The Mobile App Market has the potential to generate billions of dollars in revenue with every passing year. A report by Statista estimates that in 2021, mobile apps are projected to generate more than 693 billion U.S. dollars in revenue using app monetization strategies like in-app purchases, in-app advertising, and paid downloads.
However, not every mobile app developer is fortunate enough to get these dollars transferred straight to their bank accounts. Presently, over 4 million mobile apps are available in Google and Apple app stores, which is still growing. That means competition in the market for driving even a small piece of this revenue home is sky-high.
In such a situation, one thing that can help you turn your money-making dream into reality is a robust app monetization model – one that drives a terrific user experience and millions of app downloads. Let’s see what options you have for creating such an app revenue model:
Mobile App Monetization Strategies: How to Monetize an App?
The right mobile app monetization model will match your goals with the expectations of your target audience. We suggest that you choose an app’s revenue streams before developing an app so that you can seamlessly build it into the user experience.
By using some of the app monetization strategies listed below, you can earn money from an app without explicitly charging your users:
Without charging users an upfront fee for downloading an app, this monetization model lets you earn money using Ads. You promote products or services for third-party clients or advertisers, and in return, they pay you.
All your app needs is an extensive user base and sufficient user behavioral data to place highly targeted ads. One of the best examples of apps using the In-App Advertising model is Instagram – it brought in an estimated $20 billion in Ad revenue in 2019.
Just like advertising, this is also an in-trend mobile app monetization model. Here, the app (and some of its content) is free to use, but users need to buy a subscription on a monthly or yearly basis to access premium content or advanced features. Though this model is not considered as a money-magnet, it can drive billions in the long run.
A great example of an app using this model is Headspace. It has around 65 Million downloads and generates more than $100 Million per year from paid subscriptions, as per NPR.
Freemium with In-App Purchases
If you want to make billions using your mobile app, this is the best app monetization strategy.
Here, you offer your app for free and allow users to purchase a wide range of virtual elements within the app. These elements can be anything – game currency, extra lives, or premium app content.
Though this monetization model is used mostly by game applications (for example, PUBG, Clash of Clans, and many others), it is also prominent in non-game apps these days. One of the apps using this monetization model is Tinder – the highest-grossing non-game app of 2019 globally.
This blog will talk more about what is In-App Purchases or the Freemium app business model, as this will be the most lucrative money-making strategy for mobile app developers in 2021. We have some mind-blowing app monetization statistics up our sleeves to prove why:
The Global In-App Purchase Revenue: Statistics and Trends
App developers build an app to increase brand awareness, user loyalty, acquire new users, and add value to their businesses. But, more than anything, most app developers desire their apps to be a sustainable source of revenue, which requires a well-designed plan.
While a paid application may seem like a great way to make money, it is not the most popular business model. That’s why out of over four million mobile apps available in the app stores, just 10% are the paid ones as of January 2021.
The Freemium or in-app purchase business model is presently dominating the mobile app market is obvious – it offers many benefits for users and app developers.
Also, to generate millions using your mobile app, you require billions of users to download it, and freemium lets you do that efficiently. It helps you build your user base and provide you an audience to sell your advanced features or content.
Sensor Tower intelligence report shows that consumer spending on in-app purchases or freemium apps reached a staggering $111 Billion in 2020, a 30% increase compared to 2019.
The report also says that 2020 was a record-setting year for both mobile apps and games. Due to COVID-19, users turned to their mobile devices for education, work, entertainment, and consumer spending soared to new heights.
The pandemic also caused advertisers to spend less on in-app advertising due to users becoming less tolerant of ads. However, in-app purchases never stopped even amid the tough times, and revenues are now likely to shift more from in-app advertising to purchases.
In 2020, App Developers See Revenues from In-App Purchases Outpace Advertising Revenues – eMarketer.
This trend of more revenue coming from in-app purchases began in 2019 but accelerated in 2020. It was the time when advertising revenue dropped by 11% and IAP revenue increased by 15%, according to AppsFlyer.
