Guide to App Monetization Strategies: How to Generate Revenue from Apps?

You have finally got what you wanted - a great mobile app for your business. Now, you can interact with your customers better, and their feedback is helping you think of new and unique ways to elevate your brand. But wait! Your app is still missing something - monetization. Every business strives for high revenue and profits, and that’s their ultimate goal. They literally do everything for it, but what works in the mobile app development industry is how you choose and implement app monetization strategies. 

According to research by Data.ai, the year-over-year consumer spending on apps increased by 3%, reaching $171 billion in 2023. Look - your app is more than just a tool. It offers an additional revenue stream for your business. Interested to know more about app monetization strategies? Aren’t you?

Great! By the end of this post, you will have learned some of the best app monetization strategies that can turn your business app into a money-making machine. So, let’s get started!

How Big is the App Monetization Market?

• The worldwide market for mobile applications is expected to reach $407.31 billion by 2026. (Source: Gitnux.org)
• In the United States, 8% of apps generate revenue through purchases, compared to just 3% globally. (Source: Gitnux.org)
• Interestingly, only 5% of app users make in-app purchases, but this contributes to 48.2% of mobile app revenue. (Source: Gitnux.org)
• In 2021, games made up a whopping 67% of all app revenue. (Source: Gitnux.org)
• The top-rated apps on the Apple App Store are predominantly free or offer a freemium model, with paid downloads being a less common way to monetize. (Source: Gitnux.org)
• By 2023, in-app purchases are projected to bring in a staggering $935 billion. (Source: Gitnux.org)
• Despite holding less than 15% of the global market share, the App Store accounts for 75% of all non-gaming revenue. (Source: Gitnux.org)
• In-app advertising is the preferred strategy for monetizing apps, making up 51% of worldwide mobile gaming income and 56% of casual game earnings. (Source: Gitnux.org)

What Is App Monetization?

App Monetization refers to the process of generating revenue from your mobile app. It often involves various strategies, from displaying banner advertisements at the bottom of your app to using rewarded video ads and implementing in-app advertising techniques.

Understanding the concept of app monetization is vital, as there are many strategies that can assist app owners and advertisers in generating income. More crucially, a thoroughly researched app monetization strategy ensures that you're fostering a positive user experience, which is critical to maintaining and expanding your user base in a profitable manner.

Before the user acquisition process, it's essential to select a monetization model as it will shape your user acquisition strategy. When evaluating the most effective app monetization models to use, it's crucial to take into account the user journey and how it will impact the overall experience.

What Are the Different App Monetization Models?

Mobile app monetization is a critical consideration for businesses, with different models impacting user privacy, experience, and the cost to the developer. The choice of monetization strategy can influence the user interface, features, and overall user experience of the app. 

Here are some common mobile app monetization models:

Paid Apps

This app monetization model, also known as the premium model, requires users to pay a one-time fee to download the app. This was once the developers' go-to strategy before others. As of 2024, 8% of apps on the Apple App Store and 4% on the Google Play Store use this model.

In-App Purchases

In this model, users make purchases within the app after installation. These in-app purchases (IAPs) can enhance the user's experience and vary based on the app category. For instance, a productivity app might offer upgrades, a fitness app might provide exclusive access, and gaming apps might sell items or unlock new levels.

In-App Advertising

In this app monetization model, users see ads from third parties while using the app. The publisher gets paid based on the specific cost model in use. One such example is rewarded video ads, where users receive a reward, such as in-app currency or level completion, for watching a full-screen ad.

Freemium Model

The freemium model is a popular strategy where users can download and use an app at no cost. However, some features are exclusive to those who pay. Users can access these premium features or eliminate ads by making a purchase within the app or subscribing.

You will be surprised to know that over 97% of apps on the Play Store and 95% on the App Store are free. But how do they earn money? Well, they generate revenue through in-app purchases, subscriptions, and advertising.

Subscription Model

The subscription model offers businesses a steady flow of income. Users pay a fixed subscription fee or choose from various subscription levels. This model is beneficial for apps that deliver continuous value, like news outlets, productivity tools, or entertainment platforms. It encourages user loyalty as they value the ongoing improvements and specialized services.

