App Monetization Models: A Beginner’s Guide on How to Earn Money From App?

So, you have the best app idea for your business that you think will take it to new heights; you’re all ready with the development team and have enough money to invest. But there’s a crucial question to ask yourself before heading into the mobile app development process - Why are you developing this app? Probably, each business has different answers to this question. While some want a strong brand presence and get new users, others focus on providing value and convenience to their audience, with a combined goal of earning revenue from it. And that’s possible only when you understand how to do it better with mobile app monetization models. 

Every year, many businesses join the race to develop a mobile app inspired by the billion-dollar success of apps like WhatsApp, Instagram, and Facebook. However, only a few succeed; others just fail drastically. While there could be many reasons behind their failure, the biggest one is often a lack of a well-planned and effective monetization strategy. Many app developers focus solely on creating an engaging and functional app but neglect to consider how they will generate revenue from it. This can lead to a lack of sustainable income, making it difficult to maintain and update the app and ultimately leading to its failure.

So, whether you’re a business or an app marketer looking around the ways to make money from your mobile app, read this guide to app monetization models to learn the pros and cons of each model and determine which approach is the best fit for your app. 

Key Statistics on Mobile App Monetization You Should Know in 2024

• The cumulative spending on iOS and Android apps was $129 billion in 2022, with iOS and Google Play accounting for 67% and 38% ($37.3 billion), respectively. (Source: Amity)
• In the US, 8% of apps are monetized by being paid, while this figure stands at just 3% globally. (Source: Gitnux)
• 5% of users make in-app purchases, but this contributes to nearly half (48.2%) of mobile app earnings. (Source: Gitnux)
• 50% of all mobile apps rely on in-app purchases as their revenue model. (Source: Gitnux)
• The Google Play Store has 68,538 apps priced under $10. In contrast, the Apple App Store has 46,000 apps priced less than $1 and 3,600 apps priced between $9 and $10. (Source: Gitnux)
• Most of the top-rated apps on the Apple App Store are either free or follow a freemium model, with paid downloads being a less common monetization strategy. (Source: Gitnux)
• Despite holding less than 15% of the global market share, the App Store is responsible for 75% of all non-gaming revenue. (Source: Gitnux)

What is Mobile App Monetization?

Mobile App Monetization refers to earning money from your mobile app through various strategies and revenue models. There are a number of mobile app monetization models (the top ten of which we will discuss below); you can use them solely or even combine them to diversify your revenue streams. Remember, the most suitable model will depend on the nature of your app and its target users.

Before you even think of acquiring a new user, you should decide on a monetization strategy, as it will shape your user acquisition approach. When deciding on the best monetization models, it's crucial to think about the user experience and how it will be impacted.

However, you should avoid monetization methods that could annoy your users. This could harm your brand's image and result in more users leaving your app. Figuring out the best mobile app monetization model for your app might be complex, but it's a vital part of your path to making a profit. But, we are trying to make it easier to understand through this guide. 

So, now that you have understood the concept of app monetization, let’s discuss how it actually works to get you the desired profits. 

How does App Monetization Work?

Mobile App Monetization works by collecting data about the user's behavior, preferences, and interactions within the app. This data is crucial as it helps tailor the user experience and optimize monetization strategies. As app monetization depends on models, let’s see how it works according to each one: 

In the case of in-app advertising, the app sends this data to an ad network. The ad network uses this data to match the user with relevant ads. The app earns revenue when the user interacts with these ads (by viewing, clicking, or making a purchase).

For in-app purchases and freemium models, the app uses the collected data to offer personalized premium features or virtual goods that the user is likely to buy. When the user makes a purchase, the app earns revenue.

In the case of paid apps, the transaction occurs upfront. However, to ensure sustained usage (and potential in-app purchases), the app must continue offering value, often determined using the collected user data.

So, the core of app monetization lies in data collection and analysis, which guides the implementation of various monetization models. Let’s now understand the different mobile app monetization models: 

What are Different App Monetization Models?

As we see today, 97% of total apps on popular app stores are free, but this wasn’t always the case. There was a time when offering paid apps was the only option for app owners to generate revenue. At that time, free apps were rare to find.

However, as data became accessible, developers, businesses, and marketers started to understand that monetization models like freemium, in-app purchases, and in-app advertising proved to be more lucrative than paid apps. That’s when offering a ‘Free App’ became the new normal. 

However, offering freemium apps isn’t the only option gaining enormous popularity; there are many more in the queue. So, here’s a detailed overview of each mobile app monetization model and strategy, along with its benefits and applications, to help you decide which one is best for your business app. 

#1. Premium or Paid Apps

The Premium or Pay-per-download monetization model is simple - users must pay upfront to download your app from the app stores. After purchasing, they have full access to all the app's features. According to the latest statistics, there are 83,263 paid apps on the Google Play Store as compared to Apple’s App Store with 92,724. 

As said earlier, in the early days of app markets, this was the only way to monetize apps. However, it's become challenging to succeed with this model today due to the intense competition from free apps and the emergence of more user-friendly and profitable monetization strategies.

