8 App Monetization Models for your Mobile Application

13 Jan
2022
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10
Min

Business owners have a habit of searching for the cheap app development companies when they’re looking for someone to create a mobile app for their business. Anytime you are offered a lower price for a high-quality mobile application, why would you refuse, right? Even though it should make you suspicious, many business owners and startup entrepreneurs make big mistake. They let their cheapness take over by choosing the most inexpensive mobile app development company.

The truth behind cheap app development cost

But here’s the truth about choosing the company with a low rate. If an app developer gives you a lower-priced quote for an app project, you can expect the final price to be 2 or 3 times over the original estimate. Furthermore, cheap app development companies will miss all the deadlines. And if they ever do finish the project, it will be full of bugs and have a very low-quality performance. There’s the even worse outcome – you can run out of budget before there will be an app ready for release.

You may have a limited budget which is forcing you to consider cheap mobile app development solutions. But you must consider all the factors before going forward.

RECOMMENDED READING: 6 REASONS WHY STARTUPS FAIL AND HOW TO AVOID THEM

The purpose of this article is to make you realize the true cost of app development. Hopefully, you will understand that choosing a company based on their price offering is a wrong decision.

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Eight App Monetization Models Suitable For Your Mobile Application

1. Advertising

Online advertisement is broad and growing gradually. Here are some facts:

  • According to Business Insider, United States Internet promotion income increased to $72.5 billion, exceeding the previous $69 billion spent on ads.
  • The world internet advertising costs hit more than $300 billion in 2021
  • In 2020, United States digital promotion exceeded a target of $123 Billion

There are many ways to implement mobile advertising. They include:

  • Display the third-party ads on your iOS or Android app.
  • Create your ad networks like LinkedIn, Facebook, Twitter, and Google
  • If you want to operate the app as a marketplace like Craigslist or eBay, you can include a listing fee. Or/and
  • On the ads, you can add job listings, similar to websites like Angel List and Stack Overflow.

Pros and Cons

The primary disadvantage of using advertising as a mobile app monetization model is the fact that many users don’t like ads. So says Hubspot, Business Insider, and Vieo Design

Many users respond with dissatisfaction or even anger when they come across in-app ads. Especially when a business begins to use them at the early stage or startup process. This is also applicable to interstitial ads, pop-ups, and local advertisements. This can affect your client retention rates or adoption if you flood your users with many mobile ads too early or regularly. Also, it’s not too smart to be aggressive with mobile advertising if you just launched a Minimum Viable Product. It can damage badly the reputation of your app, and the users won’t return.

RECOMMENDED READING: 6 REASONS WHY STARTUPS FAIL AND HOW TO AVOID THEM

Also, if your app revenue model depends on the monetizing advertisement, you will be convinced to forfeit more user experience to generate more significant ad dollars. Business startups that involve advertising with another form of app monetization model like premium service of Spotify are better than businesses that depend entirely on ad money.

Mobile app monetization models

2. Lead Generation and Affiliate Marketing

Lead generation and affiliate marketing is the second mobile app monetization strategy that you can consider. Pat Flynn of the Smart Passive Income provides some useful description of “affiliate marketing.”:

Affiliate marketing is a means of promoting other people’s (or business) products and earning a commission in return. If you find a product you are interested in, you can advertise it to others and receive a profit for each sale. What are the benefits of this app monetization strategy?

  • You will be excited if you earn a commission
  • The company will be delighted that they have a new sale from a client that they didn’t expect.
  • Also, the client will be happy that they learned about a product directly from you that will meet their needs or desire.

Affiliate marketing involves earning money anytime a user downloads or purchases a product/service by following a link that you host within your app or on your website. Podcast Addict makes use of affiliate marketing by hosting in-app ads underneath its screen. However, you can combine affiliate marketing with selling leads or lead generation to concerned parties.

RECOMMENDED READING: "GUIDE TO CREATING A SUCCESSFUL APP"

Lead generation is a “marketing process of capturing and promoting a product or service to create a sales pipeline.” Also, lead generation involves catching the attention of potential clients to advertise them down the line. Apart from selling your products or services, how can you earn a profit from leads? Selling leads to other interested parties, for example! Here’s how Mint.com, the popular website, and the app, implements this:

  • Mint provides its users with free personal finance management services. They enable users to track their credit card, investment, bank transaction, loan balance and also provide financial goals and generate budgets.
  • Mint gathers all the financial data and then sells this data to credit card companies, banks, and other interested parties for a reasonable price (the interested parties will mine and target leads with their products and services)
  • Also, Mint generates revenue through affiliate programs that offer users the opportunity to sign up for credit cards through the app, or the Mint.com website. This process will enable a credit card applications to be processed.

Warning: If you are selling leads online or offline, most times it involves legal or ethical outcomes to confirm that you are not violating any legal or moral principles that will affect your business operations or reputation. Also, this warning applies to the following app monetization model, such as selling data.

3. Selling Data

The third mobile app monetization model involves the selling of extensive data to interested third parties. If your app can generate a significant amount of data on client preferences or habits, then it is possible that these data would be useful for other businesses, whose products relied on knowing people want and need.

