Understanding App Monetization Strategies

Before starting any mobile app development project, it is important to understand the various monetization strategies available and pick the right one. Mobile app development projects are major undertakings and thus it is important to have revenue projections to complete and sustain the app in its lifetime.

Your app monetization strategy is the chosen method of generating revenue. Users are increasingly less willing to pay an upfront fee to download an app. In fact, less than 5% of all apps on Google Play and the iOS App Store have an upfront purchase fee. Therefore, developers are increasingly required to come up with viable ways to fund the building, maintenance, and continuous development of mobile applications.

In this article, we highlight traditional and emerging monetization strategies for mobile apps as well as important considerations when settling on each.

Freemium Model

A majority of mobile apps today operate on a freemium model where users can access a basic version of the app for free. The users have the option to make in-app purchases to access premium features. The main advantage is that the apps can attract a large user base whom they can target as potential paying customers. The conversion is likely to be high because these people already understand how the app works.

You may contrast this approach with one where money is used to advertise the app to people without the option of trying out the app for free. It might be better to sink some money into maintaining non-paying customers.  Still, a dilemma lies in finding the right balance of features to avail on the freemium tier and what to keep exclusive to premium customers.

Types of In-app Purchases

Over time, businesses have figured out different ways to raise money through in-app purchases. This largely depends on the nature of the business, but gaming apps are perhaps the pioneers in this field.

Consumables

These are limited purchases in mobile games that allow users to access things such as new lives, additional strengths for their characters, or any other feature built by the development team. Most games today have their in-game currencies which customers can earn while playing or through such purchases.

Non-Consumables

These are in-game purchases that users only need to make once, such as unlocking a level in a game.

Multi-Level Subscriptions

In this model, users pay a recurring revenue, often monthly, to access features they otherwise would not on the free tier. Besides additional features, they are also likely to enjoy an ad-free, hence smoother experience of the app. Paying subscribers may also have exclusive access to technical support in case of any issues while using the app.

Music and video streaming services such as Spotify, Apple Music, and YouTube are great examples of this model. The nature of the service they offer is such that is makes a lot of sense for people to pay for an ad-free experience. For instance, in 2019, it was claimed that Spotify was reaching a 46% conversion rate of free to premium users in some markets.

In many cases, customers set up automatic renewal of the services. This means that once a customer becomes a paying subscriber, the company can project with a level of certainty how long they are likely to stay on that tier.

If your business is considering using any of these strategies, it is important to build a good roadmap to keep customers happy. For example, gaming companies have to continually build new features and experiences for gaming enthusiasts to keep selling consumables. Subscription-based businesses must maintain a smooth experience for users and avail new content to minimize customer churn rate.

Advertising Model

The other most widely used model to keep apps profitable is through ads. Ads on websites were a popular model to monetize news websites and blogs before the smartphone revolution. Naturally, ads found their way into mobile apps. Today, ads are implemented in multiple ways to increase click-through rate.

Banner ads

In this approach, mobile app users are shown ads relevant to them based on factors such as demographics and location. In many cases, these banner ads are used to promote other apps.

For advertisers, banner ads are a non-expensive way to reach a large audience. However, the visibility comes with a low click-through rate, sometimes as low as 0.1%. There has been a new term coined in the digital advertising industry called ‘banner blindness’. It is the conscious or unconscious choice to ignore banner ads on websites and mobile apps. It has led to the need for and popularity of more native ads on mobile apps.

Interstitial Ads

These are ads the cover the entire screen as opposed to just a section like banners do. They are best placed at transition points in the user journey. For instance, an ad might appear between levels in a game. These ads have a much higher engagement rate than an ads which is good for advertisers. They also have a higher revenue-earning potential  (CPM rates).

If these ads become too intrusive in user journeys, they might lead to an app being penalised by Google or the App Store. There are guidelines publishers ought to follow on proper ad promotion.

Native Ads

Native ads are now a popular format of advertising on social media applications such as Instagram and Tiktok. Ads are displayed on a user’s social media feed as natural content would be. The effect is that ads feel less intrusive leading to greater interaction. Social media companies already have data on user profiles. They can therefore display the most relevant ads and content at the same time.  This may, in fact, enhance a user’s experience of the app.