However, this model is perfect for high-quality B2B apps that offer clear business benefits and apps with unique features that cater to niche audiences seeking specific solutions.

Examples of Premium Apps: Tasker, Star Walk 2, Nova Launcher Prime, PhotoPills, and SunSurveyor.

#2. In-app Purchases (IAP)

This app monetization model is centered around offering a range of virtual items, services, and perks within the application. The revenue from in-app purchases can be split into two categories:

• In-store revenue: This is the income generated from purchases made within the app store, which are subject to fees. The majority of this revenue comes from gaming and subscription apps. In 2021, in-store revenue amounted to $133 billion, marking a 20% growth from the previous year.
• Out-of-store revenue: This refers to the income generated directly within the app, such as shopping from eCommerce, ordering from food delivery, and booking travel from transportation apps. This type of revenue surpasses that of in-store revenue.

Currently, it is one of the best mobile app monetization models. These can range from selling sticker packs in messaging apps to plugins that offer new design features in a video editing app. Dating apps may sell features that expand your reach or enhance your social profile.

In-app purchases (IAP) are particularly effective for gaming apps. For instance, PUBG allows users to buy items for its virtual players. They're a cost-effective method of creating exclusive items and in-game advantages that ultimately cultivate a dedicated user base.

Examples of Apps with In-app Purchases Models: Clash of Clans, Candy Crush, Pokemon Go, and Harry Potter: Wizards Unite

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#3. Subscription and Freemium Models

A subscription model is one of the best app monetization strategies out there. Here, the app is free to download, but to access all its features, users need to pay a recurring fee. This is often referred to as the 'freemium' model, where basic features are free, but premium ones come at a cost.

Subscriptions can be a profitable way to generate revenue if managed correctly. They provide a steady income stream, particularly if app developers have a clear understanding of their user churn and retention rates, i.e., the number of users joining or leaving the app. Just like users who pay for apps upfront, subscribers are more likely to actively use the apps they pay for.

Moreover, app stores like Apple's App Store and Google Play offer incentives for this model. After a year, Apple reduces its commission fees from 30% to 15% for subscriptions. On the other hand, Google Play charges only a 15% commission on all subscriptions from the get-go.

Examples of Subscription and Freemium Apps: Slack, Dropbox, Spotify, Zoom, and Canva.

#4. In-app Advertising Model

In-app advertising is an app monetization model where an app's available space, particularly in games, is used to display ads to its users. In simple words, the advertising space within the app is sold to advertisers to showcase their ads.

A large number of users typically do not make in-app purchases. Therefore, incorporating ads into your app can generate revenue from this substantial user base. This makes it a highly favored source of income, especially for games.

While filling your app with as many ads as possible might be lucrative, developers must find a fine balance. They need to serve an appropriate number of relevant ads without negatively impacting the user experience through ad overload.

There are various formats for in-app advertising, including:

• Banner Ads: These are ads composed of graphic and text elements that usually appear at the top or bottom of the screen, often with a clear call-to-action button.
• Video Ads: These are video clips that are shown before another video starts playing. An example would be a pre-roll video that plays before your chosen video begins. These types of ads often have high engagement and click-through rates.
• Rewarded Video Ads: These are advertisements where users get a bonus within the app for watching a complete video. This format is especially profitable for gaming apps, where rewards could be new characters, in-app money, or additional lives.
• Interstitial Ads: These are full-screen advertisements that usually show up during an app's transition phase, like after completing a level. They can be rich media and come in various forms, such as videos, images, or text.
• Native Ads: These ads blend in with the app's content, appearing like regular content. They might show up in a news feed or content recommendation engines and are labeled as sponsored content. 
• Playable Ads: These are mini-games that give a sneak peek of another game's key feature. They're interactive and have one of the highest Cost Per Mille (CPM) rates for gaming apps.
• Offerwall Ads: Offerwalls give users rewards for performing specific tasks like filling out surveys, playing a game, downloading an app, or reaching a certain level in another game.

Examples of In-app Advertising Apps: Domino’s, Starbucks, Hopper, and Netflix

#5. White Labeling

If you think your app has a unique feature or solves a particular issue, you can generate income from it by adapting it for other brands or by licensing your code to different businesses. 

The term 'white label product' refers to a product you create that another company can purchase, rebrand, and sell as their own. This is an excellent way to earn extra income from your app without disrupting your users' experience by introducing other monetization strategies.

This model of monetization is perfect for apps that are based on unique ideas that can be utilized by various brands. It's also the best way to extract additional revenue from apps that have reached the end of their lifecycle and are no longer profitable on their own.

Examples of White Labeling Apps: Uber Direct, Mail Munch, Shopify, and Zoho White label service. 

#6. Data Licensing

This model of app monetization is useful for apps with substantial users, you can gather insights about their usage patterns and sell this anonymized data to interested parties such as advertisers and data analysis firms. 

For a long time, app owners have been using user data to understand how their apps are being utilized and which areas need enhancement. However, with the increasing value of user data in the market, many app owners are looking to capitalize on this trend to boost their app's revenue. The larger the number of daily active users, the more accurate, pertinent, and valuable the data becomes for those collecting it.