Now what the future holds for the mobile app industry’s upcoming revenue drivers is not very predictable. However, one thing is clear, in-app purchases are going to be a great way to boost your app’s revenue in the coming years. Thus, we should devote more attention to find what in-app purchases really mean and how to make an effective strategy to implement it in your mobile application.
What Does In-App Purchase Mean?
While in-app purchases may seem very easy-to-use at first glance, they take many forms in a mobile app and are sometimes hard to implement. Basically, IAP or in-app purchases let your app users buy various types of virtual elements within your app. These elements can be extra lives to keep playing a game, advanced features, or access to premium app content.
The below-mentioned points describe various forms of IAPs:
- Create a highly addictive gaming application and let your users buy extra lives, game currency, cosmetic skins, or moves to monetize your game app. Several famous games like PUBG, Clash of Clans, and COD use this business model and earn millions.
- Offer an application for free and charge a fee for advanced services or premium app content. For example, Tinder lets you buy extra swipes in-app to boost the app experience.
- Offer a free trial period of your application and let users unlock the full versions by paying a fee. For example, Netflix provides a one-month free subscription plan and then charges on a monthly and yearly basis.
- You can also offer your app for free with ads and let users pay a fee for removing ads from the platform – another great way of using in-app purchases. For example, Spotify enables you to play music ad-free if you buy a premium version of the app.
You can also use a combination of all of them in your mobile app if your app features allow you to do the same. Freemium app monetization provides you the flexibility to earn using any of your app features, giving you multiple revenue streams using a single app. However, the only condition is, your app must be addictive or useful for users.
The widespread success of mobile games with in-app purchases like PUBG attracts budding entrepreneurs towards using in-app purchases in their apps. It is a simple, scalable, and versatile app monetization idea with the lucrative potentials of generating millions.
PUBG earned its creators over $226 Million in user spending, making it the world’s highest-grossing game for May 2020 – Sensor Tower.
The game is free to download but provides a wide variety of in-app purchases to generate revenue.
The Pros of In-App Purchase Business Model
The below-mentioned are some of the benefits of monetizing mobile apps using freemium apps with in-app purchases:
Enhances the App User Experience
In-app purchases make your mobile app more enticing for users. For example, in games like Pokemon Go, you need items like lucky eggs or poke balls to speed up your game faster. Though it is possible to reach a new level without these items, purchasing makes it much easier.
Moreover, such games’ users are impatient. They want to unlock a new level ASAP. So, in such a scenario, mobile in-app purchases act as a double-edged sword. It keeps your users hooked by improving their in-app experience and also drives revenue for your app.
Free Apps Attract More Users
It is crucial to keep a large user base hooked with your app if you want to make money and the freemium model lets you do that easily. The tag “Free” attracts users and keeps the trajectory of your app downloads high.
If a freemium app can find the right balance between paid and free offerings, it often results in an increased user base, more app downloads, and higher revenue.
Generates Hefty Revenues
With this business model, the profit margin is generally high. Buying virtual elements in-app leads to deeper app engagement, and users become addicted to the app’s premium features.
Also, making a purchase in-app does not require users to fill lengthy forms. It is a simple process that leads to increased user satisfaction and attracts more users to pay because of fewer hassles and more benefits.
The Cons of In-App Purchase Business Model
While the in-app-purchase business model offers many benefits, it has the following disadvantages as well:
Requires Extra Work on Development
Implementing in-app purchases makes a developer’s job a bit challenging as it requires extra coding efforts on the backend while mobile app development. App developers will be required to write code not just for the storefront but also for items, upgrades, and many other instances that may occur when a user tries to purchase something from the in-app store.
This extra code will also require strict testing to ensure that the system runs smoothly without affecting the app’s overall performance.
Needs a Large User Base to Deliver Profits
The major disadvantage of using the in-app purchase business model is that it requires a considerable number of users to deliver significant profits. Therefore, extensive user acquisition efforts are needed, which can be a bit expensive for startups.