Native ads are complex to implement properly into an app. A small mobile app project may not be suited for native ads. You would also need a large user base with lots of data on users to enable proper targeting.

Sponsorships

Sponsorship is a unique approach to monetization which involves finding partners whose brands align with your content and users. You promote and integrate their brand within your app content in return for a fee. If you have a strong user community, many brands will want exclusive access to your audience.

Subway is an example of a major brand that has taken this route to advertise itself to a gaming app community. They partnered with a gaming app called Preplay football around the Superbowl season when user activity on the app is likely to peak.

There should be an organic connection between the target audience and the brand being promoted to have a consequential effect. In fact, it may be important that the values of such a brand be in line with those of the brand.

Sponsorships present opportunities to develop new synergies between brands and partnerships can last for years. For instance, a gaming app that has characters can use storylines, mentions, placements, and many other things to increase the visibility of a partner brand. Similarly,  fashion brands with their own e-commerce apps can engage in collaborations and cross-promotion activities.

Affiliate Programs

Affiliate programs present an opportunity for smaller app developers and owners to promote other apps for a commission. The revenue expected from this model is not high and would ordinarily be used alongside other monetization methods.

While picking brands to promote as affiliates in your app, it may be important to research their reputation. It may be necessary to give a disclaimer if you cannot vouch for the quality of goods or services they offer.

Crowdfunding Monetization Strategies

Crowdfunding is a fundraising method for niche apps in their early stages. Using platforms such as Kickstart and GoFundMe, apps that are looking to solve a unique problem can leverage their user communities to develop implement a roadmap. While this sounds easy, the truth is that thousands of apps are competing for such funding. Getting user attention is quite difficult. However, if successful, a strong community almost guarantees long-term success.

Best Practices in App Monetization

It is important to appreciate that the success of an app relies heavily on many factors beyond your control, including luck and correct timing. There are apps that go viral quickly after launch while others are sleepers. Still, some best practices are likely to help in the monetization journey.

Prioritize User Experience

While the need to maximize revenue through ads is understandable, you must ensure that the implementation results in minimal disruption in the user journey. Pick the right format between banner ads, interstitial ads, and native ads. Poor ad implementation can result in the failure of an otherwise valuable app. Users have an ongoing debate about whether they can put up with the ads or whether to switch to an alternative app.

Use Multiple Monetization Methods

By studying trends in user behavior, it is possible to take advantage of more than one monetization method. For instance, you can use both banner ads and affiliate marketing on a content-heavy app. Sponsorship revenue is a popular secondary way of generating revenue for apps that have reached or are approaching a maturity stage in their lifecycle.

Pay Attention to Analytics

Relying on statistics to objectively understand different aspects of your monetization strategy is important. Such things as geographical location, demographic factors, and in-app behavior can unlock insights that can unveil new ways to generate revenue.

SMS Marketing and Email Marketing

Access to user information such as mobile numbers and email addresses is substantial in marketing. Through SMS marketing, you can extend current and upcoming offers on in-app purchases to your users. SMS are powerful because they allow you to reach offline users who may not have logged into your app for a while. This can contribute to a decrease in your churn rate.

With email marketing, you can send personalized offers quickly, with the necessary branding and a call-to-action button. You can quickly speed up the buying process, especially with products and services that have an authentic connection with customers.

Considerations When Choosing Monetization Strategies

The choice of a monetization model for your app will depend on a cocktail of several things. First, the nature of your app will dictate whether certain monetization strategies are viable. For instance, people may not be will not be willing to pay a subscription for an entertainment news app. However, people might be willing to pay a premium to read expert opinions and analysis in the business world.

Your competitor’s actions can influence your monetization strategy. For instance, if a competitor offers more value on the free tier of their service, this might force your hand.  However, customer loyalty may work in your advantage if their demand is price inelastic.

Work with NS804

There are many more things to keep in mind when doing business analysis work before an app development project. An experienced app development company would help paint a clearer picture of what to expect, especially if they have domain knowledge in your industry.

At NS804, our team brings many years of experience from building projects for clients in different industries. We can help hypothesize, build, test, and implement clear monetization strategies for your app. For more information and a discussion on your project, schedule a conversation with us through our website.

