Something I typically ask my startup clients is,
“How do you plan on making money?” Sometimes I get a stunned silence in response. They’re so caught up in their idea that they never think about the
monetization model.
This is especially true for startups that include an app as part of the business model. So, if you are at the “napkin stage” of your next app venture, here are
seven app monetization models to give you food for thought.
- The Price of the App
The most obvious way to make money is by selling it on an app store. On the
Apple App Store, the price can range from $0.99 to $999.99. Both Apple and Google take a 30 percent cut, but both of them have good systems that will deposit the funds directly into your bank account.
Although, from what I’ve observed, putting a price on your app is often a barrier to people downloading your app. We had a client that had a fairly successful app with thousands of downloads a week (as a free app). As soon as they charged 99 cents for the app, it went from thousands of downloads down to 40. If your goal is to make a profit, my suggestion is to figure out how to monetize a free app. However, if your app solves a business problem and there’s a definite return on investment (ROI), then you should charge accordingly.
- In-App Purchases
Typically, in-app purchases for a free app allow users to:
- Unlock features
- Purchase a subscription
- Buy virtual goods
- Purchase additional content
Just as in the upfront price of an app, Apple and Google Play take 30 percent of the sales from in-app purchases. If you look at the top-grossing apps in the Apple App Store, the top 30 apps are all free, but they offer in-app purchases.
- Mobile Advertising
Mobile advertising is close to a
$100 billion market in 2016. There are six mobile advertising models and I discuss them in this
article.
- License
Essentially, if you build an app that solves a problem, you can license it. A good example is event apps. There are a number of companies with an app template that will create custom apps for organizations in need of an event app. They typically charge a setup fee and a monthly subscription. This follows an
SaaS (software as a service) model.
- Improving the Business Process
Although this isn’t exactly a monetization model, effectively implementing a mobile app can substantially improve business revenue. A good example is
Fandango. Its revenue increased by 57 percent after launching a mobile app in 2012. If you have an existing business or startup, implementing a native app that improves your business process may be a way to increase revenue.
- Deliver a Service
Uber is a great example of service delivery via a mobile app. In 2015, its revenue was estimated at
$1.5 billion, with a valuation of
$62.5 billion. Other examples of delivering a service via a mobile app are
TaskRabbit and
Doctors on Demand. For developers, one of the most requested types of apps is an Uber-style app. Essentially, the model involves connecting a resource to a demand, handling the transaction and then taking a percentage of the transaction.
- User Acquisition
If you look at
WhatsApp and
Instagram, they practically had no revenue model before being acquired. What they had were a lot of users. At the time of acquisition, WhatsApp had
600 million users and Instagram had
30 million users. Their apparent strategy was to acquire a lot of users then get acquired. WhatsApp was acquired for $19 billion and Instagram for $1 billion. Not bad for businesses with no revenue model.
If developing an app is part of your business strategy, then hopefully this article has helped you consider the right monetization model for your business plan and pitch.
Rich Foreman is a contributing writer for Techwire. He is the CEO of Apptology, a Sacramento-based mobile application development and mobile marketing company. He also is the Sacramento director of Startup Grind.
