How can you effectively monetize your app? It is vital to question this regularly.  After all, revenue potential was probably your biggest driver to invest in mobile apps in the first place.  How you define your business and app plays a big part in which of over a dozen monetization methods you choose to use.

Let’s start with the Big List of Monetization Methods…  Some you know all about, and others you’ve probably never considered.

Mobile App Monetization Methods

Monetization Method In-App? Type: Excludes: Pricing/Revenue:

Notes:

Premium

Yes

Base Build Freemium & Advertising

Avg:  $1 or less.
90% under $5

Not usually advisable for a B-to-B app

Freemium

Yes

Base Build None

via Advertising and in-app Store

Feature and content unlocks, upgrades

Advertising

Yes

Module Premium

$.02 to $2.00 CPM

Inherent to freemium

Expansions & DLC’s

Post Release

Module None

Similar to Premium

Later “add-on” content

In-App Currency

Yes

Module None

Variable

Tricky

Vanity Items

Yes

Content None

Variable

High-end products and services

Storefront

(In-App Store)

Yes

Module None

Any & All; Variety of options is best

Every app should include a store

Subscriptions

Yes Payment Freemium & (maybe)
Advertising

Variable

Some are multi-tiered

Newsletter

Maybe

Web Function None

Variable

Every business should keep a mailing list: inherent to app registration

Data Model

Maybe

Web Function, Module or Business Model None

Variable

Requires massive volume of user participation

Partnerships

Usually Yes

Business Model None

Shared Cost or Commissions

Easily expand your product or service line

On-Demand

Yes

Business Model None Volume and Participation

Complex, offers greatest potential to scale up

White Label

Yes

Business Model None

License Fee or Royalties

Complex, but suited for competitive industries

 

How Many Monetization Methods Should Your App Use?

Most of the millions of apps out there employ three or fewer revenue options.  They typically rely on premium sales plus a newsletter OR a freemium app model with advertising plus an in-app store.  The best performers, however, do their best to make use of every option. You may be surprised to learn that online and mobile games are the most innovative about monetization options – and retailers are beginning to take heed.  

The best performers have:

  • a freemium or trial version
  • a premium or subscription version
  • regular releases with new features
  • an in-app store
  • active promotion and sales of vanity items
  • a regular newsletter (via email)
  • many have an in-app currency
  • frequent surveys (web)
  • ongoing or periodic partnership arrangements  

Blizzard’s World of Warcraft – an Expert at Monetization

Almost every app has a finite lifespan: new content and utilities, if planned from the beginning, can prolong its lifespan and profitability.  Most MMO’s (massively multiplayer online games) have this down pat. The most popular of these, World of Warcraft (WOW), started in 2004 enabling players to go from level 1 to 60.  In September of 2018, their sixth expansion will take players from level 110 to 120.  

Blizzard sells each expansion as a premium software title and download, each at $49 – $69, while also requiring $10 monthly subscriptions.  In addition, Blizzard has its own store selling a variety of vanity products and services. Its newsletter promotes all of its games, some with their own in-app currency.  Blizzard actively conducts surveys and partners with non-profit agencies – especially on sales of vanity products. Warcraft may not be an app, but it comes close to setting the standard for great monetization.

Online gaming is a very competitive market. Many game developers opt for a freemium version and find they can still be profitable with their in-app store, subscription model, vanity products and services.  

In-App Currencies

A complex and potentially very tricky mechanism, virtual currencies can be purchased, earned and/or traded when using an app.  Its simplest incarnation works like a customer loyalty program: buy a sandwich, get a star and once you have ten stars, your next sandwich is free.  This currency has no value outside of your business or your app.

Wargaming’s World of Tanks lets players buy “gold” which can, in turn, be used to buy (you guessed it) tanks and other items from its online store.  When first signing up, Wargaming gives new players “free gold” for changing their password after 30 days and more gold for adding a mobile phone for two-factor authentication, thereby reducing the company’s threat from hacking theft.  There are far more elaborate in-app currency models and vast economies built around them, but for business purposes, the best idea is to keep it simple.

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Vanity Items and Services

Your business probably doesn’t sell +3 Tomes of Strength for $30.  You may have a hard time finding a business case for a $38,000 “Ethereal Flames Pink War Dog” (of Dota 2 fame).  But some creativity could help you find a case for a $12,500 “supporter pack.” Grinding Gears Games did when independently crowdsourcing of Path of Exile’s initial development helping to raise over $1.2 million.  