For example, the famous free check-in-app Foursquare permits users to share their locations to the public (i.e., “check-ins”) with other parties. This data usually complies with huge databases; later Foursquare sells the data to interested third parties.

Thus, Foursquare has gathered check-in data on more than 9 billion check-ins. This is a massive and valuable amount of data! For instance, the heat map from Japan, Tokyo contains check-in data that cover a week in 2012:

App monetization model - selling data
Visualization - Foursquare check-ins in Tokyo

Which parties are in need of these data? Maybe, Starbucks is planning to open up two new coffee shops at the busiest routes in Tokyo. These data would enable Starbucks to make a decision on where to site their new stores by visually evaluating the population in the regions. But keep in mind that if you want to go with this app monetization model, you have to be ready to invest a lot of money, to generate enough data to interest buyers.

RECOMMENDED READING: "BUILDING AN APP THAT MAKES MONEY"

4. Transaction Fees

Here’s the fourth mobile app monetization strategy. If your business startup operates in the form of a digital marketplace or platform that allows financial transactions to occur regularly (just like Kickstarter, the international crowd-funding platform work towards creativity), the transaction fees will represent the app monetization model.

Presently, the online payments processing startup, Stripe, is estimated to be $9.2 billion. The company generates revenue by charging users reasonable fees for every completed transaction. Airbnb, Uber, eBay, Amazon, Etsy, and many others also work with this app monetization model.

5. Freemium

The “freemium” app revenue model helps to create revenue in web-based services, including digital apps. This basic approach is simple to understand. All you have to do is to offer users a functional, basic, and fully free version of your product or service sample. After some time, this will persuade potential clients to become regular clients by providing them a premium, advanced, feature-rich version for a price.

Most “Software as a Service” (SaaS) based products make use of the freemium business strategy. For instance, Dropbox provides new users with free storage of 2 GB with premium versions that enable users to buy extra space. Dropbox makes use of the freemium revenue model to acquire more than 500 million users globally. There are many ways in which new businesses can implement the unique freemium approach to app revenue. So, the three of the most common approaches include:

  1. Storage-Based freemium. It is a free version of your service or product that provides some unique capacity. It can be a number of users or usage amount. This allows users to pay for the premium version to continue using the service just like Evernote and Dropbox, etc.
  2. Feature-Based freemium. This is a free version of your service or product that is provided to clients. But its functionality is limited to paid users to unlock the full range of features, i.e., Skype and Buffer.
  3. Time-Based freemium. The free version of your service or product is offered for a limited time frame. For example, the standard “free trial” offers, such as Shopify and Audible.

6. e-Commerce

E-Commerce is another app monetization model option you can consider, even if your startup doesn’t operate as an e-shop. This is the right place for many business startups selling promotional materials (like t-shirts) on their websites.

Apart from this, it is possible to combine m-commerce with a freemium-based app monetization model. The way to do it is to sell services or products directly to what you offer. For instance, the Evernote app takes note, organizes, and archives data, up till 2016 was combining the freemium app monetization model with extra e-commerce revenue in the form of product sales through the Evernote Market. Sadly, Evernote was unable to generate much profit via its market. Due to this, the company doesn’t continue with its e-commerce operations in 2016.

RECOMMENDED READING: "THE RISE OF MCOMMERCE"

7. Virtual Goods

One of the most popular mobile app monetization strategies for game apps is to create virtual goods. The world market for virtual goods ranging from avatars, stickers, weapons, and unique levels is estimated to worth approximately $15B.

Practically, any electronic good can provide monetizable virtual goods, including video games. Even more, they are the usual type of virtual goods. The super-popular Pokémon Go provides users the opportunity to purchase different types of virtual goods such as “PokéCoins.”

8. Subscription/Software-as-a-Service (SaaS)

Software-as-a-Service is a subscription-based app monetization model that offers a good option for startups. As long as their services are well-matched to the subscription plan. Subscription permits your company to lure users into a long-term payment approach to increase the lifetime value of clients.

Also, the recurring revenues involve a subscription-based approach that represents a secured and predictable earnings stream on which you can rely. So, the two most common options among the different approaches to SaaS-based revenue include:

  1. PAYG (Pay as you go) plan. You can charge your users based on each usage rate. Previously, this approach was common among mobile phone plans. Many companies like Twilio and Amazon Web Services use this model to provide their users flexible pricing plans today. The downside to the PAYG model is intrinsically based on the number of services a client uses; it is usually difficult to maintain highly anticipated revenues (this can lead to uncertainty in your business).
  2. Tiered pricing. You can split your services into different levels according to the usage amounts and features that the clients require more and expand. Tiered pricing is the most popular model among Software-as-a-Service companies.

There is one huge benefit of the Subscription app monetization model. Users see that they can fulfill their necessities, either now or in the future, even if their needs change.

Summary

Congratulations! Now you are armed with information about all possible monetization models for mobile applications. With this info, you can understand what app monetization model would fit the best for your mobile application and make it successful.

If you need any help to make a choice concerning the app monetization model or any other question about creating a high-quality mobile application, contact us for a free 60-minute Skype consultation.

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