A less expensive way to drive a large number of users to your app is App Store Optimization. If your app ranks well in the app stores, its downloads will experience a substantial increase, and your user base will expand. Here is your ultimate guide to App Store Optimization for 2021.
Also, to make the in-app purchase business model work, app developers need to avoid complications and get a bit creative while strategizing the entire process. For example, start with just one in-app purchase option that provides value to the users and notice their responses. Or, try offering additional benefits in return for a referral or social media share.
How Does In-App Purchase Work?
The whole concept of IAP is pretty straightforward. It involves the transfer of monetary funds from one party to another in exchange for virtual goods. However, mobile app developers need to understand the technical details of implementing in-app purchases, which are different for Google and Apple app stores.
Google Play In-App Purchase
In-app purchases on Android apps are managed using Google Play’s in-app billing. Google play manages the checkout details so that Android apps don’t have to process financial transactions. Your application will use the same checkout flow that is used for content purchases on Google Play to offer users a secure, reliable, and familiar experience.
You can use Google Play’s billing to sell the following in-app purchases types:
Users can purchase such digital products or content with a single and non-repetitive charge. There are two types of one-time products – consumable and non-consumable.
- A consumable product is a product that a user consumes to buy in-app content, for example, game currency.
- A non-consumable product is the one that users purchase once to get the permanent benefit—for example, premium upgrades.
When users purchase an app’s subscription, they get access to the app’s content repeatedly. Examples of subscriptions include access to online magazines and streaming services.
Your content must fall into one of the categories mentioned above to sell through in-app purchases on Google Play. Also, you will need a Google Wallet merchant account to use the in-app billing service. Here is a full official guide by google on how to integrate Google Play’s billing system in your app.
Apple In-App Purchase
The process to implement in-app purchases in iOS apps is almost the same as that of Android. You will have to design an in-app purchase store and integrate it with your app using the Store Kit framework provided by Apple.
The Store Kit acts as an interface to communicate with the App store for processing secure payments. It notifies the app when the user pays for the item, and the app needs to provide the purchased item to users.
Apple in-app purchase rules lets you sell following types of digital items to users:
- Consumables: These are items that are depleted after one use, and users can purchase them multiple times.
- Non-Consumables: These are the items that users can purchase once, and they don’t expire.
- Auto-Renewable Subscriptions: These are types of subscriptions that app users purchase once and it gets renewed on a recurring basis automatically until the user cancels it.
- Non-Renewing Subscriptions: These types of subscriptions are for a limited period of time and don’t renew automatically.
Before you launch in-app purchases in your app, Apple suggests that you test them via iTunes Connect. To do the testing, you will need to create products for purchase and test accounts.
Apple provides a special testing sandbox environment that lets you do the testing without any incurring charges. For more information on implementing in-app purchases on the Apple app store, check out their official guide here.
The Fee Charged on Transactions
Google and Apple both charge a commission for managing in-app purchases on app developer’s behalf through their web servers. Both tech giants charge a 30% commission fee on in-app purchases. In contrast, subscription commission falls to 15% after a year.
Now that we know what in-app purchases mean and how to implement them in your application let’s shed some light on some essential tips to successfully boost in-app purchases.
5 Ways to Lift Your In-App Purchases
Well, below mentioned are a few essential tips that you can follow to set the stage for your app users to make in-app purchases:
1. Analyze User Behavior and Target the Right Ones
Customer data is the foundation of any marketing campaign, and in-app purchases are not different. Your users’ behavioral data will help you target them based on demographics, interests, and personalization so that your users feel valuable.
Therefore, rather than targeting new users of your app with plenty of discount offers, it makes sense to wait until they look interested in buying those offers. Analyze how they use your app and then offer in-app purchases.
For example, suppose you build a free game app. Many users might find it exciting and would be happy to deal with some inconvenience at the start. It won’t help your app if you start targeting your new users by promising them more lives, an ad-free version, weapons, or score multipliers. They don’t know much about your app at this stage and will never buy any of these items. New users want to try out your game and see whether it is exciting or not.