In mobile application development, a minimum viable product is a working version of an app that contains basic features that satisfy customers’ needs. Mobile application development projects are complex and costly. It is easy to use up valuable resources on non-essentials. Investors are always cautious when putting money into new mobile app projects and want to see a proof of concept. The concept of a minimum viable product is agile development conversations.

In this article, we explore why you must start with an MVP on your next mobile application development project. Successful tech start-ups have evolved into multi-billion-dollar companies using the MVP process to evolve their product gradually to add functionality and focus resources on the most important elements of the product.

A Minimum Viable Product Allows You to Test the Business Case

It is not until you take your product to the market that you can claim it makes business sense. When building the MVP, you must make assumptions about user needs and then hypothesize your product as a perfect solution. When the stripped-down product goes to the market, you have time to see customer reactions and feedback. Best on the feedback, you can either double down and improve on existing features or scrap some in favor of what customers might be asking for. It is easier to make changes on a light product as opposed to one that is already feature-heavy.

 

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Winning Investor Confidence

As indicated, building mobile applications is an expensive venture especially when the underlying concept is scalable to a global level. You need to hire engineering teams and invest heavily in marketing. This often means having to raise money externally. However, such external capital wants to see a working version of the product in the market and evidence of scalability. For the team working on the MVP, it is wise to focus resources on the primary features to have something to pitch to investors. An MVP, therefore, is essential in winning investor confidence and perhaps even raising a company’s valuation compared to when you only have an idea on paper.

Figuring Out a Monetization Strategy

Mobile applications built for use by the public can use different approaches to remain sustainable. A large number of apps rely on running ads to maintain a free plan for all users. In a few cases, the promoters of the app are not sure whether a premium plan would be appealing to the market. By building a simple version of the app, the team can stretch out its runway to test this hypothesis. If enough people show interest in a paid ad-free version of the app, the team can work on pricing plans and the product roadmap. The team may also decide whether to have different tiers to still keep some users on a freemium plan or scrap that altogether.

User-Centric Approach

An app is not user-centric unless there is clear evidence of the product roadmap being defined by customer needs. By not taking a feature-heavy product to the market at the beginning, the product team allows users to contribute to the evolution. Some teams make the mistake of confusing sophistication for utility. Customers will always go for the latter. Resources are better utilized when directed to implementing feedback from those who are already using the app.

Having an active user community is particularly important for any application that seeks to improve over time. A lot of apps have moderated user community forums where people discuss their experiences, and bugs faced, and come up with suggestions on what new features they would like to see. This pool of knowledge is gold.

A Clean User-Interface

A minimum-viable product with only the most useful features means that the UI of the app will not have too many icons, buttons, or windows to navigate to. The target users will find it easy to understand and utilize the app end-to-end. As you add more features, users will not find the changes too dramatic but instead their experience will improve gradually. This is quite common today where apps have small updates every few weeks to fix bugs and improve functionality.

Cutting the Time to Market

Getting to the market quickly is important in any project management endeavor. It can not only save costs, but it can give the company first mover advantage in a new field. Depletion of resources before launch could mean the death of an otherwise great idea. Getting to the market a few months after a competitor has launched might mean not ever making up ground on them. As such, it is better to build a simple but workable MVP and get it to the market first. Selling is always the most difficult part of the job. If you can sell the MVP, you can work on adding more features down the road.

Preparation for Scaling

The MVP process allows the product team to add features gradually with the long game in mind. Before each feature is added, the team is sure that it adds utility for users and will not need to be scrapped a few months down the road. The tech stack chosen for such projects and the documentation should enable the company to scale its user base without compromising the quality of experience for users.

With the MVP approach, the team is likely to work in sprints where weekly or fortnightly objectives are set, implemented, and reviewed. This approach is a great foundation for scaling a mobile application.

Risk Mitigation

As highlighted, app development projects are often faced with the risk of resources running out before the product is out in the market. Potential investors also want to see a working product in the market before committing large amounts to the project. This is part of their risk management process. However, an often overlooked cause of project failure is feature creep. This is where the development process gets delayed because new ideas keep being added to the product before launch. A project that could have gone to the market within a few months ended up stalling because resources ran out.

Adopting an MVP approach keeps the project guided. New ideas get shelved until the product is in the market. The product team then establishes a methodology for determining what to implement during each sprint in the evolution of the product.

