The best app monetisation models for startups
There has never been a better time to develop a mobile app idea. In 2019‚ worldwide app store consumer spending reached $120 billion‚ with worldwide downloads growing 45% in the past three years.
The highest revenue-generating category across both app stores is gaming‚ which accounts for 74% of app store spending. However‚ there are still plenty of opportunities for great app ideas across all categories.
One of the most frequently asked questions our app development team receives is a variant of “I’ve got this great app idea‚ but how do I make money from it?”
It’s a really good question and something that should always be considered right at the start of the app development process. There are numerous monetisation routes to consider and the decision will be highly dependent on your business model‚ target market and the value your app delivers.
Monetising your mobile app: a two-pronged approach
For emerging startups‚ charging users outright may seem daunting. That’s why we can take two approaches to the monetisation model – direct and indirect.
The former encourages users to pay through downloads or other purchases. The latter may involve affiliates‚ or simply influencing behaviour.
Consider‚ for example‚ automating push notifications. These may alert your user-base to promotions‚ remind them of upcoming events‚ or encourage them to return to the basket. By using data to understand and change user behaviour‚ we can gently influence revenue-generating behaviour without charging an up-front fee.
So‚ which app monetisation method will work best for you?
Direct methods
The key with direct methods is to always deliver value. You may also need to invest a little more in advertising. For example‚ weight loss app Noom uses native ads on Instagram to entice users.
Paid Apps
As the name suggests‚ this involves a charge from the point of download. With so many free apps out there‚ your product or service needs to stand out. This doesn’t mean starting from scratch. Instead‚ offer features that make it convenient‚ accessible and engaging.
Dark Sky is a great example. As a weather app‚ it’s not re-inventing the wheel – it’s just better than its competitors. It offers engaging graphics‚ easy access to changing weather patterns‚ and convenience through features like rain warning notifications. Your goal is to make the paid download appealing: this may involve a marketing strategy of its own.
In-app purchases (freemium models)
This is a popular route for new market entrants because it gains new users quickly. With a free download‚ your target audience won’t feel pressured into spending money straight away. However‚ you can incentivise the user to pay for in-app upgrades once they’ve familiarised themselves.
This is common in mobile games‚ for example‚ Candy Crush. They’ve nailed this tactic: once users’ five ‘lives’ have been lost‚ they can either wait 30 minutes‚ invite more users via Facebook‚ or purchase more lives. Playing on the addictive element‚ this is a robust strategy for monetising apps and acquiring more users. You might get some of your users’ backs up‚ but the decision to upgrade is in their hands.
E-commerce purchases
Taking inspiration from the mobile revolution‚ online retailers are turning to apps. The upside is that users can make purchases faster‚ without having to log in every time. Mobile apps also encourage customer loyalty‚ for example‚ fashion brand H&M offers reward points through its app.
Unfortunately‚ this is often most effective with larger‚ established brands. Ensure your main site uses ample real estate to advertise your e-commerce app too.
Subscription-as-a-Service
If your business model involves putting out new content regularly‚ try subscriptions. You may have heard of apps like Headspace. Often‚ users can download the app for free and then subscribe to ongoing content.
This is particularly popular for news outlets – the Washington Post even gives readers cheaper subscriptions through Amazon Prime. Again‚ the burden here is to offer your consumers something beyond what they can get for free‚ so you may benefit from little perks like this.
Digital Assets
Ideal for younger audiences‚ digital assets like sticker packs or other ‘power-ups’ are a great way to build app revenue. Pokemon Go‚ which has retained 90 per cent of its 35 million users since July 2016‚ monetised the app with ‘Pokecoins’. However‚ as these stats imply‚ you may have to become more established or offer a truly unique asset for this to work in the long term.
Indirect methods
Affiliate marketing‚ on-demand services and even data sharing can all generate added revenue without directly impacting the customer.
Advertising
In-app advertising‚ or even third-party advertising‚ is controversial. On the one hand‚ it’s relatively easy to generate revenue‚ or can be made more user-friendly by adding a paid model to remove ads. This is prominent in mobile games but can irk some users – 20 million of whom ignore them every hour. Likewise‚ payments for banner ads are dropping which will impact the amount you can earn.
On-demand services
Humans pay for convenience‚ and apps are in a prime position to take advantage of this. A simple charge for delivery can be perceived as added value‚ for example through the Deliveroo app. Founders should be prudent about their pricing‚ however‚ to avoid alienating audiences.
Shared Economy
Your role here is to be the middleman – and take a cut from it. Shared economy models enable peer to peer transactions between users and service providers while charging a small fee for the service. This has worked wonders for Airbnb and its 150 million users. Again – pricing is key here‚ for example as a percentage or a set fee.
Affiliate Marketing
Generating leads for third parties could earn you commission‚ depending on the partners you work with. For example‚ design company Envato offers a 30 per cent referral bonus for apps that recommend its services. You’ll have to play the long game with this one – for any worthwhile revenue‚ scaling your app is key.
Data procurement and selling
If you can safely‚ and legally‚ share data with third parties‚ then this could be hugely lucrative. A classic example is Google Maps‚ which bought social mapping startup Waze for an eye-watering $1.1 billion. Ensure you can comply with the legalities before pursuing this strategy.
Offering the whole package
Mobile app monetisation offers myriad opportunities‚ but there’s no one-size-fits-all approach. It depends on the industry‚ your competition and your affiliates.
Good marketing must also underpin your revenue strategy. You should encourage users to download your app wherever appropriate‚ for example‚ advertising loyalty schemes on the homepage of your website.
Don’t forget – app discovery doesn’t just happen on the app store. A 2015 Google study revealed that users discover new apps through other apps‚ search marketing‚ YouTube‚ and of course‚ on your own website.
Your mission is to communicate the value of the app. This could be a mobile ad for exclusive content or a promotional code for the next purchase – whatever brings you the biggest return on investment.
Ask us about the best way of monetising your app idea
At hedgehog lab‚ we’re passionate about the value that mobile apps can bring to startups. For more tips on how to find the best monetisation strategy to suit your brand‚ get in touch today.