However, with time, their interest in such things will increase. For example, they might consider buying extra lives after losing some of them. However, at this stage also, they must have the urge to continue playing your game.
All in all, it is best to make your app addictive and offer in-app purchases at the right time. Precisely, when in-app purchase promises real value for users, they work wonders in increasing your app’s revenues.
2. Create Fear Of Missing Out
50% Off – Sale Ends Tomorrow!
Grab the Offer – 02 days 23 hours left!
Just 1 Left at $600 – Buy Now!
If an app user gets to read these messages in your app or via push notifications, they will surely panic. Chances are (if they are too much addicted to your app), they may end up thinking, “I will miss out on something beneficial if I ignore this offer.” This fear will compel them to click the button.
That’s the power of FOMO driven by basic needs:
- Grabbing an offer/opportunity
- Winning a level or lives in games
An effective FOMO strategy can drive significant in-app purchases and eventually higher revenues. There are several ways to use FOMO to set the path for your users:
a. Create a limited time offer
Bringing urgency into the picture shows your users that they might miss something if they ignore the deal now. For example, send them an email like this:
b. Show Scarcity
Suppose you are planning to buy something and suddenly you get to know there’s limited stock of that item. What will you do? You will show a hurry in purchasing it. That’s how the human mind works.
c. Offer Special In-App Purchases
If your users know that your in-app purchase offers are available 365 days a year – they won’t care much. But, if you provide some special discounts on holiday seasons or any other festivals, it can increase your sales. Have a look at how Pokemon Go uses this strategy.
FOMO is one of the best strategies to drive in-app purchases responsibly. You just need to keep in mind that you want your users to do something in their best interest. Try not to manipulate them into doing something which is just in your app’s best interest.
3. Use In-App Messages to Drive In-App Purchases
In-app messages are notifications that are sent to users when they are using the app. These messages let you target users at the right time to promote and sell in-app purchases.
For example, the photo editing application VSCO locks some of their advanced filters and sends users in-app messages to tell them about this paid feature. The message also has a button that takes users directly to the checkout page.
By using your users’ browsing and purchasing history, you can send them a personalized in-app message that triggers their emotions. There is no better advertising strategy than evoking emotion one-on-one.
4. Use Email and Push Notifications to Increase Sales
Push notifications and emails are among the best ways to boost your in-app purchases as they reach users outside your application. Thus, using them, you can even target people who are not your daily active users.
However, using push notices or emails to drive purchases is an art. There are various ways you can use these messages to get a higher success rate:
- Mention the name of users in the content to drive attention
- Choose the right time to trigger your users
- Create a sense of urgency and FOMO in your copy
On average, brands experience up to a 9.6X increased in-app purchases when using push notifications, as per AppAnnie. Therefore, you must not ignore setting up an amazing push notification campaign to drive revenues. Just make sure you don’t overuse this strategy. Else it can irritate your app users, and they may end up uninstalling your app.
Push Notifications Actually Increase the Average User Spend by 16% – AppAnnie
5. Set Your Pricing Right
It may look obvious, but many businesses fail to understand the importance of the right pricing.
If you price your in-app purchase too high, you may not get enough conversions. If you price them too low, your revenue will suffer, and users may think it isn’t worthwhile.
Therefore, do some research on average industry rates and get the pricing just right – neither too high nor too low. Make sure it is competitive and matches the standard industry rates. A little bit of industry exposure and smart tactics will help you go far in the mobile app market.
While there is no sure-shot way of convincing users to buy something or drive in-app purchases, the tips mentioned above can help you make an effective strategy. Make sure the plan you follow is based on your customers’ behavioral data and your business goals.
The brands that focus on aligning their marketing efforts with that of customer’s needs and experience set the foundation for making a loyal relationship with the app’s user base, which leads to effective monetization.