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Mobile apps continue to grow in popularity, which is no surprise given the ubiquity of smartphones. This situation has led many companies to consider making their own applications, possibly targeting both the Apple iOS and Android platforms. Sometimes, their goals for the app involve promoting their business or even driving engagement from their customer base.
In many cases, however, businesses are simply using mobile apps as a revenue stream. In such cases, it becomes critical to fully understand the potential revenue models available for any app. This understanding then informs the process of evaluating which model makes the most sense for the business.
So let’s take a high-level overview of the different revenue models available to entrepreneurs building mobile apps, and how to evaluate them to help you decide which one offers the best opportunity. Remember, this analysis needs to happen before you design any interface wireframes or write a single line of code. In the end, the successful launch of an app may depend on initial effort.
Related: How App Makers Can Boost Revenue and Keep Users Engaged
in-app advertising
Embedded ads in mobile apps offer an obvious method of revenue generation. However, this revenue stream is really only available for free apps, as displaying ads in paid apps can hinder the growth of an app’s user base. In fact, a common practice in mobile games or other applications is to use in-app purchases to remove ads.
Notably, the in-app advertising market continues to generate significant growth across the globe.according to absolute market insight, the in-app advertising market reached $66.78 billion in 2018 and is expected to reach $472.64 billion by 2027. This growth represents a CAGR of 24.4% over the 10-year period. Likewise, any app needs a large user base to generate significant ad revenue, so consider making your app free to attract users.
“Freemium” App Method
Somewhat related to in-app advertising, freemium apps can also attract large numbers of users to enjoy an engaging app experience. Additional content or features will be unlocked after purchasing an in-app purchase. In fact, we just highlighted the fact that users take advantage of this method to turn off in-app ads.
This revenue stream strategy is common in gaming apps as well as music production and instrument apps, the latter being more common on the iOS platform. A user might have a free beat-making app and buy an IAP to use a new synth or drum machine. Some music app developers also use this revenue model to provide new sounds and synth patches to their user community.
Related: How to Create Apps for Your Business with Zero Coding Experience
Offer subscriptions to generate revenue
Additionally, other developers are using subscriptions to provide a recurring revenue stream for their mobile apps, which are often offered on a freemium basis. Not surprisingly, magazines and comic books sometimes take advantage of this revenue stream strategy. Note, however, that Apple and Google Play take a cut of any revenue generated by subscriptions; this also applies to any in-app purchases.
The subscription model is also very valuable for B2B applications. Creating a mobile app that integrates with a SaaS solution is a great way to expand the platform to a wider audience and provide more value—justifying the monthly subscription fee.
Monetize Your Mobile App Data
Depending on the nature of your mobile application, its data potential could become a valuable source of revenue. Of course, this valuation ultimately depends on the size of the app’s user base and the nature of the data. When utilizing data monetization as a revenue strategy, you need to clearly state this in your app’s privacy policy and terms of service.
This is one of the best examples where you need to determine your revenue model forward Develop your product. GasBuddy is an example of an app that has generated a strong user base through very sticky ventures, and Zero plan on how to monetize their mobile app. When users started noticing the extra drain on resources and battery drained by GasBuddy collecting location information, they ended up selling user data secretly (i.e. illegally) and got into trouble.
While data monetization is not the most popular monetization strategy, it can work if done legally and you are fully transparent from the start.
Related: Building an App?Follow these 4 steps to see things through
Traditional Paid App Revenue Model
Of course, actually charging for the app provides an easy way to generate revenue. Paid apps need to provide users with a top-notch experience and compelling features. As such, these applications tend to be mobile games, music creation applications (including synthesizers), and productivity applications such as video editing or graphic design software. Utilizing a freemium model that unlocks some features through IAP is also possible, but paid apps also offer IAP. Again, this approach depends on the overall quality of the app and the features it provides.
Make sure you fully understand the Apple Store and Play Store rules and how they will affect your revenue model.Last month, Apple updated their app store rules Take 30% of sales as a “lift” for social media posts. This is the first time Apple has directly taxed ads in iOS apps, and it’s just one example of a recent change that could have a big impact on your revenue.
Which revenue model makes sense for your mobile app?
As mentioned earlier, before writing a single line of code, you need to decide which revenue model is best for your company’s mobile app. This analysis includes figuring out the potential size of your user community and the amount of revenue you need to break even. These factors directly impact the potential to use in-app advertising and data monetization as a source of revenue.
If your app needs millions of users to be profitable, you need to set realistic goals to reach these milestones. Personally, we’ve found the subscription-based app revenue model to be more successful, which requires fewer users to be profitable. However, charging high subscription fees does not apply to all applications.
In the end, entrepreneurs need to adopt this analytical approach to ensure their mobile apps are truly making an impact. Anything short won’t generate enough interest or income.
