5 Ways of Monetizing Your App
In this article we will discuss the major ways you can monetize your mobile application and some pros and cons of each strategy.
1. Advertising
This is a very common model in mobile applications. These apps are those which have no financial investment from the user, meaning the barrier to entry is low. Apps which leverage advertising generally sport banner advertisements and often full screen-sized advertisements (interstitial) as well. In this model, the developers often collect and analyze user data to create targeted ads for the users, which will result in more click-throughs as opposed to simply impressions. Social media apps and free mobile games are common examples of this model.
It's worth noting that privacy changes — particularly Apple's App Tracking Transparency (ATT) framework introduced in iOS 14.5 — have made targeted advertising more challenging. Users must now opt in to cross-app tracking, which has reduced the effectiveness of personalized ads and shifted some developers toward other monetization strategies.
Pros:
- - No barrier to entry for most users
- - People will generally download these apps since they have 0 cost
- - Contextual and first-party ads can still generate meaningful revenue
- - Works well for apps with high engagement and large user bases
Cons:
- - Privacy regulations and platform changes have reduced ad targeting effectiveness
- - People get annoyed with ads and are even more annoyed when they can't remove them
- - Ads can be intrusive and often don't make sense in utility apps (where interruptions decrease utility) and certain types of games
2. Paid-App
This is the model where an app is only available to users who pay a certain amount up-front. By paying upfront, users receive all the app's current features and all future features. While advertising can be blended with this model, it is very rare. An example of a popular app that uses this model is Minecraft.
Pros:
- - All users have the same app experience
- - Some users prefer buying everything up front
- - If your price is high and people do like your app, the app can generate a lot of revenue
Cons:
- - High barrier to entry depending on the price point
- - Might be harder to obtain users
- - Need to determine what the best price for you app is (this can be very difficult since it involves balancing number of users with cost)
- - Usually you will only receive 1 point of revenue from each user (this can be mitigated by blending with another pricing model)
3. Freemium
Freemium is a classic model for mobile games and productivity apps alike. In the freemium model, the application is available to download for 0 cost, similar to the advertising model. However, core features are locked behind a paywall. For example, allowing the app to be downloaded for free but blocking progression beyond a certain level in the game, or limiting storage and features in a productivity app until the user upgrades.
Pros:
- - Low barrier to entry
- - Users can experience the full-featured app until they hit the wall
- - If the app is good enough, users are likely pay due to the abrupt nature of a paywall
Cons:
- - When blended with advertising, this model can be very intrusive to the user
- - A stigma associated with Freemium apps may prevent users from downloading
- - If the app is not interesting enough before the pay-wall, it may not generate any revenue
4. In-App Purchases
The in-app purchases model allows users to download the app for free and be able to buy features at additional cost from within the app. Unlike freemium, it does not generally have paywall features. Rather, it generates interest so users will want to continually make purchases. These in-app purchases may be consumable (a purchase of an in-game "coins" to help you progress easier, or an item to embellish your character) or non-consumable (you unlock a new theme for an app and will always have it available thereafter).
Pros:
- - Low barrier to entry
- - Good option for any apps that have an in-app currency
- - Well-suited for an app that has many non-core features or additions to broaden app functionality
Cons:
- - Need to be tell users up front in the app stores that the app contains in-app purchases - this may prevent some users from downloading
- - Achieving a balance between "giving too many options for free" and "giving not enough" is difficult and involves testing and iteration
Free + Premium Version
A specific subset of the In-App Purchases Model is the concept of having a "free" and "premium" version of your app. This functions similarly to freemium, but instead of teasing users with your app until they hit a certain point at which they can't progress, this model allows the free version to be used indefinitely, but the free version does not provide the full set of features of the app. Another way to think of this is that Freemium restricts core features (after a certain point), whereas Free + Premium restricts extra "power-user" features. The idea here is to get your users interested in the app enough to want to pay for these extras.
Oftentimes, a free version might blend with the advertising model. In this case, the premium version generally removes these ads. Another example would be an app that allows additional content to supplement what is already available for free.
5. Subscription
The subscription-based model has become the dominant monetization strategy in mobile apps. In this model, the user signs up to the service and pays a recurring fee — monthly, yearly, or both. Generally, the user will be allowed to consume a fixed amount of content per some time period, or use a service a fixed number of times, and if they want to use it more they have to sign-up. Content-driven apps, productivity tools, and services with ongoing value are perfectly suited to this model. Music streaming services like Spotify, fitness apps like Strava, and creative tools like Canva are common examples.
Both Apple and Google have incentivized subscriptions by offering a reduced commission rate (15% instead of 30%) on subscription revenue after the first year, making this model even more attractive for developers.
Pros:
- - Most of the pros from the Paid Model apply here
- - Predictable, recurring revenue that scales with your user count
- - Revenue will be distributed over time, unlike some of the other models
- - Reduced app store commission after the first year of each subscription
- - Well-suited for apps that deliver ongoing value or content
Cons:
- - Users are increasingly experiencing "subscription fatigue" and may resist yet another recurring charge
- - Many users will be hesitant to pay a recurring fee if they don't feel the app is worth it
- - Requires ongoing investment in new content or features to justify continued payments
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It is important to understand which model best suits your app. You can do this by researching the market and understanding your audience. Also keep in mind, blending two or more of these models is completely feasible. As an example, it's reasonable that an app that's revenue is based on an advertising model might offer an in-app purchase for "remove ads." In this case, knowing how much revenue you see from ads per user to set the cost of this in-app purchase is vital.