What Risks Come with the MVP Approach

There are great benefits to the MVP approach to product development. However, there are also some valid concerns over compromises made to have the MVP ready within a given timeline. First, limiting the scope of features to include in the MVP may end up hurting the value of the product in the eyes of target customers and potential investors. Two features might be equally useful but limited resources might mean one feature has to be dropped. Such a choice could end up derailing the project altogether.

Another risk is that the product team is likely to spend a large chunk of the budget on features and very little on the UI design. However, the compromise may be too big that users end up dismissing the product because of the UI. The team must walk the thin line of prioritizing features while still delivering a good enough design as well.

Again, in situations where several competitors are rushing to get to the market first, a company that has a bigger budget to play with has an undeniable advantage. They can hire a bigger team and prioritize both features and a world-class UI/UX design. Such cut-throat competition could spell the end for a company that had invested significantly in its own MVP.

 

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Building a Winning MVP

Regardless of these pitfalls, by working with an experienced in-house or external mobile app development partner, your company can implement the MVP approach successfully. Five main steps can be customized depending on the nature of the project.

1. Market Research- You need a firm understanding of the market in which your intended mobile application will launch. If there exists competition, you must be clear on what your app does better than the competition. The hypothesis should be based on empirical evidence as opposed to a hunch. Talk to customers, and industry leaders, or study reliable secondary research from reputable sources. You may find that your intended product does not offer enough value to the target customers. This will save you potential losses in money and time.
2. Target User Identification- Next, you will need reliable metrics using which you will assess the success of your MVP launch. You will specify the demographic identifiers of your target audience, the number of downloads expected, the user rating expected, and so forth. These objective metrics provide a yardstick that you can then use to decide what needs improving.  For instance, did you get enough reach using the publicity tools employed? If not, perhaps you need to spend on inorganic marketing to expand such reach.

• Feature Prioritization- The third major step is determining what features to include in the MVP and the rationale for it. It is important to envision the user journey as they interact with the product. It is at this point that you also determine the layout of the content. Further, you determine the placing of buttons as well as other UI elements such as color and fonts. The look and feel of the mobile application should be designed to evoke specific feelings. In cases where you have target users with varying needs, you should prioritize features that will serve the most valuable customers by volume of business.

1. Developing the MVP- The next step is to build out the MVP for release into the market. At this point, you may need a landing page from where people can sign up before the launch. The landing page may also serve to redirect users to a community forum or blog. A blog is useful for the product team or anyone else involved in building the MVP to share knowledge about the application.
2. Taking in Feeback- The final step in the minimum viable product journey is taking in feedback from those who use your product. You must be ready to go through many iterations of your product as each version goes to market.

Build Your Minimum Viable Product

A minimum viable product takes away some of the complexities of the mobile application development process. Through it, you reduce the project scope and ensure that resources flow towards clearly stated objectives. However, figuring out the features to prioritize can be difficult especially when a development team has never taken a similar project.

Working with an experienced mobile application development company has major advantages when building a project for the long haul. At NS804, we have numerous years of experience in handling mobile application projects from conceptualization to completion. We will help you design, build, launch, and keep improving the initial version of your project. If you would like to talk to our team about your upcoming mobile application development project, reach out to us through our website.

 

 

After the initial release of an app, developers must realize that the app’s journey has merely begun. The success and longevity of the app depend highly on the team’s ability to follow the app’s roadmap into the future. Feedback from surveys and analytics tools built into the apps highly influences an app’s roadmap. Developers must determine the most important performance indicators and use the right measures to track them. Whether you are an Android or iOS developer, here are 8 insights you should know.

Performance Metrics

The primary metrics for the development team are performance metrics. If the app requires the support of network services, it would be critical to monitor the number and frequency of network errors. Network problems, such as HTTTP failures, cause low responsiveness and app crashes. App crashes result in poor ratings on app stores thus affecting future download numbers.

Other performance metrics include API latency, which is the amount of time it takes for a request on the app to be resolved. Latency needs to be less than 1 second so that users do not experience drags in their experience of the app.

Acquisition Metrics

The first kind of insights to track will be on app acquisition. Tracking the number of new downloads on a daily, weekly, and monthly basis indicates where the app is in its lifecycle and how the product team needs to act. For instance, if the number of downloads has been slowing down, they may decide to refresh the app through rebranding and introduction of new features.

