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Is Freemium best?
(Here’s a fancy web version of this post.)
This post explores possible ways of making money from a mobile app and explains the approach I take.
Should you wish to develop an app business, monetisation is one of the hardest aspects of app development to get right. The approach to making money should be considered early on, before serious coding begins. It should integrate well with the overall functionality of the app.
Most mobile apps are free to use and they operate under the Freemium business model. This includes some of the best known and largest income generating apps, e.g. Candy Crush and Pokemon GO. While the app itself is free, developers make money through optional in-app purchases which start at 99p in UK (99c in US).
Purchasable digital items include:
Consumable: used once and often seen in games, e.g. replenish health and virtual currency
Non-consumable: additional features or content that are permanently available
Subscription: unlock additional features and content for a limited period, e.g. month or year
My game Scarper (Tetris meets Candy Crush) is based on the Freemium model. I sell items that are Consumable (e.g. restoring lives) and Non-consumable (e.g. animations of how tiles scarper off the screen after the user has played a grid).
One of the main reasons to make an app free is to encourage a large number of downloads. If, however, you have a way to funnel potential users to your app via other means, e.g. a YouTube channel, then you have a greater opportunity to charge for it. App developers choose from a set range of price points per country, starting at 99p in UK (99c in US). It is unusual for users to be prepared to pay more than £2.99, unless the app offers significant value and/or unique content. There is a trade-off between price and download volumes and this Price Elasticity of Demand can only be established through experimentation.
Ads seem like the obvious way to make money. However, most users find ads annoying and some really hate them. This can lead to poor reviews which hurt an app’s prospects for success. Hence, the trade-off between potential income and reduced downloads is a key consideration. Ad options include: Banner ads (rectangular banner), Interstitial ads (popups often when transitioning from one screen to another), Ads to download other apps and In-content ads (look like your own content). The effectiveness of an ad’s monetisation is measured in CPM (Cost per thousand impressions). I do not intend using ads in my apps as I fear it will significantly damage the user experience.
Affiliate marketing or sales is the term used to describe the selling someone else’s products or services and getting paid a commission. Typical commission rates are between 5% and 30%.
Sell your own products or services
If you have your own products or services to sell then you can make more money, relative to affiliate marketing, and have greater control over the user experience. Your products or services should be a natural extension to the app and can significantly add to the overall brand experience.
Total income = Average income per user * Number of users
While stating the obvious, it helps illuminate the fact that, in addition to finding ways to gain income per user, it is also important to develop approaches to establish a large user base.
With very few exceptions, to make a profit from an app, it is necessary to have a large number of app downloads. Techniques to help achieve this will be covered in my next blog post.
Mobile app marketing and monetization by Alex Genadinik
How do free apps make money? by Anastasiia Lastovetska
This post covered options to monetise an app. In next Sunday’s post I’ll talk about ways to maximise the number of downloads and ongoing users.
Until next Sunday, consider the split between free and paid apps on your mobile.