This method of monetization is particularly effective for apps with a vast and engaged user community capable of generating substantial data on user preferences and behaviors.

Examples of Data Licensing Apps: GIMP, 7-Zip, and Apache License 2.0. 

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#7. Sponsorships

In this app monetization model, companies offer valuable rewards to users when they complete certain tasks within the app, and you profit by receiving a portion of the revenue from the redeemed rewards.

This strategy is a recent addition to app monetization methods. It was developed as a solution for app owners who wanted to earn from advertisements without compromising the user experience with conventional banner ads. 

By forming direct partnerships with specific companies, you can regulate the kind of promotional content displayed in your app and ensure it's relevant to your audience. Moreover, you can design brand activations that are more innovative, captivating, and appealing to your users, which can ultimately enhance user loyalty.

Examples of Sponsorship Apps: IndaHash, IZEA, Octoly, and Tribe. 

#8. Affiliate Marketing

What if you use your app to convince your app users to download other apps? This is the essence of affiliate marketing, a common method for monetizing apps. There are two primary ways to implement affiliate marketing in terms of mobile apps:

• Collaborate with businesses to promote their products: Numerous businesses run affiliate programs that let you incorporate unique links into your content or advertisements. When your users tap these links, they're directed to the business's website. If they make a purchase, you receive a commission.
• Leverage affiliate advertisements to encourage users to download other apps: The app stores of Apple, Google, and Windows all provide affiliate programs that monitor when a user exits your app after viewing an ad for another app and then downloads that app. Each time this occurs, you earn money. 

This monetization model allows you to generate revenue from your app while also providing value to your users and supporting other apps or businesses.

#9. Hybrid Model

The hybrid app monetization model refers to combining multiple revenue-generating methods to create multiple income channels for your app's users. Top-performing apps often use this hybrid approach, which lures high-value users with in-app purchases and simultaneously offers other users a chance to enhance their app experience by viewing and interacting with innovative ad content. 

In implementing this hybrid monetization model, it's crucial to avoid overloading users with ads as it could deter them. The objective is to optimize the lifetime value (LTV) by integrating the appropriate assortment of monetization methods. 

What are the Common Challenges in Mobile App Monetization?

Spending thousands on mobile app development is easy, but ensuring a steady income from your mobile application can be a tough task. Users have high standards and you're always in a race with countless other apps for users' time, focus, and funds. 

Here are some common challenges you might encounter when trying to monetize your mobile app:

Resistance to Advertisements Among App Users

It's no secret that users don’t like ads, particularly if they are unexpected or irrelevant. This is why not all ad strategies are equally effective. However, ads that are well-targeted and of high quality can indeed make a positive impact and attract new users.

Difficulty in Locating High-Value Users

When it comes to monetization, not all app users contribute equally. Some users may never make an in-app purchase, while others are happy to spend money to improve their experience with the app. Identifying these valuable users and keeping them interested is key.

Understanding User Experience

If you're unaware of your users' experiences, it's impossible to enhance your approach. It's crucial to comprehend user behavior and constantly modify your engagement methods. The more you know, the better you can perform.

Time-Consuming QA Processes

Experimenting with different app monetization models to find the most effective one can be costly and time-consuming. The slower the QA process, the longer it takes to see results. Utilizing precise and robust software solutions can expedite QA processes, allowing you to continually enhance your app. This, in turn, aids in user retention, acquisition, and, ultimately, monetization.

The Hassle of Manual Workflows

Manually optimizing your mobile apps for a minor revenue boost is not only time-consuming but also reduces your profits. Integrating automated processes into your overall monetization strategy saves time, which you can then use to enhance your app and reach a larger user base.

Conclusion

So, that’s it for this blog, hope you have understood the concept of mobile app monetization models and how to choose the best one among them. As the mobile app technology continues to evolve, we should expect a more inclined approach towards hybrid app monetization models. For example, you could begin with a "free with ads" model and then propose a paid upgrade to a version without ads, embodying the "freemium" concept. 

The key message here is: don't merely replicate what others have done; tailor and tweak each app monetization strategy to suit your needs. In this article, we've outlined the various app monetization models to earn money with your app, but it's the innovative and brave app marketers who truly benefit.

FAQs

How Can Mobile Apps Monetize More?

Mobile apps can increase monetization by implementing strategies like in-app advertising, in-app purchases, freemium models, and subscription services.

Do App Owners Earn Money?

Yes, app owners earn money through various methods, such as displaying ads, offering in-app purchases, and implementing subscription models.

How Much Money Can An App Earn?

The earning potential of an app varies widely based on factors like its niche, platform, and monetization strategy. Some apps can potentially generate millions of dollars.

How Much Does A 10,000 App Download Make?

The revenue from 10,000 app downloads depends on the app's monetization model. It's not a fixed amount and can vary widely.

How Much Does Playstore Pay Per Download?

Google Play Store doesn't pay per download. App owners earn money through in-app purchases, ads, and subscriptions.