It is difficult to go a few days without reading about the amount of money that apps generate in revenue. However, like most industries, there are only a select few making big money. Business Insider Australia estimates that Supercell’s hit game Clash of Clans makes over 1 million USD every single day! Unsurprisingly, the 1% (or 2%) exists in the app world too. According to a 2014 Developer Economics report, only 2% of apps earn more than $100,000 a month. And together, this 2% take 54% of the total revenue generated by apps. On the opposite end of the spectrum, 88% of apps earn less than $10,000 per month. Together, the profits of this 88% only take 11% of the total revenue generated by apps. To clarify, when combined, the top 2% are making close to five times the revenue of the lowest 88%.
While $10,000 a month may still seem like a lot of money, this is the net sales generated by the apps and not the net profit. Once you deduct all of the costs associated with running an app (e.g. developer salaries, server upkeep, office space, marketing budget, etc.) these apps are only just scraping by. Of that 88%, 62% of all apps are below the “app poverty line”, meaning they are generating less than $500 per month in revenue! To stop your app from dropping below the “app poverty line”, there are a range of things that you can do, perhaps the most important of these is figuring out how your app is going to make money.
Before you look at how your app is going to make money, you should read this blog to determine whether or not your app idea is worth pursuing in the first place.
While there are a number of ways that you can monetise an app, it is important that you find the correct revenue model for your app. This blog contains a brief overview of the most common revenue models and the types of apps that can effectively implement them.
Easily the most straightforward revenue model, premium apps require users to pay a fixed amount of money to download the app from the store. The biggest struggle for these apps is that you can usually find five alternatives that can do the same job for free. As a result, you are attempting to convince users that your app is better than any free (and paid) competitors. It revolves around your ability to market the app and showcase the app in the store. This is because users do not get to trial the app to see if they like it. Doing this requires a clear and concise description, attractive and informative screenshots, good reviews, etc. Essentially, these apps need to be of the highest quality, otherwise, user reviews and ratings will quickly scare away potential customers.
Freemium apps are free to download and usually give users a “lite” or “limited” version of the app. However, to access more of the apps content, users are required to make in-app purchases. There are a number of ways that this can be done. Most commonly, this is executed in two ways; purchasable in-app currency or simply allowing users to pay for more features or access. To successfully implement this revenue model, it is important that you find the perfect amount of content to release on the free version. If you release too much content on the free version of the app, users may feel as though they do not need to purchase more content to improve the experience. Conversely, if you do not release enough of the app for free, users may not find any value in the app. It is also important that the in-app goods being sold are perceived to be valuable or necessary to the user experience, as this will encourage users to make more purchases. Freemium purchases are generally made via impulse; this is because in-app purchases are often set at low prices (.99c-$1.99). Games tend to be the biggest users of this revenue model as they are constantly releasing new content.
Paymium is a combination of the premium and freemium revenue models. Paymium apps cost money to download in the store as well as having optional in-app purchases. To successfully implement this model, you must meet both the premium and freemium criteria (read above if you haven’t already). The largest limitation that paymium apps face is that users can begin to feel like they are being asked to pay for the app on multiple occasions.
Apps with a subscription based revenue model are usually free in the store, however, users are only allowed to view a limited amount of free content. Users are then required to make an ongoing payment to access more content. Some would consider the subscription model to be a subset of the freemium model, however, there is a different between the two. Subscription based apps sell a range of ongoing content (e.g. episodes of TV shows) as opposed to one set features within the app (e.g. a level in a game). The other difference being that payment is usually done on a recurring basis (weekly, monthly, yearly, etc.), as opposed to a one-off payment which is the case with freemium apps. The largest benefit of this revenue model is that it can guarantee ongoing profits, in contrast, this makes incentivising users to sign up more difficult. To efficiently implement this model, you must ensure that the ongoing content is valuable and up to a certain level of quality. Much like that gym subscription that you forgot you were paying for, a large portion of the revenue that these apps make come from people who signed up and forgot about it (like that Apple Music subscription I keep forgetting to cancel).
sorry I'm late to the party guys I was busy cashing my 80 million video game check & transferring 53 million into our joint account 🤑🤑🤑💰💰💰— Kim Kardashian West (@KimKardashian) March 8, 2016
The name says it all - to use this model you have to put ads in your app. For this revenue model to be successful, it is vital that your app has a substantial user base. And it is essential that the user base is using the app on a recurring basis. As a result, for most apps this is not an effective standalone revenue stream. The side benefit of this model is that can be implemented alongside some of the other revenue models. However, using in-app advertising in apps that require payment can run the risk of irritating users as they are already paying for the service. This revenue model works by mining data on the apps users; the data is sold to advertising networks who use it to implement targeted advertising. In-app advertising can come in multiple forms, examples include; banner advertising, sponsored advertising and allowing users to watch ads in exchange for in-app currency.
These apps generate revenue by directly selling physical or virtual goods and services. This model is largely used by e-commerce businesses. This is because it is usually less expensive to build an app or website than it is to own and operate a physical storefront. This revenue model also applies to apps that connect users to a physical business that sells goods or services (usually taking a commission). To efficiently implement this model, it is important that the goods or services being sold are perceived to be valuable or necessary.
Please use this as a basic guide to discover which revenue model suits your app. If you would like further advice or help with monetising your app (or if you want to get an app made), please feel free to contact Code Heroes for a complementary consultation!
If you feel like you have already implemented the correct revenue model, but your app isn’t getting the attention it deserves, you should read this blog on getting more visibility for your app.
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