Mobile App Monetization
The mobile app market is highly competitive, as studios and developers continually introduce new apps that vie for the attention of global audiences. It takes more than just a great idea to make a successful app – it takes a great app monetization strategy. That’s why it’s so important to establish various revenue streams and learn how to sustain them from day one.
Consistently producing, testing, adjusting, and improving your monetization strategy with the right technology solutions can help you maximize revenue while making the app experience more enjoyable and worthwhile for your users. This combination of creation, iteration and acquisition creates a perfect circle of growth.
Today’s most successful publishers are using a mix of monetization strategies (AKA a hybrid monetization model) to optimize the impact of in-app ads,generating opportunities for entirely new revenue streams by focusing on customer experience and behavior.
Here’s what they’ve learned: Identifying and engaging new app users early and frequently makes all the difference.
What is mobile app monetization?
Mobile app monetization is an umbrella term that describes the strategy and tactics developers employ to generate revenue from their apps. Traditionally, monetization primarily happened via in-app ads. Today, there are many ways to make money off of your mobile app. Learning what works best for you will take time and investment, but one thing is certain — incorporating app monetization strategies at the earliest stage of planning is essential to a successful launch.
Why is mobile app monetization important?
App monetization is important because you want your app to make money and be successful — obviously — but the reason it’s crucial to your business strategy is because app users have become used to apps being free to download. That makes generating revenue after the point of install not just a bonus, but a requirement if you want to run a real business.
Fortunately, today’s mobile-first consumers will spend money to enhance their experience…if they are engaged at the right time and in the right way. Implementing strategies to encourage in-app purchasing and acquire information from user behavior will help you bring in revenue from more than one place.
If maximizing revenue is your goal, then using data to make monetization more respectful, integrated, and customized towards your app users will help you get there.
What is so difficult about monetizing apps?
Earning consistent revenues from your mobile app can be challenging. Not only do consumers have high expectations, but you’re also constantly competing with millions of other apps for time, attention, and money from end users.
Here are some of the most common roadblocks around monetization:
- App users can be resistant to ads
It seems obvious, but some people don’t like ads, especially when they are unexpected or irrelevant. Which is why not every ad solution is created equal. Correctly targeted high-quality ads, however, really do make a difference and are capable of winning new users.
- High-value users can be hard to find
Not all app users are equal when it comes to monetization. Some will never spend a penny in-app, while others are more than willing to pay to enhance their app experience. Finding the right users — and keeping them engaged — is crucial.
- Lack of visibility into user experience
You can’t improve your strategy if you’re in the dark about what people are experiencing when they use your app. Understanding user behavior and continuously adjusting how you engage with them is a necessity. When you know more, you can do better.
- Lengthy QA processes
Testing your strategies to see what works best can take time and money. The slower the QA process, the longer you have to wait for results. Accurate and powerful software solutions can help speed up QA processes so you can keep improving your app—which supports retention, acquisition, and ultimately monetization.
- Manual workflow messiness
Manually optimizing waterfalls to gain a small revenue increase is time-consuming and cuts into your gains. Incorporating automated processes into your overall monetization strategy frees up time that you can spend improving your app and reaching more users.
Many ways to monetize
There are quite a few ways to generate revenue from an app. Most successful apps don’t rely on just one revenue stream. Rather, they hybridize their monetization strategy — more on that later. For now, let’s look at the various monetization models.
Paid apps
The paid app monetization model is when a user pays for an app when they download it, or after a short trial period ends. This type of monetization model used to be the standard, but today’s consumers expect most apps to be free. The exceptions are usually apps that have an established brand already, or offer something that is very hard to get anywhere else.
The advantage to paid apps is higher revenue per download. But it is very difficult to get consumers to pay for your app when they can choose from lots of free apps. App creators know this, which is why 96 percent of Google Play apps are free and 92 percent of Apple Store apps are free.
Subscriptions
The subscription model is when a user pays a monthly or yearly fee to gain access to your app, or to unlock premium features. Subscription apps rely heavily on customer retention and loyalty, which means they need to continuously offer new ways for users to engage with their app and service, or to add more value over time.
Subscriptions can be a lucrative advertising model because they create predictable revenues. Similar to paid app models, subscribers become invested since they buy in from day one. Even a small monthly subscription amount can be significant with a large enough user base.
In-app purchases
The in-app purchase (IAP) model is when a user pays for virtual goods, services, or upgrades within the app, with real money. Free-to-download apps commonly use IAPs to monetize after the install.
In-app purchases are an important source of revenue for app publishers and have become more popular in recent times,especially with mobile games.
There are two types of in-app purchases: Consumable and non-consumable. Consumable IAPs like virtual currency are meant to be purchased over and over, while non-consumable IAPs — such as a new level in a game, new features in an app, or even a physical product — will stay with the user for good.
- Virtual currency
Users purchase this currency with real cash, and use it for various means within the app. A popular gaming example would be Robux, the virtual currency in Roblox. A user purchases a certain amount of Robux, then buys more when they’ve used it all up.
- Physical products or services
Users pay directly within the app for your physical product or service using a credit card, bank account, or other form of currency. Considering how much shopping is done on mobile devices today, this is a primary source of income for businesses with physical inventory.
In-app advertising
In-app advertising (or IAA) is the most popular form of monetization. It describes a model where ads are served to users within an app. Revenue is generated each time a user views an ad, clicks on an ad, or installs an app being advertised. The higher the value of the action, the higher the revenue. An app install pays more than an ad view, for example.