Sponsorship Model

In the sponsorship model, app developers offer companies the chance to gain brand visibility within the app. This model is effective for apps with a large user base or those well-known in a specific market. Companies relevant to the app's user base are likely to be interested in sponsorship opportunities.

How Can App Monetization Strategies Can Help Businesses?

As said earlier, mobile app monetization strategies help you turn your app into a money-making machine. These are ways to earn income from your app, keeping your business going.

Here's how these strategies can help:

• Extra Revenue Stream: Monetization brings in cash, like putting coins in a piggy bank. This lets you add cool new features and updates and advertise your app more, making it even better.
• Keep Users Engaged: Some strategies offer free versions with ads, while others have paid versions with extra features. This gives users options and keeps them engaged while earning you money.
• Feedback: Some plans, like in-app purchases, track how people use your app. This is like getting a secret code. It shows what users love and what they don't, so you can make your app even more awesome.
• Long-Term Success: A good monetization plan keeps money flowing steadily, like a never-ending candy machine. This lets you focus on making your app the best it can be for years to come.

Top 5 App Monetization Strategies to Follow in 2024

With our years of experience and knowledge of the mobile app development market, we have formulated 5 successful mobile app monetization strategies that can help you earn mobile from your app.

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#1. Implementing In-app Advertisements 

In-app ads are promotional content that users see while using an app. They come in various forms, such as banner ads, full-screen ads, video promotions, native promotions, and text-based ads. This method of generating revenue from apps is highly favored, and its popularity is still strong. In fact, forecasts suggest that by 2025, the revenue from in-app ads will nearly triple, hitting a staggering $226 billion.

The most commonly used formats for in-app advertising are banner ads, video promotions, native promotions, full-screen ads, interactive ads, and reward-based ads. Studies have shown that in-app ads on mobile websites can be up to 11.4 times more effective than banner ads.

For this strategy of monetizing mobile apps to be most effective, it's crucial to follow best practices. Ads should be placed at the bottom of your app. For instance, in a gaming app, ads should be displayed at the end of a level.

#2. Maximizing Revenue through In-app Purchases and Upselling  

In-app purchases (IAPs) are transactions made by users within an app to access extra features, content, or benefits. They are a powerful revenue-generating tool for mobile apps, contributing to approximately 48.2% of all mobile app income.

There are two main types of IAPs:

1. One-time In-app Purchases: 

One-time in-app purchases refer to the items that a user buys only once. They can be further divided into:

• Consumables: These are items that a user can use up, and once depleted, they are gone. For example, in a game, a user might buy an extra "life" that is used up once the player loses that life.
• Non-consumables: These are items that a user can use indefinitely. They never run out, so a user can use a non-consumable purchase as often as they like.

2. In-app Subscriptions:

Subscriptions are a unique type of in-app purchase where a user pays a set subscription fee on a weekly, monthly, or quarterly basis (or according to a predetermined subscription cycle) for ongoing access to the benefits, features, and content that the subscription provides. In fact, a significant portion (82%) of the revenue that non-gaming apps earn on app stores actually comes from subscriptions.

Just like one-time purchases, In-app subscriptions can be of two types:

• Auto-renewable Subscriptions: These are subscriptions that renew automatically. You ask your users, or "subscribers," to agree to your billing terms, which include charging them an automatic payment according to the subscription plan they choose. Renewal subscription payments are charged automatically and don't require any user authentication.
• Non-renewable Subscriptions: Also known as "prepaid" subscriptions on the Google Play store, these are subscriptions that don't renew automatically.

#3. Leverage Subscription-based Revenue Models and Retention Strategies  

If you believe in updating your app’s content frequently, think about setting up a subscription model for your recurring customers. This way, your users just need to register for a monthly or quarterly billing cycle, and they'll get all the new content without having to remember to purchase it.

However, when you adopt the subscription model, aim to create different levels of access to your content. The Economist successfully implemented this approach by giving their users the choice of a digital-only subscription, a print-only subscription, or a combination of both.

