How Do Apps Make Money? Choose The Best Monetization Model For Your Needs

In today's diversity of mobile applications (there are about 8.93 million of them worldwide), it is difficult to get a leading position in app stores. And even more difficult is to motivate users to pay for your software. However, with the right approach to monetization, your application will be able to bring you millions of dollars. So, what is the right approach to make money from phone apps? 

Current Market Statistics on App Monetization You Must Know

The Apps Flyer statistics show that the average purchase amount is $12.77 on iOS, $6.19 on Android, and $8.80 overall. After simple mathematical calculations, we can conclude that, on average, with 10,000 in-app purchases or payments for a monthly license, the application can bring in $ 88,000 monthly. And this is without taking into account potential advertising as another monetization model. It is worth noting that these estimates concern only the B2C segment: corporate and SaaS applications, which are almost always paid, can provide even greater profits. 

However, to get the desired income, it is important to choose the right approach to end users so that they do not feel that you are extorting their money, but, at the same time, can receiv real value with your paid services or goods. Below, we will explain how to implement all this in practice.

Key Considerations for App Monetization Strategy 

Before you decide on how to monetize your mobile app, you should conduct a fundamental analysis of your mobile product. At CheIT, we can highlight three main areas.

App purpose and target audience

The first thing you need to do is to determine what pain point of the target audience your application fixes. It is also crucial to identify whether it is a tool, a game, or an information service. Ultimately, each of them will have its unique user expectations. You should also understand who your users are and how they perceive the cost of the service. For example, teenagers are less likely to pay for subscriptions, but tend to actively click on ads. This should prompt you to pay attention to the advertising monetization model.

Competitor analysis and market research

At this stage, you will have to conduct research among your mobile app’s competitors to understand which monetization model is most effective in your niche. You can also consider world-famous teams and their ways to monetize apps: freemium at Spotify, free levels at Candy Crush, and premium subscriptions at Calm. At the same time, copying someone else’s model without value for the end user is a serious risk, so think about how you can provide it.

Technology stack considerations

Among other things, you should rely on the platform for which you are launching your application – whether iOS or Android, each of them has its own nuances of monetization in the App Store and Play Market. For example, mobile ads require an SDK (Google AdMob or Unity Ads) and tracking settings. As for in-app purchases, they need integration with payment gateways (usually, Stripe or Braintree) and subsequent legal verification. Ultimately, the monetization method affects the architecture and infrastructure of the application, with an appropriate adaptation of the backend, CRM, and analytics.

How do Apps Make Money: Six Mobile App Monetization Models for Businesses to Look Out For

So, how do apps make money? To find it out, let’s consider the most promising mobile app monetization strategies.

1. In‑App Advertising

In-app advertising clearly demonstrates how free apps make money; the main thing is to choose the optimal format (these can be banners, interstitials, or rewarded video). The advantage of this approach is the absence of paid access for end users. At the same time, this model has low ARPU, is dependent on user traffic, and can negatively affect UX.

2. In‑App Purchases и Freemium

This model implies providing basic functionality for free; at the same time, additional features are opened by the user only after purchasing access to them. This is a fairly flexible option, which, however, requires significant efforts in design, psychological hooks, retention, and fraud control.

3. Subscription (SaaS)

A regular subscription provides mobile software developers with the most stable and predictable income. In addition, this model has a high LTV and can be scaled (if you understand how to do it properly). However, the expectations of users of such applications are quite high; moreover, prices on subscriptions are controlled by app stores and independent financial monitoring services.

4. Sponsorship

Sponsored content is when brands pay to have their ads placed in an app, for example, in the recommendations section. If implemented thoughtfully, this will provide a steady income; however, it also requires good commercial skills and an understanding of what the UX should be so that such content does not look like advertising inserts.

5. Crowdfunding

You can also start raising funds for the development of your product through crowdfunding platforms such as Kickstarter or Boomstarter. This way, you can check the demand for your MVP, that is, long before the implementation of a full-fledged solution, and attract money for its further development. On the other hand, you will have to carefully think through the advertising campaign and communication channels with the potential audience.