Today, in-app ads have become more sophisticated; many offer users a dynamic and relevant experience. There are a lot of different kinds of in-app ad formats you can experiment with to see what integrates best with your app.
- Banner ads
Banner ads are image-based ads that take up space either at the top or bottom of a screen. They are like small digital billboards. Also known as display ads, they are a traditional form of online advertising that remains common in the mobile ecosystem.
- Interstitial ads
Interstitial ads are full-screen ads that pop up during transitions—such as between levels in a game—and cover the entire interface of the app. They can be very effective and engaging, but also annoying if used improperly.
- Video ads
Video ads play before, during, or after streaming video content, and can be generally entertaining—and less obtrusive—to the app user. Developers can earn significant revenue by incorporating in-app video ads into their monetization strategy.
- Rewarded video ads
Rewarded video ads give players the option to view them in exchange for a reward. For example, in a mobile game the player could receive an extra life or power-up after they watch the video. These ads can generate very high revenues.
- MREC ads
Medium Rectangle ads, or MRECs, are advertisements that don’t require a full screen view to display. They’re similar to banner ads, in that they can be affixed anywhere the advertisers chooses on an app, in a rectangular format.
- Native ads
Native ads blend seamlessly into the experience of the app. When implemented properly, native ads should be relevant to the app user and feel like they are meant to be there. They are the least jarring to the user experience.
- Playable ads
Playable ads allow the user to try a sample of your app for a short period before installing and gaining access to the full experience. They are considered the most popular mobile ad format and offer the most effective way to gain users.
- Offerwall ads
Offerwall ads offer users multiple rewards or incentives in exchange for a specific action, such as watching a video, downloading an app, or making a purchase. Since they are initiated by the user, they aren’t as disruptive to the experience as traditional ads.
Using the right combination of in-app ad formats and getting them in the hands of the right users will maximize their impact. By taking the time to refine and optimize your monetization strategy, you will be able to develop:
- More ways to earn money
- High-value, long-term engagement
- Better user experience
Why is user experience important?
Monetization requires a continual balance between what you need and what your users need. You need to be thoughtful and strategic when deciding how to maximize profits, and make decisions that aim to put users first. Without doing so, you could severely disrupt or outright ruin user experience. This can lead to user churn, and severely impact your revenue returns.
To consistently get users to spend money in your apps, you need to integrate strategies that enhance their experience. Every advertisement, opportunity for an in-app purchase, or subscription plan must be designed with the user in mind. Stopping bad ads must also be a priority. Performing periodic ad reviews is an important way the user experience can be protected. The more detailed the review, the better.
Today’s highest-earning apps don’t limit themselves to only one way to make money. In order to succeed, your app has to appeal to every type of user possible and optimize the individual experience according to their behavior. Taking a hybrid approach is the smart way to make the most out of these opportunities.
Hybrid monetization
A hybrid monetization strategy combines multiple app monetization models to generate diverse revenue streams from your app users. The most successful apps use a hybrid monetization strategy, because it entices high-value users with in-app purchases while providing an opportunity for others to improve their app experience by watching and engaging with creative ad content.
When you use a hybrid strategy, you need to make sure you don’t show too many ads or they will turn users off. The goal is to maximize lifetime value (LTV) by combining the right mix of monetization models.
Optimizing your strategy for better results
Monetization isn’t a “one and done” activity—it’s an ongoing process that you will want to focus on throughout the life of your app. Pay attention to these important metrics as you look to optimize your monetization model:
Retention rate tells you the percentage of users on your app over a specific period of time. It’s a great high-level metric to identify whether your app provides a valuable user experience which translates into long-term loyalty.
App Stickiness describes how engaged users are with your app. This is measured by dividing your Daily Active Users (DAU) by your Monthly Active Users (MAU).
- Average Revenue Per User (ARPU)
Measures how much you’re earning, on average, from each user. It’s calculated by dividing total revenue by the average number of users within a certain period of time.
Measures how much revenue your users are generating specifically on a daily basis. It is a common and important metric to determine ongoing performance of your app. Measure it by dividing total revenue by daily active users (average number of users in a 24-hour period).
Lifetime Value determines how valuable a user is over the entire time they use your app. Predicting a user’s lifetime value successfully maximizes the effectiveness of ad spending and ensures that you continue to pursue the most valuable users.
Funnel Conversion Rates determine the quality of users going down the marketing funnel. It’s the clearest way to understand the full customer journey and to help optimize your strategies at each stage.
The future of mobile app monetization
As the mobile app market continues to grow, launching a successful app requires more strategy than ever. You cannot rely on traditional methods if you are trying to maximize revenue and grow your user base. Advanced monetization strategies are required to earn from high value users and learn from those less inclined to spend.
Optimizing user experience and harnessing the data collected from them creates a cycle of growth that will keep your app ahead of the pack. Here are a few trends that will continue to gain popularity:
- IAPs and IAAs will become more integrated
- Premium apps will integrate ad serving technology to broaden their monetization strategy with additional revenue streams
- Subscriptions will remain a viable option
- Hybrid monetization will be the standard
- Meta layer monetization will add new revenue streams
- VR/AR will open up a whole new revenue stream and opportunities
Mobile app monetization can feel daunting, but even small changes to the way you interact with your users can help grow your app revenue and user base. Finding the right approach will take time and resources, but getting it right is worth it, and you’ll see the difference add up.