A lot of users found it worthwhile to pay a little extra for the added benefit of having access to both digital and print subscriptions. So, when you're looking to generate revenue from your app, think about providing separate options and including a subscription package that bundles all the services together as a premium offering. This could significantly increase your app's profitability.

#4. Alternative Revenue Streams  

Partnering with brands and sponsorships can be a profitable strategy for app monetization. In this model, brands pay to collaborate with the app, capitalizing on its user base for marketing campaigns. By smoothly incorporating brand propositions, app developers can generate an extra income source while boosting user interaction.

Sponsorships and partnerships are flexible, suitable for a wide range of app categories, and offer brands a focused platform to display their goods or services. This approach encourages reciprocal relationships, providing developers with financial backing and brands with access to a tailored audience.

Simultaneously, another excellent method to monetize apps is through affiliate marketing. This strategy allows apps to earn commissions by endorsing third-party goods or services. Developers need to embed unique affiliate links or codes within the app. When users make purchases via these links, the app earns a set percentage of the sale.

#5. Analyzing and Optimizing App Monetization Performance  

Once you've understood the various app revenue models, it's time to discuss how to gauge the effectiveness of your chosen model. 

Here are the key metrics to monitor:

• User Retention Rate: This is the proportion of users who continue to use your app over a specific timeframe. Despite individual user behavior variations, the retention rate is an excellent overarching metric for determining whether your app offers a valuable user experience that fosters loyalty.
• App Engagement: This measures how consistently and frequently users interact with your app. The more engaged the users are, the more engaging the app is considered. This is calculated by dividing your Daily Active Users (DAU) by your Monthly Active Users (MAU).
• ARPU (Average Revenue Per User): This metric helps you understand how much revenue you're generating from each user on average. It's computed by dividing the total revenue of a business by the average number of users within the same timeframe.
• Lifetime Value (LTV): This metric assesses a user's value over the duration they use an app. This information assists marketers in determining how much they can spend on advertising to acquire customers while still remaining profitable.
• Funnel Conversion Rates: These rates help assess the quality of users progressing through the marketing funnel — from the moment they see an ad to completing a significant, revenue-generating in-app event after installing an app.

How to Choose the Right Monetization Strategy for Your App?

In your efforts to generate revenue from your mobile app, choosing the right app monetization strategy can be complex. It's challenging for businesses to use multiple techniques to maximize their app's revenue potential. 

In 2023, advertisers in the US alone invested over $352.7 billion in in-app advertising, indicating a growing confidence in this particular monetization strategy within the digital advertising landscape.

When looking for an app monetization model, app owners should ponder over the following aspects:

• The Functionality of the App
• The Competitive Landscape
• The Intended User Base

What are Legal and Regulatory Considerations in App Monetization?

Turning your app into a successful business requires a thoughtful approach to how you make money. But beyond the basic strategy, there's a legal and regulatory side to consider. Below are some legal and regulatory considerations in the app monetization process that ensure user protection, privacy, and fair practices.

• Data Privacy: If your app collects user information, laws like GDPR and CCPA apply. You'll need to be transparent about what data you collect and why you need it and get clear user consent. 
• In-App Purchases and Subscriptions: These popular monetization methods have rules around how they are advertised and priced and how users can cancel subscriptions. 
• Advertising: If you display ads, there are regulations about what kind of content is allowed and how you disclose that it's advertising. 
• Industry-Specific Rules: Certain app categories, like healthcare or finance app, have stricter regulations to follow. 

Understanding these considerations from the start helps you avoid legal issues, fines, and – most importantly – losing user trust. 

Conclusion

By this point, you're already aware of the significant impact a mobile application can have on your business. It provides an opportunity to broaden your brand's reach and connect with a wider audience. As highlighted in this article, it can also be a considerable source of revenue.

Every app developer should explore the most effective strategies for app monetization to achieve success. Our compilation of proven mobile app monetization strategies could be beneficial. Implement these strategies and observe your business start to generate more revenue from your app than ever before.

Keep in mind that the ideal app monetization strategies that work for us may not necessarily be the best for you and your app. The skilled team at Mtoag Technologies, specializing in enhancing app revenue, can guide you toward the best app monetization strategy. They can identify opportunities and potential pitfalls well in advance.