You’re ready to publish your app, but which app monetization model should you use to generate the most revenue? While there are many models (e.g. freemium, premium, advertising, in-app purchases, etc.), ultimately, what you need to decide, is whether you will charge users a fee to download your app (paid) or make it free to download.
Both premium and freemium done right can lead to profits, but you need to understand how to utilize free and paid monetization models effectively if you want to find optimal success with either of them. With that said, here’s a look at the pros and cons of today’s most common app monetization models:
Also known as premium apps, traditional paid apps cost users a one-time fee to download from the Play Store or App Store. While a paid app can be any amount of money, the most common price range is between $0.99 and $9.99.
Pros: The most obvious pro with paid apps is that you make money with every download. Moreover, users of these apps are generally more engaged with applications they pay for because they are motivated to cash-in on the app’s full value.
Cons: One of the major downsides is Apple and Google will take a portion of your revenue. Another is that it’s easier said than done to convince users to spend on an app they can’t at first sample for free. In fact, researchers from Cambridge University found that only 20% of paid apps receive more than 100 downloads.
A hybrid app monetization model, freemium apps are free to download and allow users to enjoy the basic functionality of the app. If users want the premium version or other premium features, they need to purchase them.
Pros: Many mobile users respond well to the freemium model because most like the idea of trying something before they buy it. This model is particularly great for games or other apps designed for users to advance levels.
Cons: Typically this model is only effective with highly engaged users. It’s also hard to find the balance between free and paid features. You can’t give users an inadequate free experience or they won`t be interested in buying. On the flip side, if you give them too much premium content for free, they might not be interested in buying more.
Free Apps with In-App Advertising
This is one of the most commonly used monetization models that primarily includes banner ads and native ads. While both can generate revenue for developers, native ads are more widely used because they tend to be better received by the users. Two popular types of native ads are interstitial ads and incentivized video ads. In-app advertising is becoming the prime choice among developers in the industry.
Pros: Free apps are downloaded more than paid apps and can help you grow your user base at a quicker rate. Users may like incentivized video ads that give them the opportunity to earn virtual currency or other rewards. Be careful, though: video ads should not annoy the users and push them away from your app, but they should become part of the experience in a nice and pleasant way. Companies like Appnext provide TV-standard mobile video ads that fit naturally in your app breaks.
Cons: Users can quickly grow tired of ads, especially if they pop-up too frequently in the app, are intrusive or are irrelevant. While suitable for games, this ad model is not ideal for utility apps as ads can interfere with the app’s basic functions.
The largest source of revenue generated from free apps comes from in-app purchases. This model can work well with all types of apps because you can sell just about anything. For instance, with this monetization method a business could offer branded merchandise via their app. You can learn more about this type of model in this in-app purchase tutorial.
Pros: There is a good chance to obtain high profit from a low-risk monetization method, especially when it comes to digital currency and goods. This model can also support partnership and affiliate programs.
Cons: Many app marketplaces will take a chunk of the money you make from these purchases, sometimes as much as 30%.