What Monetization Method is Right for Your App?
April 19, 2017
If you have an app idea that you’re serious about pursuing, then the question you’re probably asking yourself is how your app would make money. It’s an important question to ask, because it’s central to determining how much money you should invest upfront, what the downside risks are compared to the upside benefits, etc. There is no “one size fits all” monetization strategy, so research and decide which method(s) best fit your business.
In this blog post, we’ll explore a variety of monetization models and offer guidance on how to determine which model makes the most sense for your startup. This guide is the result of App Partner’s experience in bringing over 200 mobile apps from idea to market.
At the end of this guide, we have included success stories of apps we have developed in the past and an Industry Standard section that you can use as a reference.
To figure out what monetization method is right for your app, you need to know your options first. If you’re not familiar with the four fundamental monetization models already, here’s a quick overview:
These four models serve as the tried and true “industry standard” when it comes to monetization, but you don’t have to stick to just one of those business models. Your app could be a hybrid and leverage different aspects of multiple models. There’s no right or wrong method of monetization because every app and startup is different.
Once you understand the four basic business models, you need to determine and understand who your target audience is. Don’t spend time analyzing your competition, because you should be narrowing in on your audience. Conduct thorough research with tools like Facebook Insights and User Personas to figure out your audience’s demographic and the way they behave. Start analyzing data and line up your efforts according to their behaviors.
If your app solves a pain-point of a very specific group of people, your app will be targeted at a niche audience. If your app can provide a unique high value to a specific smaller segment of people, then you will be able to hold a lot of pricing power. That being said, you still need to make sure the niche you’re in is large enough and has the numbers to sustain your business. These types of apps provide massive value to an underserved market, so odds are, your audience won’t mind spending on something they need. Think of apps like TippyTalk or SafeTrek.
If your app appeals to masses, like Slither.io or Houseparty, you will be in an unsegmented or mass market. This is the exact opposite of niche markets, as it focuses on appealing to the whole market instead of a very targeted specific group of people. Monetizing successfully in a mass market typically requires a high sales volume and a lower price tag. In-app advertising or charging advertisers would work great in these situations.
Another factor you need to keep in mind is how heavily your audience will use your app. Would they only use it once to book a flight for their upcoming vacation? Are they going to play with it every day for 30 minutes to beat that next level? Are they using it to video chat with friends once a week for two hours?
Users of travel apps don’t want to see ads every five minutes, but they would pay $2 for a quick and easy way to purchase plane tickets. And most gamers don’t want to pay .99 cents up front for a puzzle app, but they would pay .99 cents for two power-up packages. Think of gaming apps like Candy Crush or Two Dots. This is where understanding your users comes into play because to make a profit you need to know what people are willing to spend money on and how much they’ll spend on it.
Take Waze for example; they connect drivers to other drivers by allowing them to provide valuable, real-time information about traffic. The people who use that app may or may not be using it every day, depending on how much they travel. But during the 10 minutes a week/month they do use it, they’re obtaining or providing useful insights, which creates amazing value for each user.
Your app may be awesome – but what value does it create? Ask your users, strangers, friends and family for their unbiased real opinions. Although you can’t quantify it, you should always keep value and your end users best interest in mind when pricing your product/s. Once you understand the real value that your app creates, you can build a monetization strategy around that, because that will be what your users are most willing to pay for.
Here are real world examples of two different types of apps and the monetization methods they chose.
Panther Technology’s Math Paper is a niche specific productivity app that allows students with cerebral palsy and motoric disabilities to solve math and algebra problems without the standard pencil and paper. This app allows kids, teens, and adults to work independently and efficiently – something that would not be possible without Math Paper’s capabilities.
Because the app was specifically developed to solve a need that has never been met before, Panther Technology holds a lot of pricing power. They charge $19.99 to download the iPad app and .99 cents for a variety of math packs.
The social network and competition app for dancers, Jusmove, provides a niche experience in the dance world and allows it’s users to record, watch and submit high-quality videos to monthly dance competitions for cash prizes.
The app is free to download, but Jusmove charges users a small fee to submit their videos to competitions. They also offer in-app purchases for bundles of credits.
Games are more addictive than traditional apps (if done right) so gaming apps tend to have longer session lengths than any other category of app. Those users are spending and investing a lot of time in the app, so they’re not likely to abandon the app just because a 30-second ad popped up after they beat a level.
These players are dedicated, addicted and play to win so in particular, gaming companies that have mass engagement and provide high-value games hold a lot of pricing power. The most common forms of monetization are paid .99 cent downloads, in-app video ads, and in-app purchases.
When it comes to productivity, there are two types apps: generic and niche.
Take a generic flashlight app for example. All iPhones come with a flashlight pre-installed, so you’re not likely to download and frequently use another flashlight app. The flashlight apps that do exist don’t charge the user anything to use the app; they charge advertisers to run banner ads or sponsored content.
On the other hand, niche productivity apps typically offer something of high value to users. Any serious and dedicated musician knows that having a basic metronome installed on your phone is of the utmost importance. However, as a guitarist, having a metronome on your phone with the exclusive features to select any tempo from 1 to 300 bpm, visual beat indications, and a tuner is even better.
Charging $5 to guitarists to download your niche metronome app would be profitable in this case. You could also reach out to well-known guitar companies, like Gibson, for sponsorship opportunities. Getting a chance to offer a company a place to position themselves in front of the right eyeballs, is an opportunity you should never pass up.
If you look at the top social networking apps, Facebook, Twitter, Instagram and Snapchat, you’ll notice a common theme – they’re all free. Users are almost always expecting social apps to be free now, so if your social app is a paid app that costs $2.99 to download, odds are you won’t have a rapidly growing user base or any signs of making a profit. Additionally, free apps can grow your userbase at a much higher rate than a .99 cent app, because there is very little risk in downloading something that’s free. So instead of charging your users, you might want to consider charging advertisers.
Apps that serve as a platform are focused on connecting the right people to create valuable transactions. Acting as the middleman, these apps have to take a certain cut to monetize effectively. Uber and Airbnb are both great examples of this “taking a cut” monetization method.
Uber is a platform that connects drivers with people looking for a cheap and fast ride. They orchestrate this process by finding drivers who want to earn money and giving people access to locate and book these drivers through their mobile app. After the trip is complete both the driver and passenger can leave feedback. Uber then takes a 20-30% cut of each transaction.
Airbnb facilitates the exchanges between people traveling and homeowners. For example, a couple on their honeymoon in Miami can scroll through Airbnb to find and “rent” a local apartment with a beautiful ocean view to stay in for a week. The owner of that apartment can then decide whether or not to accept the couple’s offer based off of feedback. Airbnb charges their flat rate of 10% from hosts for every booking and 3% of the booking amount from the guests.
The success of retail apps like Home Depot, Starbucks, Target and Domino’s, is predicated on how many goods they sell to their consumers. This monetization method is very straight forward. The company offers a physical or digital product to their users through their app, in exchange for money. These apps often act as a companion to existing businesses, in which they are used to enhance the shopping experience – whether it’s online or in-store shopping.
So to figure out how much pricing power you have along with the monetization route you want to take, answer these three questions:
With the information previously discussed in this article, you should have a good sense of how to fit all of your pieces together. Keep in mind that every app is different, so what works for Uber might not work for you. In some cases, apps don’t even need monetization. If you’re a well-funded startup, money isn’t a problem. Therefore you don’t need to worry about monetizing. But if you’re just starting out and don’t have a lot of money to back your project, then monetizing is something you should be focusing on.
Choosing the business model that’s appropriate for your app is all about assessing your goals and determining which method/s will please users while improving your business outcome at the same time.