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app monetization

How To Make Money Online with Your App?

The mobile app industry has seen a huge surge in the last couple of years. Apple Appstore and Google’s Playstore receive more than 10 lac app submissions every month. Businesses worldwide have recognized the power that mobile apps provide. You could be a service provider based in India or a manufacturer in China, a software developer in the USA or an entrepreneur in Europe. Having a mobile app provides you with a window to the world. It also unearths the enormous potential to earn money.

Did you know – The total number of mobile apps on the planet has now reached a massive 8.93 million

But then the big question to ask is -how many of these apps make money? The answer is only 15% – 20% of them. Finding an app revenue model that includes sustainability and profitability is a delicate balancing act. In addition to providing a superior user experience. So then, the next logical question in every business owner/app developer’s mind would be “How do apps make money?” “What should be the revenue model?” “How to achieve app monetization” in simple words “How does a business make money online from an app?”.

In the below article we try and answer these exact questions. Read on.

Application – Its Purpose and target audience.

Before we discuss app monetization strategy and revenue models, the key to making money online with your app is to first understand the type of app you want to put out. What problem is your app addressing? Your app’s purpose and target audience. These are the 2 key elements that help you narrow down on the correct app monetization strategy.

The pandemic has ensured that the buying habits of individuals have permanently changed. One of the biggest changes is the emergence and acceptance of “home delivery” as a concept. The lockdown meant that customers couldn’t move out of their houses. So, businesses are now faced with a unique challenge – how to bring their product/service to customers’ homes? Food, groceries, products, and even haircuts were all “home-delivered”

In the last 2 years, there has been an increasing number of food delivery, e-commerce, and service booking apps. While many of the entrants have fallen off the radar. There are a few who have done it right and made money.

Let’s use these apps as examples to understand each app monetization strategy below.

Different types of app monetization and revenue model strategies to make money from apps

paid apps

Paid Apps

This is the oldest app monetization method. The app publisher charges the user a one-time fee to download the app from the Appstore. Apps such as Minecraft (gaming) and Touch Retouch (photo editing) are good examples of paid apps. However, this app monetization method is dying as fewer and fewer users are willing to make upfront payments. The trend shows even for premium apps, users would like to first try the app for free. If not, at least some segments of the app for free, before making any payments. This is the reason why even paid apps are now forced to have a free version available in Appstore.

If your app is highly specialized and extremely unique, this app strategy works best. Also, equally important is building a dedicated fanbase of niche customers. Minecraft a 3D world-building gaming app has adopted this app monetization strategy since its launch in 2009. Its revenue was a staggering $ 415 mn last year alone. They can sustain this because their revenue model is centered around the fact that it is an extremely unique game. A game that is serving a very niche customer segment. One that is willing to pay in return for the app’s value.

In our example –

Did you know – it took only 6 days to create the first version of Minecraft

In-App advertising

in app advertising
This is a very popular app monetization method. In this method, the application remains free to download and use for the consumer. The app publishers make money based on the advertisements displayed within the application. The level of engagement the user has with the advertisements within the app dictates the money the app makes.  This app revenue model strategy is used quite often and found to be profitable. In-app advertising has several formats such as interstitial ads, Banner ads, Video ads, and so on. The key here is to design your app in such a manner that it rewards the user for watching or engaging with the ad. This increases user engagement which in turn increases the revenue per ad. Today, SDKs, API, and algorithms determine which user gets to see which ad. A detailed view of how this works is present on this website

In our example –

In-App purchases / freemium model

In App purchases

This is by far the most popular and foremost app monetization strategy.

If you believe that ads would ruin the app experience and are looking at an alternative way of making money then this is the perfect model.

Freemium is a pricing model that offers users a chance to experience your mobile app for free. However, certain features are withheld for paying customers. This way, the application remains free to use. The user can then choose to either continue using the app for free or spend money to access premium content.

There are several formats in which freemium apps can lure users into spending money. Gaming applications like Clash of Clans and Pokémon Go have used the Freemium strategy to great effect. These games provide the users with a variety of virtual elements. These elements are brought with virtual money eg – extra lives, blocking ads, premium players, lower wait time, and more. 

Did you know – Clash of Clans earns nearly USD 1M per day thru the sale of virtual elements?

In our example –

Commission model

This app monetization model is very straightforward. However, it is specific and therefore applicable only to a certain type of application. This model is most popular among Apps such as Food delivery apps, Gambling apps, E-commerce apps & Payment apps.

Here again, the app remains free to be downloaded and used by the consumer. The app owner/publisher makes money by charging a fixed commission in the way of a fixed amount or percentage. This commission is usually paid either by the user or by the service provider/vendor or in some cases by both. Your commissions are made on each order placed or payment made using your app.

