Monetization – It’s either the best or the worst thing about app marketing, depending on who you ask. Some are thrilled by the range of choices available, while others find it overwhelming and uncertain. No matter where you fall on the spectrum, determining how to make money off an app is probably the biggest decision you will make.
The first step is to pick the right monetization model. The second step is to pick the right price. This quick guide will show you how to do both:
Deciding How To Make Money
The cost of apps is declining steadily, and many apps are already free. Some apps (such as Minecraft) thrive despite the cost of the download. But many other apps pursue revenue only after connecting with the users:
- Freemium – Users either have free access to basic features or free access to all features for a limited time. Past a pointing user must pay a fee. This model works well for games and dating apps but proves less successful for other types of apps.
- In-App Purchases – Users pay for content or features that are exclusive to the app. Again, this model works well for games but has proved trickier with apps that do not have obvious sources of supplemental content.
- Subscriptions – This payment model requires users to pay a recurring fee to continue using the app or premium features. This model is used for virtually every type of app on the market and is a great way to generate revenue month after month.
- Advertising – Advertisers pay to have ads appear within the app. This model is suitable for a wide range of apps and provides a steady source of income. The risk is that too many ads or irrelevant ads will alienate users.
Decide What To Charge
Once you pick a monetization model (or possibly multiple models) you must determine how much a freemium upgrade or in-app purchase is going to cost. That requires a careful calibration between what users are willing to pay compared to how much revenue marketers need to raise:
- Do A Competitive Analysis – To a great extent, the cost of your app must be in line with the cost of similar apps. However, that does not mean services cannot cost more than the competitors. If an app delivers the extra value of attracts a premium customer it’s possible to push price points north.
- Study User Expectations – Users have a general range of prices they are willing to pay depending on the functionality of the app. For instance, an app with very basic features should not cost more than a dollar and should likely be free. Conversely, apps that cost more than $5 must deliver something truly impressive and upscale to prevent buyer remorse. Whatever those expectations are should factor into the mobile app engagement campaign.
- Experiment With Price Points – It’s relatively easy to adjust price points and to introduce dynamic pricing. Temporarily lowering the price is a way to attract more users and drive revenue after downloads. Another strategy is to start the price high and to steadily lower it over time to increase the appearance of value.
- Define The Target Customer – Users have a different willingness to accept price points or pay for extra features depending on their location, demographics, and other characteristics. Marketers must start by defining the target user. Then they must research how that user is most likely to spend the most money.
- Factor In Extra Costs – The price that users see in the app store also includes the commission the app store charges. The likelihood of refunds is another cost to factor in. In general, remember that the cost of the app does not link directly to the amount of total revenue.
Picking a precise price is never easy, which is why flexibility is key. Marketers want to get the price right from the start, but if it’s not those marketers must acknowledge the error and change the price. The point is not to convince users to pay more. The point it to make users excited about how much value they receive for such an accessible price.