In appvinio, we most often work with visionaries who want to create innovative products under a new brand, in short – with startups. But regardless of whether the application is to be a new market killer or a useful corporate tool to streamline processes, it should be built in a way to achieve the planned objectives.
The goals of such an app can be varied. The key is that the app should help users and give them real value, for example in the form of saving time, money, or giving entertainment. In this way we will attract and be able to keep users of our application – then we can think about monetization, which means how to generate revenue from our product.
There are plenty of ways to generate income. In this article, I focused on showing and briefly discussing those methods that are most commonly used in applications on the market. I have divided these methods into two categories from the user’s point of view – ways to generate revenue: explicit and implicit.
Explicit monetization method
An explicit monetization method is one where the user makes a purchase and payment, such as a subscription, in exchange for access to certain functionality or an entire app.
I think it’s currently one of the most popular overt monetization methods, based on paying periodically (e.g. monthly) for access to content, functionality, or apps (e.g. Netflix, Spotify).
relatively easy implementation, which is reflected in lower cost of adding such functionality in the application
This payment method is familiar to the app users, which creates more trust
The disadvantage of this solution is quite a high commission for payment processing. According to the rules of Google Play and AppStore, only Google and Apple (on their platforms) can handle this type of payment, so at this moment they have a monopoly. On both services, the Google Play and AppStore side, the commission plans look similar:
15% per transaction for businesses with up to $1 million annual app revenue
30% per transaction for businesses with higher revenue, for new subscription users, after one year of subscription the commission drops to 15%
It’s worth mentioning that this is $1 million in revenue per platform ($1 million on Google Play, $1 million on the AppStore).
It is also a very common monetization method, especially for mobile games.
This method allows for the one-time or multi-time purchases of digital products such as unlocking features in an app, purchasing a music track, or buying points to use in a mobile.
The advantages and disadvantages of this solution are very similar to those of subscription, because in this case we also have to use AppStore and Google Play payment service.
The only difference we can notice between the commission for subscription and in-app purchases is that when we are on a higher commission threshold (30%) and we use subscription, loyal users who subscribe to our app for more than a year will generate a 15% commission (up to the first year 30%), while for in-app purchases the commission is unchanged and will always be 30%.
A method of monetization that I personally would not recommend, because it forces the user to buy and pay for the App before he has a chance to use it. Although Google Play and AppStore support the refund system, still from a psychological point of view we have to pay for something before we can see what we really bought. A bit like buying a cat in a bag.
This method is often used in the model:
We provide a base version of the App for free, which has, for example, some functionality blocked or ads appearing. Thanks to that users have the possibility to use it before buying.
Then we also release the full, paid version of the app, which already has unlocked features or no ads.
The big advantage of this method is actually the lack of need for implementation in the app because all the work comes down to the proper configuration of application profiles on the Google Play and AppStore side.
The setup of this method again is based on Google Play and AppStore payment service, so we won’t escape from the commission model described for subscriptions or paid app.
The paid app allows for a one-time purchase of the app, so we can only generate revenue one time.
Implicit monetization method
An implicit monetization method, on the other hand, is one where the user does not directly see how the developer is monetizing the app, such as advertising contracts with third-party companies.
This is the most popular and most chosen monetization method in apps because it allows to generate a very large revenue without taking money from users, who in this model mostly use the app for free.
Then where does the revenue come from? Building a growing community in the application, we also build a growing group of people, potential recipients of external companies’ ads, usually focused around a specific area. For example, in the case of sports apps, companies related to fitness, healthy eating, sports equipment, etc. will certainly be interested in reaching their potential target group in a new and interesting way.
There are plenty of examples of apps or services using this model, including Facebook, YouTube, and TikTok.
This method allows us to generate income, not limited directly by the number of users of the application – of course, it matters, because the more users we have, the bigger advertising ranges we can offer, Nevertheless, it is on our side to negotiate the conditions of advertising campaign display and the final income.
Users use the application completely for free, which makes it easier to expand the group of users of the application, and thus the range of our ads
This method requires the implementation of your own advertising solution, which will be compatible with the business model
Too many ads may cause a decrease in the number of active users of the app
This is another quite common monetization method. It applies to applications or generally platforms that allow the sale of products or services between users.
In this model, the application generates revenue from the commission on the sale of an item or service, reducing e.g. a few percent commission from the amount of the transaction made by the buyer. Most often, the seller covers the commission and receives the amount of money minus the mentioned percentage.
As an example of applications using this model, we can mention: Just Eat or Vinted.
The app is free for the majority of users (which are buyers) because sellers usually cover the cost of the commission
Since most users (buyers) use the application for free, it is easier to attract new users, thus increasing the attractiveness of the application for sellers
This method requires the implementation of a custom advertising solution that will be consistent with the business model
The generated revenue is strongly related to the number of users of the application
Too high commission can scare sellers out of the app and thus buyers by the limited number of listings
This model can be used when we have, for example, users who want to order food and restaurateurs who can prepare such a meal. Then, the users ordering meals use the application for free, and the users – the restaurateurs – pay the app investor a fixed monthly subscription for the possibility to offer their products or services.
This model is similar to the commission model with the difference that a fixed amount of revenue per user is generated periodically.
Sale of statistics
I know this may sound controversial, but it is obviously a set of anonymous data that allows you to pull out certain trends or behaviors of a group by filtering it by, for example, age range or location.
This method is most often not used as the main monetization method but as a secondary method.
Similar to advertising, the revenue generated by this method also depends on our negotiation skills
It requires developing a strategy of collecting statistics and implementing such a module – you need to know from the beginning what kind of data about users you need to collect
This method can be used after some time after launching the application to give us time to collect statistics
Popular method, but used rather rarely and mainly by single developers or small teams creating applications or mobile games.
In case of this method, revenue is generated for displaying small banner ads in our application.
This method is simple and easy to implement
No post-implementation intervention required
Generates low revenue compared to other methods
Revenue from the app depends on the number of app users
Revenue also depends on the category of the app
On Google AdMob page we can estimate the revenue from our application Mobile App Monetization – Google AdMob
Do you already know what monetization model fits your project? If you’re still thinking about it or have some questions, I would like to recommend you to contact us. During the meeting, we will help you choose the right form of monetization, paying attention to the costs of implementation and the potential of generating revenue.
Keep in mind that these are only some selected monetization methods, and some of the models described can be combined together to increase the revenue you generate.
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