App monetization is the primary issue every developer should consider prior to actual app development. Since mobile traffic overtakes the desktop and the mobile app market is growing exponentially, the industry features a lot of opportunities. Nevertheless, every developer determines individually which monetization method to choose— freemium, in-app ads purchases, or other models.

Your Possible Revenue After Monetizing an App

According to Statista, the global app revenue increased from $69.7B in 2015 to $88.3B in 2016. Experts predict these numbers may reach astonishing $188.9B by 2020. But what profit can be expected from app monetization? Let’s review the average mobile app revenue stats per user.

According to SmartyAds data, an average monthly spend for the freemium model is $20.01, but only 1.2% of users commit app purchases. In-app purchases bring $0.49 per user monthly. Subscription apps bring from $6 to $19 and have a conversion rate on the level 6.98%. Organic users yield better income than non-organic, as well, IOS users pay more than Android.

The revenue from app monetization also varies from industry to industry — gaming apps make only $1.65 per app user in a 90-day period when shopping and travel apps can boast of $12.23 and $11.98. Let’s say your app was downloaded by 10,000 users. That’s the lower tier of apps that can make a reasonable amount of money by advertising. According to our stats, your monthly income will comprise $5,15 for gaming app, $43,65 for shopping app, and $42,28 for a travel app.

To make these numbers real and start generating revenue, you need to choose the right way to monetize your app.

We selected 5 working monetization strategies to help you decide which one will work best for your business.  

Strategy #1: Subscription-Based

If you use any streaming service, you already know how subscription-based app monetization model works. Usually, the principle is following: users download an app for free and start their free trial. After that, they pay monthly, quarterly or yearly fees to get an access to all app’s features or content.

Subscription-based app monetization methods are recognized as the most reliable revenue streams for apps. If your customer wants to keep using an app, they should pay every month, while freemium, in-app purchases and pay per download strategies imply occasional payments, so your income flow may become sporadic. Moreover, subscriptions result in the more engaged audience — people feel obliged to use an app to justify their expenditures.

A bright example of a successful realization of a subscription-based monetization model is Headspace, a mindfulness application that teaches people to meditate. An app has three subscription plans monthly fee, yearly fee, and lifetime fee. This way, developers encourage users to choose long-term plans by giving them a huge discount. Headspace has been downloaded over 11M times and has more than 400,000 active subscribers. Their annual revenue was estimated by Forbes in $50M.

SmartyTip: This monetization strategy works best for content-oriented brands (Spotify, The New York Times), apps “as a service” (Google Drive) or apps that imply daily usage (Headspace). On the contrary, the subscription-based monetization model is not suitable for single-purpose, gaming, and shopping apps.

Strategy #2: In-App Purchases

In-app purchases as a way to monetize your app give your customers a choice: to enjoy the basic functionality of an app for free or to get an instant access to specific in-app items, content, or feature. A subscription plan may also be treated as an in-app purchase, but these two monetization strategies are different.

By paying for the subscription, you get an unlimited access for all features included in your subscription plan. And when you make an in-app purchase, you get a one-time access to the feature or to one item. In-app purchases are the primary app revenue model for gaming apps (bringing them 43% of revenue) and ranked third for all others (21% of all revenue)

how to monetize your app revenue

Distribution of worldwide mobile application revenues in 2017, by channel. Source: Statista

Mortal Kombat X Mobile is one of the top games that use in-app purchases as a way to monetize an app. Here you can buy characters, in-game currency, equipment, and item packs for real money. It’s possible to play without purchases, but it will take more time to develop characters in this case. Game’s creators earn $20,000 per day.

SmartyTip: For this kind of app monetization, Google and Apple cut off the share of 30% for each in-app purchase. Take this into consideration when deciding on the price. Be sure that your app is engaging enough to ensure repetitive purchases.

Strategy #3: Freemium Model

It’s a way of mobile app monetization where we have a free app with a premium version available for an extra fee. Free + premium = freemium. Even though freemium apps offer only limited features at the beginning, this doesn’t mean their free version lacks value. If you choose a freemium monetization strategy, you need to find a sweet spot between offering too little and too much. Your free app has to be a tasty starter which eases hunger but whets the appetite for the main dish.

For instance, Tinder has adopted a freemium model since 2015. Its free version is ok to start, but specific actions are limited. For instance, you change your location and undo likes. This is not enough for a user who wants to find the best possible match. The premium version includes all the above-mentioned features and a few more. Tinder almost doubled its past year’s revenue and is going to beat $800 million by the end of 2018.

SmartyTip: It’s very important to justify your premium version. Users tend to buy premium when they clearly see that it brings a lot more value than a free version. Take a look at Apple’s iCloud: you have 5 GB of cloud storage for free, but after purchasing the most affordable upgrade you receive 50 GB. That’s 10x more storage costing $0.99 per month.

Strategy #4: Pay Per Download

However, despite its apparent simplicity, this app revenue model is the most challenging. First of all, you need to answer the question “Why should customers buy this mobile app, if there are tons of free analogs?”. An app that uses a pay per download monetization model needs to be ahead of the competition. It should deliver a better user experience, more valuable features, and functionality.

For example, Pixomatic photo editor is sold for $4.99 in the AppStore. This app offers to work with layers, desktop-quality image masking, and blending modes. The options can be found in the desktop version of Adobe Photoshop, but you won’t find them in free mobile photo editors. In this case, pay per download monetization strategy works and yields $30,000 per month.

SmartyTip: Companies that choose this model are betting on their strong marketing presence, large user base, and a well-established brand reputation. If you are a young start-up, it’d better go with another app monetization method.

Strategy #5: In-App Advertisement

The in-app advertisement revenue model is the most versatile solution that may be implemented alone or combined with all above-mentioned ways to monetize an app. The user downloads an app for free but has to watch short videos or watch display ads from time to time. Developers make profits by selling ad inventory to other companies, - the place inside their app.

Referring to the numbers that display the distribution of mobile application revenues, we can say that video and display ads are two most lucrative revenue streams for non-gaming apps (36% and 30% of revenue respectively) as well as second (31%) and third (19%) best for games. The least profitable sources are native ads and affiliate deals, which are more associated with blog monetization.

The easiest way to make your first step toward ad-based app monetization is to embed a software development kit (SDK) to your app. This little code string allows you to serve ads on your mobile ad inventory. In order to manage potential ad units, their size and placement you need to register at self-serve SSP. It connects your app to multiple ad networks and automates the media buying process. This way you don’t need to search for advertisers on your own, the deals will be performing automatically in seconds and the system will select the highest possible bid offered for your inventory.

Read more about what is an SSP

SmartyTip: Mixing freemium with an in-app advertisement is a killer method that suits most apps. The most important things are the balance. Also, you can combine advertising with in-app purchases: allow users to watch video ads to get a valuable item for free instead of buying it.

The Perfect Way to Monetize Your App: Our Final Verdict

In fact, there is no one-size-fits-all solution. Developing your strategy, build it on the purpose of your app, take into account the industry you operate in and the final goal you want to achieve. A little pinch of advertising never hurts any digital business, so feel free to incorporate it into your app regardless of the chosen monetization method.

If you are already using one of the models that don’t meet your expectations optimize your strategy by joining SmartyAds Supply Side Platform automate the selling process and manage it the way it is convenient for you.

Sell your inventory for the best price, get access to private marketplaces, and drive more revenue with built-in programmatic tools.