So, you just got a brand spanking new app for your business – congratulations! Now comes the tricky part: attracting and retaining users and building a continuous revenue engine. Should you charge a fee for every download, or only certain content or features? How can you support a premium experience without compromising the overall user experience?
Monetizing isn’t easy, and there are many ways to approach this goal. I’m here to help you figure out which strategy will work best for you. Let’s break down the top monetization models, their pros and cons, and a few examples.
App Monetization Models
In 2019, global app users spent about $120 billion on app purchases. That’s a huge market.
While there are a lot of different app monetization models to look at, the two most popular are::
- The Premium Model
- The Freemium Model
Each model has its positives and its negatives. Still, the biggest concern I hear from entrepreneurs is how to make sure the chosen model supports delivering a positive, seamless user experience.
The Premium Model
About 56% of all apps follow a premium model. So, what is the premium model, and how do you benefit from it?
The premium model follows a simple plan. The user pays to download the app. Now this is great for your business because you make revenue directly with every download! Plus, most users are more likely to engage with an app that they directly paid for. Simply put, people are going to use a product they paid good money for.
Sounds pretty simple, right?
As great as the premium model sounds, there are some drawbacks to consider. About 75% of paid apps are downloaded less than 150 times; fewer than 1 percent have more than 15,000 downloads. Most people don’t want to spend money on an app before they experience it.
My advice is to ask yourself why users would want to download this app over a free competitor app? Does your app offer advanced features? An innovative UI? Thoughtful product design and compelling mass marketing will help your app stand out.
One example of an app that uses the premium model is Netflix. With the promise of billions of movies, programs, and TV shows, intuitive search, and compatibility with most streaming devices, Netflix entices nearly 200 million paid subscribers worldwide to pay for their monthly service. While free content services are abundant, Netflix has secured its place as a foundational service for many households.
Bottom line: Although this is a great way to generate direct revenue, the more your app stands out among its competition, the higher the likelihood customers will choose to download your paid app over a free one.
The Freemium Model
Freemium. It’s a fun word, isn’t it? It is also a fantastic model that about 95% of businesses follow. Done right, this is a great way to widen your revenue stream.
The freemium model allows users to download and use basic functionalities for free, but to gain full access to certain content or features, users must pay a one-time or recurring fee. Offering a free version allows you to attract more users because people are more likely to download an app when there is no up-front cost. And it will enable users to give your app a test run before signing up for your premium service or content.
The key here is convincing your users that your app’s paid version is more valuable than the free version. In simple terms, make sure that you have the right kind of features to make your users feel confident they’re getting their money’s worth.
The freemium model’s downside is that it may take your app a little longer to start turning a profit. Growing a user base takes time, and finding the perfect balance between too many – or not enough – paid features takes a lot of planning and research.
The first app that comes to mind when thinking about the freemium model is music-streaming giant Spotify. Anyone who has used the free version of Spotify knows that it has its limitations. While you can listen to any song you want, you are limited to a set number of skips, and of course, you must listen to those pesky ads. However, once you upgrade to a paid plan, the limitations and ads are removed, new features such as playlists and offline listening become available, and you’re free to listen how you like.
Bottom line: The freemium model is the right choice when your app has a large user base, and the paid content on the app adds substantial value for your users when upgrading from the free app.
In conclusion, some companies choose to generate as much money as quickly as possible from their apps while acquiring users over time. Other companies will choose to build a large user base first and then monetizing the app. Finding the perfect monetizing model depends on your business priorities. Additionally, monetizing apps does not always have to use a pure premium or freemium model. Many apps follow a hybrid of multiple strategies. So, get out there and be willing to test and learn – you may find that your app will benefit from an unexpected approach.
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