6. Affiliate links

Finally, your mobile app can recommend products or services and receive a percentage of the user's purchase. This way, you will be able to organize additional income without direct fees if you build trust with the audience and find a competitive position against the background of mass platforms.

How Can You Choose The Best App Monetization Method For Your App?

In this section, we would like to disclose the specifics of choosing the best app monetization models.

1. Creating a funnel leading the audience to your monetization model

If you are a supporter of advertising, you will need to first make sure that you have a significant audience. For example, rewards ads or interstitial only make sense to add after analyzing user behavior. As for freemium, here, you should think about how to bring the user to the border of free and paid access, so that the value of what you are going to sell is already revealed to some extent in the free part of the application.

2. Choosing platforms that suit your app best

If your app is primarily aimed at teenagers, it would be more rational to first create a product for Android (although much depends on the geographic location). In this case, monetization will be optimal through advertising and in-game purchases. If you are creating a corporate app, a subscription via SaaS will come to the rescue here. It is also worth considering combined options, such as freemium + ads or ads + affiliate.

3. Using native extensions

Once you have chosen a monetization model, you will need to think about how to implement in-app payments. The traditional way is to integrate Apple Pay and/or Google Pay into the application. All this will provide a trusted user experience and gently lead your audience to payment.

4. Considering local factors when pricing

Prices for mobile apps and in-app purchases are constantly growing, but everything depends on the region, or, to be more precise, on the purchasing power of its population. In this regard, you will have to introduce DDP price segmentation and implement geo-settings when subscribing.

5. Analyzing statistics to make your model work

Finally, you should regularly conduct A/B tests, segmentation, and monitor churn rate, LTV, and CAC. Ultimately, all your monetization intentions should be tied to analytics, which means you will need to provide BI integration (for example, through Amplitude or Google Analytics) and automatic campaign restarts in your application.

Paid Apps vs Free Apps vs Subscription Model: What Is the Right Choice?

Paid apps, which require a one-time purchase of an application, became ineffective in terms of monetization, except for narrow-focused niches (for example, apps with photo filters or tools for working offline). In turn, free apps can provide a stable income through advertising, but only if their owners actively work on their promotion.

As for combined options including freemium, today, they are promising and provide a stable income growth, but still require the presence of experienced UX and product designers in the team. And, of course, we cannot fail to mention the subscription-based model, which demonstrates the highest efficiency in the B2B sector and complex B2C services.

In general, if you are still hesitating in choosing the best monetization model for your mobile application, write or call us, and we will help you make the right decision.

Future of Business Mobile App Development and App Monetization

Technologies change, users become more demanding, and it is no longer enough to simply embed advertising or sell a subscription. The business model application model must be smart, personalized, and native to the context of everyday experience. Specifically, here are the key trends of the coming years that answer the question: “How do apps earn money?”:

• Contextual monetization. Contextual monetization is not implemented through full-screen banners – it offers adaptive advertising embedded in the context of the user's real actions. For example, when a user searches for a route in AR navigation, he or she may be offered an unobtrusive offer of a nearby cafe.
• AI-driven cross-sells. The idea of this approach is simple: instead of showing the user the entire “showcase”, AI analyzes behavior and offers a relevant purchase or subscription exactly when the likelihood of a purchase is highest.
• Web3 + mobile. This is a new paradigm of the internal economy of applications, focused on decentralized or hybrid services. Instead of in-app purchases with regular money, users can be presented with tokens, NFTs, and on-chain actions that have value within the app (and sometimes outside of it, as in the case of tokens).
• Subscription 2.0. Essentially, this is a subscription that depends on the result. While in the case of a traditional subscription, users increasingly ask the question: “What exactly am I paying for?”, the new model offers payment for the result, not access. In particular, using the example of an educational app, users can pay not for access to courses, but for their completion.

How Can Che IT Group Help You With Mobile App Development?

We provide monetization consulting services, within which we define the target audience for your product, select optimal monetization models, build prototypes, and organize monetization workshops. If you need much more than understanding how to generate revenue from apps, you can also order full-cycle development to start with an idea and end with the launch of the application, its marketing, and subsequent support. As part of this service, we will set up analytics to monitor metrics that determine the app revenue, and also provide retention support.