How to Monetize the app and decide on pricing strategy?

These days many startup founders and app development firms develop mobile and web apps and start getting good traction in terms of usage of the app or number of active users. But what challenges them is how to start app monetization. What app monetization model should be good? What pricing will be fair for the features offered by the app? Many first-time startup founders raise such questions on various forums. If you google out you can find many threads asking these questions.

In this blog post, we’ll first understand the factors to consider before deciding on the app pricing strategy, we’ll show different models of app monetization and lastly, we’ll understand the app monetization methods and techniques app development agencies can use while deciding on the pricing strategy.

Key factors for an App Monetization Strategy

1. Target audience

For understanding how to monetize your app, detailed study of audience data in terms of geographical, behavioral solvency which means whether the user is willing to pay for the app components can help draft and revise strategies. Let's say the mobile app development company has designed the app for students and the age group that gets addicted to apps easily but pricing has to be extremely pocket friendly. A dating app like “Elite” designed for the elite or professional who won’t mind paying for the services, developers need to ensure rich features in the premium category for a successful app monetization model to be implemented.  For instance, if it's a health-related app designed to solve issues related to mental health, the approach to reach out to wellness bloggers may work well. 

2. Your mobile and web app USP

List down the following

• What is the purpose of this app?
• What problems does it solve and how does it solve?
• What is the app USP? 

After knowing this only we can define what mobile app monetization strategy will go well like, whether the user will pay for downloading the app if the concept is a niche, or they will pay to use a specific feature of the app, etc.

3. Research your competition

For app development services providers, diving through what competitors are selling and at what price point is essential to determine your monetization strategy for apps. List down these basic points to draft a well-researched mobile app monetization plan.

• What is the biggest USP of the competition app?
• How are they monetizing the app?
• Where does the opportunity lie?
• Are there any differences in user persona?
• How monetize the app and what differences can be made that will excite the users?

App Monetization Models

1. Freemium/Premium Model 

This app monetization model is applicable to apps that are free to download. For users to access premium features of an app for an enhanced experience they pay for a subscription. To keep on boosting your user database this is the best model for app monetization as free apps have high download/signup rates.

• Ensure maximum user satisfaction with basic features of the app so that the user gets addicted to the app and automatically pays for premium features.
• The case study could be Linkedin, users sign up for free and enjoy tremendous features. The company offers four premium subscriptions, for recruiters and salespersons which have better functionalities, more inmail capability, more visibility into who viewed the profile.

App development companies need to keep enhancing their premium features for users to subscribe. Dropbox can be a case study here, initially, when launched it was a service for backing up files. Later it offered shared folders, automatic syncing of smartphones for photo uploads with an improved interface. Each new feature thereby enhancing the value of premium offerings.

How to decide on the pricing model or premium plans?

Though there is no thumb rule which works for everyone while deciding on pricing models or premium plans for app monetization. But there is a technique that we can use to decide on pricing models and premium plans. While thinking of what to offer free and what to offer premium during mobile app development, think in terms of user experience and benefits offered. Benefits have value. If a user gets value from it, you can charge them.

1. List down all the offered user experience in your mobile or web app. Consider what is the core functionality. What gains maximum users and user engagement. Note down what benefits users will get from each user's experiences to monetize app android and iOS.
2. Begin the ranking of features as per priority and user experience being offered. The higher rate will add more value to the user.
3. Ensure that the free offering in the app should be compelling enough to keep gaining users and at the same time, premium features offering rich experience should be communicated effectively to the registered users so as to monetize your app.
4. Look for what the market expectations are in terms of willingness to pay, what competition is providing, and where the scope lies.  Now we can decide on the monetization strategy for apps and pricing model as depicted in the next section.

2. In-App Purchase 

This app monetization model can be defined as the process of the purchase of virtual goods available on app platforms like coins for game booster. 