Merchandise selling apps such as Amazon and Digital payment apps such as Paytm charge commission from vendors. Gambling apps such as Dream 11 charges commission from the users. Amazon even takes care of the payments and delivery of items.

In our example –

Commission model

Another app revenue model which has gained popularity in recent years is the Subscription model. 

In this model, the app is free to download. The users have to pay a weekly, monthly, or annual fee to access the contents of the app. It could be a particular service eg- headspace or video content eg – Netflix. If you are a content-based platform then this type of app monetization model is best suited for you.

This is one of the most sought-after app monetization models since it ensures customer retention.  In 2016, Apple introduced a change by rewarding apps with subscription models over others. They offered developers an 85:15 revenue split, as opposed to the usual 70:30 split. Subscription-based apps tend to see higher revenue per user than apps with other business models.

Did you know – Global subscription app revenue from the top 100 subscription apps climbed 34% over the past year.

Content streaming services like Netflix, Hotstar, YouTube, Spotify are the best examples of subscription-based revenue models.  A lot of these apps use a combination of Freemium and subscription-based monetization models.

In our example –

Sponsorship and Affiliate marketing

If incorporated at the planning and design stage of the app, then Sponsorship and affiliate marketing could be an extremely powerful app revenue model.

1. Sponsorship

Finding the right sponsor is key. In this model, an app publisher would consider a main sponsor with a target audience that is similar to the one addressed by his/her app. The app would give out all advertising rights in its app to this sponsor company/business. Once you have the right sponsor in place. You can negotiate a sponsorship fee or a revenue-sharing model. This would be your revenue generator, for the sponsor. He will benefit from the marketing campaign that you will run for your app to drive adoption.

2. Affiliate Marketing

This is another alteration of the sponsorship model. However, in place of granting advertising rights solely to one organization. You negotiate with a few interested parties and place their reference links in your application. You can earn a pre-decided amount for every time someone clicks the link, this is called Cost per Click (CPC). This is a decent method to increase your income. In case you are not able to find the right-fit sponsor for your app.

affiliate marketing process

In our example –

Crowd-funding

This is not an app monetization strategy as it is an app-building strategy. In this model, an app publisher/ owner shares the idea for an app or publishes an MVP (Minimum Viable Product). He then releases it on certain crowdfunding platforms such as KickStarter, Patreon, CrowdFunder, Crowd Supply, Indiegogo, and Appfunder to raise funds or seek donations. The members of this app then review your idea / MVP. Based on how much they like the app donate a certain amount. The app publisher/owner could specify a certain target amount that he/she is seeking. This amount could be used to fund the development and promotion of the application). Once the donation reaches the specified amount the app publisher can now build the app for free.

Non-gaming mobile apps are highly preferable in crowdfunding. As of May 2017, there were approximately 138 non-gaming apps that were known to raised funds between $10,000-$100,000.

A good example of this revenue model is the Hello Earth game which earned USD 148k via crowd-funding.

crowd funding
Did you know – Global growth of the crowdfunding market is expected to maintain a CAGR of 16%

In our example –

Selling user Data

Every application in your mobile phone collects data. User data could be something as simple as personal details and contact lists to something more complex like behavioral patterns and tendencies. All of this data is valuable information especially if your app has many users.

Selling User data could be considered as one of the means for revenue from your app. Research organizations/ Insurance companies/Marketing agencies across the globe are always looking to study and analyze consumer behavior. With the data bought or collected, these organizations seek to have access to various information of their customers. They can track their buying behavior, interests, demographics, and more.

seller user data

One can practice data monetization using your apps in two ways

In our example –

Did you know – – Every human created about 1.7 MB of data per second in 2020

So, there you are. Those were some of the most common app monetization and revenue models that are currently prevalent in the market. These models are used by millions of existing apps to make money.

Things to keep in mind.

Knowing the various app monetization strategy is one thing, picking the right strategy for your app is a different thing. Here are a few things to keep in mind before finalizing your revenue model.

As mentioned earlier, the key elements of choosing which strategy works best depending on your application purpose and target audience.
Conclusion

In conclusion, no matter what strategy you choose, ultimately money-making will depend on how engaging and value-driven your app is. An engaging app like WhatsApp doesn’t follow any of the above-mentioned strategies – yet it makes money. So, the focus should be to develop an engaging app and keep working on it improving it.

This is an evolving marketplace where innovations happen frequently. New revenue model strategies are always encouraged and experimented with. So, while you can use the above points as a guide to understanding which revenue model or app monetization strategy suits best for your app, don’t restrict yourself, find your niche.

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