The mobile app monetization guide

Mislav Stanic
13 minute read

You’ve successfully created a mobile app. So what’s next?

Well, you’ll have to start attracting customers and begin to look into ways to monetize it.

A steady income from your app does not just prove its viability as a product, but it also provides you with the means to continue working and improving on it further.

In this article, we’ll talk about proven strategies and methods that you can use to generate revenue from your users.

Furthermore, we’ll discuss popular monetization trends and some pitfalls you’ll definitely want to avoid.

What is app monetization?

Simply put, app monetization is a strategy implementation process that will allow you to generate revenue from users.

Your monetization blueprint will depend largely on your app’s category and the niche you’re targeting.

You may be wise to take a narrow focus, choosing just one monetization avenue, or you may be better off incorporating multiple pathways. This variety of methods and scopes can make the monetization process challenging.

Remember, there’s no one-size-fits-all solution here.

As an app maker or a marketing specialist, you’ll have to modify or create your own monetization strategy, drawing from several examples detailed in this article. In this way, you’ll be ready to start effectively generating revenue.

Why is app monetization important?

Beyond just generating revenue, monetization is crucial to the progress of your app. Unless your product is backed by a ridiculous amount of private funding, you’ll need to generate some money at some point.

Without a reliable revenue stream, there can be no consistent, ongoing development efforts.

Another important aspect of monetization is that it goes to show how well your app has been accepted in the community. It can even reveal different specific use cases.

Generally speaking, if users agree to be targeted by various app monetization techniques and still use your app on a daily basis, you’re doing something right.

What is the downside of app monetization?

App monetization has a profound impact on your app’s user experience.

In-app adverts, banners, or cross-platform rewards systems can throw a beautiful, pixel-perfect app out of balance. No user enjoys seeing ads as part of their app experience.

The key is to find equilibrium and some level of harmony.

You’ll have to find the middle ground between too much and too little monetization for yourself.

A general rule of thumb is to keep monetization efforts separate from app functionality. This way, you mitigate or reduce the effect they may have on the way your app performs.

There can be no avoiding the fact that an app’s UX won’t benefit from monetization. Just be sure to pick the least aggressive strategy of monetization.

App monetization in numbers

Since 2015, global app revenue numbers have been skyrocketing. By the end of 2016, they reached a mind-blowing $285.3 billion.

The trend isn’t stopping there, as every year brings a significant further rise.

According to predictions, app revenue will hit $581.9 billion by the end of 2020. That goes to show just how many apps have opted for some type of monetization.

App monetization by year

Now, most apps are still monetized by some kind of in-app advertising, with other formats gaining popularity.

There are several different types of ads, each carrying its own unique pros and cons.

However, the anti-ad sentiment is growing in strength. This has allowed for the rise of alternative approaches, like the subscription-based model, which lets users have an ad-free app experience for a monthly fee.

While this pivot is not surprising, there has been a lot of discussion as to the future of ads. When will the current ad bubble burst?

There are huge benefits in store for innovators who discover entirely new ways of monetizing their app, steering clear of old strategies and formats.

In fact, true innovation would give birth to a whole new set of methods and open the floodgates to even bigger revenue streams.

Mobile monetization strategies

So, what kind of strategies can you use to make money using your app?

Let’s explore the most popular ones and see how each one generates revenue for your app.

Some of these might get complicated, so take your time and find the one that fits you best. Then, modify it to the specific needs of your app.

In-app advertising

As mentioned above, this is by far the most popular way to monetize an app.

It’s also the most discussed one, as there are many different approaches and effects unique to this kind of advertising.

Although each app is unique, there are some general ad formats we can explore.

Banner ads are the original app advert and also the most common one you’ll find in most free apps. They are a free and practical way to generate revenue without much hassle along the way.

But the fact remains, these just may be the most disliked format of them all.

Why don’t users like banner ads?

The answer is simple—they’re disruptive and usually completely unrelated to the rest of the app’s experience.

They’re also usually quite abrupt and can easily divert a user’s attention to the ad from what they were doing in the app itself.

This is often quite frustrating, even to the point where a user might stop using the app altogether.

Banner ad in the CourseBuddy mobile app

User aversion is a major part of the reason why virtually nobody interacts with them anymore.

This, in turn, means you’ll have to serve a lot of ads to get any practical value out of them at the end of the day.

It’s no wonder that this format is slowly but surely dying out among advertisers.

