No one wants to pay extra for the app. That’s why we have so many free apps available on AppStore and Google Play. But as the title says – free apps makers have to eat too. I can understand that. Fortunately, there are other ways for them to fill the fridge and pay bills without having us paying, at least not directly.
App economy estimates that global gross app revenue will reach $102 billion by 2020.
How is that possible? Some of my tips are probably well known but read the rest just in case.
#1. Good old ads
I love and hate ads at the same time. But despite my personal opinion the online advertising market grows and grows! Actually, it is perceived as the core revenue source model for mobile apps. We’ve got several ad kinds, such as banner or video, rewards, notification, interstitial and native ads. Choosing the type that suits your app in the best way is one of your jobs. Next, there are a couple of methods to start with online advertising:
Displaying third-party ads within your mobile app or website;
Charging a listing fee when operating as a marketplace;
Building your own ad network;
Listing classifieds, job offers for instance.
Keep in mind that users find ads frustrating, thus you can easily lose the audience when agreeing on too many ads on your mobile / website app. The best way is to blend this option with other monetization methods.
#2. Selling big data to third parties
The rule is simple, you collect big data and then sell it to third parties. What is big data? To put it simply – information on your customers’ preferences, localizations, needs, demands, habits and the like. Why is that a valuable asset? Well, a lot of companies find it important to know their potential customers, the users of their products, and people generally. Imagine you are an owner of a store and you want to open another one, it’s very helpful to know if there is a demand for your product and if you choose the right place for this. One advice: be sure you are not violating any legal or ethical restrictions. That can cause many problems to your company, see Tip 10. Affiliate Marketing / Lead Generation.
#3. In-app purchase – virtual goods
Even if your app can be downloaded for free, it doesn’t mean everything within the app has to be free as well. It is very popular, especially of gaming apps, to give users an option of buying extra features, virtual or even physical goods, and also unlocking more content. Some games have for example special coins allowing to buy equipment for your character and other premium items. The purpose of this is to enhance the overall gaming experience. For some users having to pay extra can cause their resignation from the app, so you have to remember about displaying the purchase options after assessing if the users are likely to pay. There has to be a right place and right time for everything. This also applies to the e-commerce system, but we will discuss it later.
#4. Subscribe to get more! / Software as a Service
How to ensure long-term payment commitments? For start-ups, a good way is to introduce SaaS (Software as a Service). Saas is a subscription-based revenue model, where, in our case, users pay a monthly or yearly fee for the app. One of the benefits it increasing the customer lifetime value. Of course, it should be remembered that your app service has to suit the subscription approach. Having a subscription-based plan guarantees a stable and predictable income for your company. There are two most popular SaaS approaches among start-ups:
Pay as you go – this flexible pricing plan means charging users according to their individual usage rates.
Tiered pricing – this model assumes dividing your services into different levels, hence the customer has an option to pay more when he/she needs more features and so on.
SaaS is surely a comfortable choice for start-ups to have a reliable and steady income.
This is a relatively new app monetization form. Seeking donations for app development and also wanting to promote it, people present their ideas on special websites, such as Kickstarter or CrowdFunder. If the idea is well described or the app-creator finds a niche, people are likely to pay a big amount of money in a short time. There are several options to reward your potential users for donating. For instance, you can guarantee some extra features for free when the app is ready. And the best thing? Only the customers who actually want to pay are involved so you miss the whole customer irritation stage.
#6. Freemium upsell
Another common approach for app monetization is freemium upsell. The rule is simple here, and I’m sure you’ve experienced this before. The app or service is completely free for basic, functional version, but at the same time, you offer your users premium, more advanced and/or full of new features version for some amount of money. It should be noted that many SaaS-based products (Tip. 4) use the freemium model as well. Here are some ways for start-ups to implement this freemium approach:
Time-Based freemium – this is a typical ”free 14-day trial” or “try for free”. Basically, you offer your application for free but only for a limited period. When users like your product/service they pay to use the app for a longer time.
Feature-Based freemium – again you offer a free version of your app but with limited access to features. In order to unlock them, the user has to pay.
Capacity-Based freemium – a certain capacity of the app is offered at zero price. When the user, let say, wants to share the access with other people he/she pays for more seats.
#7. Transaction Fees
Long story short, while operating as a marketplace or any other platform with regular money transactions the easiest way to get money is to introduce transaction fees. It’s simple as that, you have your customers paying small amounts of money for each transaction. The customers are informed what they are paying for and agreeing to do so.
Surprisingly, this tip does not apply only to e-shops. Even if your company is not formally an online store, you may still consider selling some promotional things. It’s very common for start-ups with a vast community of followers to advertise themselves by selling brand t-shirts, mugs, bags and the like via mobile or web app. This tip is strictly connected with freemium, as you can sell products and/or services somehow associated with your company’s profile.
Sponsorship, similarly to crowdfunding means getting donations. One difference, however, is that the money comes from companies, not single units. The donations are also often given in exchange for advertising doner’s company on your website or mobile app. While negotiating sponsorship terms it’s relevant to pay attention if the potential sponsor company’s profile matches the needs of your users. The ad is, therefore, less irritating.
#10. Affiliate Marketing / Lead Generation
In the social media era affiliate marketing took on a new meaning. Affiliate partners, bloggers, vloggers, or simply – influencers promoting certain lifestyle and products – this is a daily bread for us. Getting popular, gaining more and more followers they have the power to persuade them to buy your product. Just to recap, affiliate partners make money because they promote products or services of other people or companies. It’s really a win-win situation. They are happy because they’re making money (and getting free stuff), you are happy because your sales have increased, customers are happy because they have a feeling of fulfillment while living the life their role model lives (which in this case means having the same products as the particular influencer). With a mobile app, the desired action is to make potential users download the app or buy products/services within the app.
There is also a side benefit to this approach. A combination of affiliate marketing and lead generation. Selling lead to third parties, to be specific. What are the leads? Or should I ask WHO are the leads? Simply people or bigger units, like companies, interested in your product or service. Or on their way to becoming interested. The thing is that they are likely to buy something from you. So you can either sell your products to generated leads or use the register of these leads and sell it to a third party. Notice that selling generated leads to interested parties may involve some legal or ethical ramifications. To avoid problems it is recommended to make sure you are not violating any principles, either moral or legal, because neglecting this thing can be harmful not only to your company’s operations but also to its reputation.
Not every of this monetization methods is for everyone. There is no one good recipe to make money from free apps. My advice is to sit down, think of your product/service, try to find links to presented approaches and implement a mix. In this way, you will make sure that even if one of the options doesn’t work well, the other one may turn out to be a good way to make money. Remember that you need to think about your potential users. Which method will be appealing and won’t hurt their aesthetics, which will be neutral and good to use only in a limited range? And finally, which may result in your users resigning from your app? The last one is obviously not recommended. Give yourself the time to think of the potential market, type of your app, and trust your own feelings. What’s the approach you would like to experience?
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Jacek Knaflewski CEO of ITgenerator, deeply passionate about helping companies transform their businesses through modern technologies.