Vanity deserves a book unto itself.  There are prestige items, luxury goods, elite membership cards, unique items, collector’s items, extra account features, quality of life improvements, etc.  Some customers will pay to get exclusive treatment, to stand out, or sometimes just to support you. There’s likely something your business can do or offer to cater to this narrow (1%) but lucrative audience.

Subscriptions

Arguably, subscriptions are the best monetization option ever invented for recurring revenue.  Recurring revenue provides the basis of being able to reliably predict some portion of your future revenue.  While most developers opt for the freemium model, they also provide subscription options. The standard option provides customers discounts based on the duration of their subscription, like $9.95 for 1 month or $24.95 for three months.  

Innovative companies, however, are offering different tiers of subscriptions often tied to additional account benefits (similar to vanity items).  Many SaaS providers charge based on the number of users with access to an account (individual, team, enterprise). Fashion and apparel retailers are also putting the subscription model to the test.  Forbes provides more details about how much users are willing to pay for subscription-based mobile apps.

Newsletters

Nearly all apps for businesses include user registration, and a successful mobile app makes it easy to grow your mailing list quite rapidly.  Putting it to best use is up to you and needs to be geared toward the relationship you want to cultivate with your customers. Of course, that means not spamming them and applying best practices for email subscription, opt-out and etiquette.  Use it to promote new products, services, app updates, promotions and information useful to your customers. Newsletters are also great for cross-promotion efforts.

Monetizing Data

Another trend for companies is moving from a subscription model to gaining revenue from selling data to 3rd parties.  The requirements for monetizing data are substantially more complex than any of the other monetization models covered here.  This involves identifying, collecting, organizing and using analytics and other data to provide companies with actionable market intelligence. Users of this data often include insurance companies, hotel chains, manufacturers, etc.  

Success with this approach requires having and maintaining data feeds from a large number of users and, most importantly, adhering to privacy laws.  Privacy laws are receiving renewed attention with the European Union’s General Data Protection Regulation (GDPR) going into effect on May 25th. Due to its specialized nature, we will explore the “data model” in much more detail in the near future.

Partnerships

Far too few businesses appreciate one major advantage provided by merely having the capacity to invest in a mobile app.  It’s hard to find anyone talking about it – it is completely missed in most articles about why your business should have an app.  

There are about 30 million businesses in the United States. Of these, 90% qualify as micro-businesses having fewer than 10 employees.  Simply speaking, it is impractical for the vast majority of micro-businesses to invest in an app of their own. You can think of this two different ways.  

Left brain, thinking logically, says, “Great, that’s less competition for me!”  

Right brain, thinking creatively, says, “Great, that opens up thousands of opportunities for all of us!”  

Your right brain may be thinking small: consider Amazon.  Jeff Bezos could have kept his website all for himself, but instead he opened it up to two million 3rd party sellers and hundreds of thousands of affiliates.  Together, they’re pulling in close to half of all US online sales!  

On-Demand and White Label Apps

On-Demand and White Label Apps are just two very good examples of how partnerships can work easily for mobile apps.  At Reinvently Insights, we have lots to say about On-Demand Apps: don’t hesitate to check it out.

With White Label apps, you own the app, but you can license it out to other parties.  This is an approach that has been used by companies like Qcare, WashClub and Opera Mobile Store in conjunction with Yandex.  You get to define the terms and conditions, including whether to sell the license to use your app outright or charge a royalty on every transaction.

As noted above, having the financial capacity to invest in a mobile app is itself a major competitive advantage.  The white label approach puts you in a position to sell or rent (think SaaS) your own software to other businesses in the same basic market.  While each license will require some customization, its cost is a fraction of the app’s initial development cost.

Options, Options…

Many apps are not profitable simply because they don’t include the means of becoming profitable.  Subscriptions, for example, are awesome for recurring revenue but terrible for growing revenues from current customers.  

Look at each monetization method carefully.  Could it work for your business? Is there something you can easily change about your business that would make a particular option viable?  Or, for that matter, is there a way you can partner with another business to make specific monetization methods viable for both of you?

 

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Mark Dabbs

Expert contributor

Mark Dabbs is an expert contributor and consultant for Reinvently. His passion is helping businesses make better use of mobile technology.