
  • Competitor’s analysis: Explore other apps in your category to identify the most common mobile app monetization strategies across your industry. 
  • Vendor vetting: How to choose a mobile app development company? If you would like to outsource mobile app development to a third party, consider acquiring a mobile app RFP first. This document includes a concise service proposition from the vendor and describes what exactly they would do to help you achieve your goals. 

How to Measure the Success of Your App Monetization Strategy

In order to properly implement mobile app monetization strategies and measure their performance, it’s imperative to learn the main metrics. Let’s dive into the top KPIs every marketer needs to know. 

  • Lifetime Value (LTV) is a metric that determines the sum of money that a user will generate throughout the lifetime of using your application. 
  • Effective Cost per Install (eCPI) is a cost of user acquisition that only includes organic customers.
  • Average Revenue per User (ARPU) is the average amount of money that a user spends on your application. 
  • Churn Rate refers to the number of users that abandoned your solution. 
  • Retention Rate is a percentage of users that remained customers throughout a limited period of time, commonly a month. 
  • Engagement Rate refers to the percentage of users that perform a certain action or set of actions like completing a level in a gaming app or commenting on a blog post. 

Conclusion

As you can see, there is no shortage of mobile app monetization options. Take into consideration your functionality, target audience, app business model, and performance metrics to identify the best strategy to generate income. If you need assistance in this challenging process and want to learn more about how to monetize an app, reach out to the NIX team.

We are software development professionals who can offer an end-to-end experience. Having handled thousands of successful projects, we can provide support at any of the stages of mobile app development, from conceptualizing and market research to post-release maintenance. Our decades-long journey makes us a reliable and knowledgeable partner. Get in touch with NIX app developers to discuss your own app idea and choose the best app monetization method to maximize your revenue without jeopardizing user experience.

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