Type of IAP

1. Subscriptions - For example, you sign up for Apple music and later on pay for subscriptions may be monthly, quarterly, yearly, etc.
2. Consumable purchases - One time purchases
   • No adv zone - Users make a one-time payment for a no-ads experience on the app
   • Limited period offer - show users discounts or limited period offers on a service or product or upgrades
   • Game unlock for next level
3. Non-consumable purchases - Buy every time you need it. Game boosters like coins, extra points, etc. 

3. Ad based monetization 

App development agencies and publisher strategies on how to generate revues by displaying ads on app platforms or can be defined as monetize your app with ads.

• Banner ads are the most used form of advertising but this is more prone to disturbing user experience. Video ads and seamlessly integrated native content are rooping in huge ad revenues nowadays. Apps like Spotify with the strategy of monetizing the app with ads even generate revenues via podcasts published on their platforms promoting products or services.
• When the user logs in the app, the ad network’s SDK or API is triggered which highlights the ad to be served to the specific user. Based on the data from SDK, the ad network defines which ad to be served will be most relevant to the user.
• Performance metrics like impressions, CTR, help determine the success of an ad campaign and the payout rate or ad revenue.

But advertisements can give you revenue only if you have a good active user base. Also, make sure that ads will not compromise much with user experience, else you may start losing users and it might cut down your growth. 

4. App merchandise and E-commerce

Online buying habits are transforming rapidly. Amazon with its Merch tool, allows sellers to sell their products within the app and earn profits. Angry birds game earned a revenue of $1m in a month by the sale of its plush bird toy only. This is again a successful and fast-paced monetization strategy for apps. 

5. Data monetization 

Let's understand with an example, you enquire for a mutual fund and submit your contact details, income, and other relevant information. This data is very useful for banks or aggregator apps. In a way apps that collect such consumer data based on income, habits, etc are valuable to a lot of companies who decide their marketing strategies based on such findings. This again is another source of app monetization. Important here no data should be collected without consumer consent.

 6. Transaction fees

If your mobile and web app development model is of a marketplace or as a platform for financial transactions to happen like that of Airbnb, Stripe, Amazon, Google Pay, etc. The transaction fee that is being charged on every completed transaction represents this model of app monetization. 

Techniques you can use while deciding on pricing strategy

1. Penetration Pricing  

Mobile app monetization trends show this pricing strategy can be adopted for the initial surge of customers or to get maximum user traction by keeping low pricing . Because of the low price, it helps to reach the maximum audience and market penetration.

2. Competition based pricing 

For mobile app monetization, this pricing strategy focuses on the current market rate for a product or service. It works well in a highly saturated market situation where consumers have access to immense options and a slight price play can act as a deciding factor.  

Spotify has gone strong in terms of the acquisition of new users especially with rivals entering the market. Keeping pricing low to beat the competition and maintain healthy acquisition and retention rates is what the company is doing.

3. Pricing as per data  

Let’s understand this pricing strategy adopted by most of the dating apps. Age is an important factor to segment pricing. The willingness to pay in the upper age group is more than the lower ones.  

4. Willingness-to-pay (WTP)

To understand this pricing strategy for app monetization, the best case study here would be of SLACK and it's free tier model.

• To increase acquisition: A small team has access to entire products and can start using integration making them see value in the application. 
• The middle tier for retention: Once the team has access to unlimited products, no matter the team size, Slack can be used for everyday team communication. 
• The top tier for expansion: A large size company and with hundreds of employees they have access to all the products at the enterprise level.

The 3 tiers of WTP The team with fewer than 10 people have WTP of $3-$4 The team between 10-50 people have WTP of $8  The team with more than 50 have WTP of approx $12-$13 Now they define their pricing strategy for free, standard and plus packages.  

Conclusion

App development companies can boost their odds of success by drafting a well-researched app monetization strategy and establish sustainable profit streams. Get a detailed framework and more insights on how to monetize apps from our team of experienced android and iOS app developers at CodeToArt.