Tracking metrics also helps you to assess of marketing campaigns that you might be running currently.

Beyond the downloads, the product team should track the channels through which new users are coming. These numbers help to determine how to utilize the marketing resources to maximize return on investment.

Activation Metrics

Activation metrics go beyond the download numbers. The activation rate is the percentage of new downloads that launched the app on their devices. An activation rate that is below 80% could point to an underlying problem. Perhaps the users experienced a bug when attempting to launch the app, and ended up not trying again. A long registration process or a poor UI could be other factors hindering your app from hitting healthy activation rates.

Tracking the ratio of first-time app launches over total launches over a 30-day rolling period is a great indicator of app growth. A 5-15% growth is considered healthy in most cases.

Retention Cohorts

The ability of an app to retain users is perhaps the greatest indicator of the app’s revenue potential. Whereas people have more than 50 apps on the phones on average, they normally use less than 10% of them daily.

One method to track an app’s retention ability is to categorize users into retention cohorts. This is done by tracking people who download an app on a given day or week then tracking their usage thereafter. You might find that by day 7, only 20% of the cohort members logged into the app and are likely to continue using it thereafter.

Another retention metric is the number of uninstalls. On average, 24% of all newly installed apps are uninstalled after a single launch. The reasons are varied but the most common reasons include bugs, poor user interface, or failing to solve the problem that a user had.  It’s important for developers to investigate the reasons for app uninstalls, even when they are just a small proportion of first-time app launches.

Demographics Metrics

Beyond monitoring the number of downloads of an app, it is important to drill down into the figures to realize what they mean. For instance, developers may want to know what the age distribution of their audience looks like and whether that was what they expected when making a business case for building the app. The geographical distribution of the audience matters. Developers may find the need to optimize the app and its content for different markets.

Importantly, developers must also monitor the different operating systems and devices that users are accessing the app from. When developers have built different iOS and Android versions of the app, they must ensure the quality of the experience is quite similar on both platforms. A too small of a market share on one platform could indicate perhaps a poor user experience that needs improvement.

Conversion Metrics

An important indicator of the app’s performance is the conversion rate. This is a calculation of the proportion of people who could have performed an action that ended up actually performing it. For a commerce app, how many people searched for an item, clicked on it, and completed the purchase as opposed to exiting? A high drop-off is an indication of an underlying process. A complicated UI might make it difficult for users to find what they are looking for. A long checkout process could also result in a high percentage of abandoned carts.

Opt-in Rate and Click-Through Rate

Within the app, the product team will invite users to allow such things as push notifications or allow location access. You might also request users to allow in-app notifications as well as sign up for newsletters. Tracking the proportion of users who have opted into these requests indicates how invested they are in the product. If more users are opting out than those that are opting in, it might be an indication of the app’s growth decline.

Stickiness Metrics

In order to understand the stickiness of an app, it’s important to measure the monthly active users and daily active users. The monthly active users the number of unique users that launched the app while the daily active users is the same metric calculated per day. The stickiness is calculated as the daily active users divided by the monthly active users. It is an indication of how likely users are likely to come back to the app.

It’s also important to track the number of daily sessions per user. It indicates the engagement level people are having with the app. The interpretation varies depending on the purpose for which the app was built. For a social app, one session might be considered as a low score. For a taxi-hailing app, a single session per user might be considered high.

The team should also track the average session length as an essential metric, too.  This is straightforward because longer sessions mean users enjoy using the app. However, a more nuanced metric is to measure how long it takes the average user to find what they are looking for.

Building iOS and Android Apps

Indeed there are numerous metrics that developers can use to gain insights into their apps. The initial release of an app is only the start of a journey towards improving features, adding new ones, and acting upon feedback from analytics and user comments. A successful app is largely the result of a development team dedicated to incremental improvement.

If your company is seeking to build and maintain a successful app, reach out to NS804 as your Android and iOS app development partner. Our team carries the experience of delivering hundreds of successful business apps to clients. Together, we will prepare and build an app with a clear roadmap. The team will track the right metrics for your app to ensure optimal user satisfaction. Book a consultation session with us here.