Pop-up ads

In the search for an alternative to banner ads, along came in-app popup ads. While pop-ups may be a welcome change from banner ads, it’s safe to say that this particular change is not for the better.

While these ads don’t appear all the time, they, too, cause a certain level of annoyance.

Pop-up ad in the CourseBuddy mobile app

The main problem with these ads is that they appear at carefully selected times and are usually unskippable. This means you’re stuck watching something you potentially have no desire to.

Popular in mobile games, they usually appear at the end of a certain event in the app—for example, after finishing an important level.

Although they’re not as disliked as banner ads, they’re not far behind.

Native ads

After two swings and misses, we arrive at the first ad format that has been created with user experience in mind.

Native ads are adapted to the look and feel of an app, so they essentially look like all other already existing content.

These are mostly used in apps that distribute news or media content. This way, publishers can advertise without triggering a possible negative reaction from app users.

Native ad in the CourseBuddy mobile app

Looking at them objectively, they’re a step in the right direction. Compared to the previous two types of ads listed, these actually have a decent engagement rate.

Their success here depends on the quality of the content that has been advertised, and how well they actually blend into the app itself.

The key here is not to disrupt the existing user experience in any way, but to blend in with the rest of the content.

Affiliate ads

This in-app format is something different altogether. It involves the placement and advertisement of selected products inside your app and usually involves a previous affiliate arrangement.

While this is generally a good idea, the general success rate of these kinds of ads depends largely on execution.

Affiliate ad in the CourseBuddy mobile app

Serving affiliate ads in a non-intrusive way is the key to success here.

It also allows you to gain control over what’s displayed in your app at any given time, as opposed to serving random ads from third-party providers.

The potential for profit in this case depends on the kind of deal you’ve made beforehand and how large a share of each sale you’ll receive.

Subscription models

Since the downfall of in-app mobile advertisement, many apps have turned to different subscription models to generate revenue.

These have been around for a while as a way of distributing software, and have recently started to gain a lot of traction in the world of mobile apps.

This is largely due to the fact that such models offer a variety of benefits, perhaps most notably an ad-free app experience.

A subscription model means that a user can download an app for free, but there’s a catch.

They either get access to a limited number of features or access for a limited amount of time.

Once the grace period ends, a user will be required to pay a certain fee in order to continue using the service. This isn’t the only possible variation of this model, but you get the gist.

Spotify subscription model statistics

In contrast to in-app ads, the main selling point of a subscription model is that it’s partly based on human psychology.

You offer users everything they ever wanted for free, but only for a limited time.

Once they have developed a habit of using it, they’re very likely to upgrade just to continue working as before.

In-app purchases and virtual currency

This method of app monetization has become increasingly popular in the last couple of years, particularly with games and wide-use apps.

With this approach, users are offered the option to buy certain virtual goods inside the app, either for real money or virtual currency.

You could say that this approach is as cutting-edge as it gets.

Once a user downloads your app for free, he is allowed to use it without interruption; however, certain features may be locked unless he buys them. This can involve anything from major features to details like cosmetic upgrades.

Essentially, an app’s features get divided into smaller pieces, each one costing money to unlock.

Since most users start off unaware of this dynamic, they’ll be more likely to upgrade once they’ve already invested time in using your app.

Unlocking the “remove ads” option in the CourseBuddy mobile app

App makers have found another way of cleverly tapping into large and potentially unlimited cash flow resources.

This is done by offering users virtual goods in exchange for in-app currency. No real money is exchanged at the point of purchase, which dissociates the users from the fact that they’re still spending actual coin.

Such systems are carefully put into place so a user can buy only certain amounts of currency. This entices them into spending even more than originally intended.

Transaction fees

This is a kind of unique method of app monetization that’s emerged with the rise of financial and other similar apps.

These apps are completely free to use in every possible way, with a slight twist. Somewhere along the way, you’ll want to purchase some kind of service or physical product using it.

That’s where transactional apps make money.

In purchasing a service or physical product, the user will be required to pay a certain fee. It’s usually something small, in the range of a few dollars, so it does not raise any red flags to the user.

Dollar by dollar and you’ve earned your fair share.

As far as concepts go, this one may just be the most subtle way of monetizing the app you’ve made.

The trends in mobile app monetization are shifting, and you should stay on your toes. In 2020, with good reason, a vast majority of app makers started focusing on app experience, as opposed to straight-up monetizing their apps.

That’s why any future endemic monetization will focus on the experience.

Anyone who decides to make an app will have to find the balance with making a functional and usable app if they’re looking to attract customers.

The standards have risen significantly since the times of different in-app ads, making it even harder to stand out from the crowd.

The fact is, mobile app monetization has matured.

This means that any attempt at trying to monetize an app without having a plan in place will most likely be met with failure. More so, you’ll have to make sure users are engaged with your app at all times.

Due to an overwhelming variety of apps on the market, you can’t afford to take any chances.

Let’s face it, nobody pays for apps anymore. At least not to download them, that is.

We’ve entered a time where freemium and subscription-based apps are dominating the market.

Offering your app for free, even though it may be for a limited time only, has proven to be a great strategy that attracts users faster. No paid app could ever match this revenue model.

Subscription-based apps also put the user in control, by providing the option to cancel the service at any time.

Even more popular than subscription-based apps are freemium ones.

The user gets a whole app and most of its functionality for free. How great is that?

A paid app could ever compete with such an offer, even more so when the user only needs to pay for features he’s going to use anyway.

It seems both of these models are here to stay. The same can’t be said for apps that require a fee to download, which are bound to slowly wither and eventually die out.

Such is the nature of the game, with plenty of other monetization strategies just waiting to take their place.

No more cheating on in-app purchases

In-app purchases are still experiencing steady growth. However, there has been an increasing number of apps that have been using in-app purchases as a way to effectively cheat users.

They provide only partially accurate information and offer steep up-sells on features.

Once a user has purchased a certain feature of in-app content, it is fair to say they expect a full service for the money they spent.

Quite a few apps have been falling short of that promise, asking users to spend even more money on even more features in order to get 100% from the app.

This is also something that affects app experience quite profoundly, as it erodes user trust.

App makers need to make sure they balance their in-app purchases and fees perfectly in order to avoid an all-out rebellion when it comes to prices.

There will always be users who are willing to spend a lot, but the majority of users may not be so inclined. That’s why it’s bad business aiming solely for those high rollers.

App subscription models that mirror SaaS products

As we’ve already established, the subscription model is a healthy way to monetize your app. However, we’re once again faced with a question of balance.

As time progresses, users have become accustomed to receiving most features upfront. They’ll only upgrade once they’ve thoroughly tested an app out.

This has led to a basic subscription model becoming way more complicated than it used to be in 2018.

Since competition and user demands are higher, the market has become increasingly cutthroat. That’s why certain apps have adopted complex pricing models similar to SaaS products, with more to follow.

The goal here is to persuade users to use their app and upgrade at the earliest convenience point.

These pricing models are best fit for apps that offer services and usually entail the service being free, but capped to a certain amount of actions.

This kind of approach will have app makers looking for insights into their users in order to gain insights into which features are the real moneymakers.

Customizable experiences

Slowly coming to an end is the time in which apps with a static user experience dominated the market. That’s why app makers have once more adapted and started creating apps with experiences that are tailored to every user uniquely.

These apps allow you to customize the way you’re using them by offering a range of little tweaks.

Such changes wouldn’t be possible without apps collecting behavior data from users.

All the collected user data has the potential of bringing enormous value to a business, with other trends like data monetization on the rise.

Looking at how many app makers are opting for customizable experiences, it’s safe to say that we’re looking at big changes ahead.

Apps will need to go personal to succeed. It goes without saying, all data should be collected with the user’s explicit consent, or you risk raising multiple privacy issues.

Hybrid monetization

If you’re looking to monetize effectively, it’s only reasonable you’ll try multiple strategies simultaneously.

While there’s no reason you shouldn’t do something like this, you still need to keep an eye on its impact on user experience.

That’s why an increasing number of app makers aren’t looking to get chained to a single revenue stream, but mix it up by implementing several hybrid strategies.

This can provide a more stable income flow in a changing market, but it can also have a negative influence. Unless balanced out perfectly, such an approach can cause a volatile reaction with users.

Therefore, make sure you focus on experience above everything else.

Conclusion

Monetizing your app isn’t a simple feat anymore, as it used to be 10 years ago. The market is changing every day, and app makers need to adapt accordingly.

There are plenty of strategies to choose from when it comes to generating revenue, each one carrying its unique set of benefits and drawbacks.

This means there’s no simple monetization strategy that works every time; instead, you’ll need to find or create one that fits you the best.

As to the general trends, be sure to always be mindful of your app’s user experience and be ready to act to customize it based on user data.