12 Ways and Strategies to Monetize Apps in 2023

The monetization strategy is important to think through even before the start of application development in order to fit it organically into the UX and give opportunities for further development.

App monetization is essentially any way an app is used to generate revenue. Effective app monetization strategies convert the user without disrupting the user experience. These strategies require careful study of your users, their behavior, and preferences before designing and implementing them. A combination of several strategies often works best.
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Mobile app user statistics

Today, mobile applications have become indispensable tools for business, banking, shopping, and entertainment. In 2022, the average user spends more than 5 hours in apps, which is 35% more than in 2019. And in the Apple Store and Google Play 1.96 million and 2.87 million applications are available, respectively. In fact, studies show that the average American checks their phone 344 times per day! That’s once every 4 minutes. The average smartphone owner uses 10 apps per day and 30 apps each month.

In 2023, consumer spending on mobile apps is projected to reach an impressive $935 billion. The numbers don't lie - if we really like an app or are used to it, we don't mind paying to use it. But user loyalty is a fickle currency. App users don't want to see ads on every screen, and app owners, in turn, want to monetize every user.

Strategies and ways to monetize the app in 2023

1. Freemium. A free app with premium features

The model assumes a set of free basic functions, as well as additional features that can be purchased for money. For example, in the mobile version of the Zoom platform, you can connect to video conferences for free, but the conference is limited in time and the number of participants. To expand these limits, you need to pay a premium rate. Among paid features - connection of up to 500 users, cloud storage for conference records, and the possibility of online broadcasting in social networks.

The main thing is to interest and attract a large number of users in order to further encourage them to buy the paid version. This method can also work well with additional strategies such as in-app advertising or purchases.

When monetizing mobile apps using the Freemium model, it is necessary to understand who will buy additional features. For example, Skype offers advantageous rates for international calls, but they are paid for by about 5% of users.
The loyalty of the audience remains high due to free access. But the basic features must meet the customer's needs. The free features should be very good, then the user will be willing to buy paid access to even better features.

Pros of the monetization model Freemium:

  • Familiar to users;
  • Ease of implementation;
  • The app itself remains free, making it easy to acquire users and build a loyal audience.
  • The model makes it possible to quickly gather a user base for retargeting.
  • Unlike aggressive promotion of paid applications, Freemium forms a positive brand image.
  • People who have tried the service before buying it are more likely to become loyal users.

Cons of the monetization model Freemium:

  • A very small percentage of users make payments;
  • If it's not a subscription model, there will be one payment from one user and his LTV will be just that.
  • When choosing which features to leave free and which to provide after the purchase, it is important to maintain a balance. If there are too few basic features, the user will not stay in the app for long, and if there are too many, the user will have no incentive to buy advanced functionality.
2. Ads-free. A free app with the ability to turn off ads

An alternative Freemium scheme is a paid extension that allows you to use the app without ads. Most people don't like seeing ads in their apps, and they will be happy to remove them.
You can create two versions of the app; one free version with ads included and an updated paid version without ads.
3. Free Trial. Paid application with a test period of use without payment

The idea of the Free Trial is a bit like Freemium, but still different. The essence of the Free Trial is that the client downloads the application for free, and has access to all the functions of the program at once, but for a certain period. Most often - from 7 to 30 days. Trial access is considered informative. After studying the possibilities of the application, the user must decide whether to pay or refuse the application.

If customers like the product, they will buy it, use it, and give positive feedback, which will attract other customers as well. It's also a good opportunity to collect feedback from users: even if they refused to buy, they tried the product. This will help improve the app and fix bugs.
4. Paid. Premium application with full functionality

In this model, monetization of the app occurs immediately upon download. This can lead to higher levels of user engagement or loyalty. However, it is important that the app has enough unique features or value to encourage the customer to make a purchase. If users don't see how the app can meet their unique need, they are unlikely to buy a "cat in the bag." Selling an app is appropriate if it performs one function and has no alternatives available for free.

Paid apps, which must be purchased before they can be used, are much less popular. The most successful ones have been downloaded a few hundred thousand times, while the top free apps many have been downloaded hundreds of millions of times. Despite the fact that their cost usually does not exceed a few dollars, users prefer to try free counterparts. At the same time, the cost of attracting users to paid apps is increasing, making this model less and less profitable.
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Pros of the monetization model Paid:

  • It's easy to implement this model: it's much easier to set up a one-time purchase of the app than, for example, to charge money within the app after a trial period.
  • Very easy to use: Just add the app to the store and assign a price. The App Store and Google Play platforms will adapt the price themselves to whatever country they are available in. Instant revenue per user.
  • People psychologically view paid apps as better products than free ones, which can help promote them.

Cons of the monetization model Paid:

  • You can't release a “raw version”. You have to create a finished product right away. Beta versions are not suitable for distribution, because they will instantly drown in negative feedback because customers expect to receive a product of quality commensurate with the price tag.
  • The purchase is a one-time purchase and does not bring profit from a particular user in the long run.
  • Promotion is complicated by the very fact of paid access. In a market where most applications are distributed on a free-to-play model, it is very difficult to convince a customer to buy.
  • The most important problem is piracy. As soon as a programmer with the appropriate skills pays for the purchase and downloads, he hacks it and puts it in the public domain. His benefit is often to integrate his advertising into the application, which may not even be there before him. But he is the one who will get the revenue from the downloads.
5. Paymium or Paidmium. A hybrid paid app model with in-app purchases

A commercial solution used mainly in the game industry. The business model includes a paid installation of the game (application purchase). In addition, the possibility of buying resources, game items, or hints is built into the gameplay as additional monetization.

The model is not the most common, used mainly in "iconic" games for which updates are regularly released.

Games that people are familiar with, such as Minecraft, The Game of Life, and NBA 2K18, do great with a paymium strategy. Their leverage comes from great marketing and a strong reputation.

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6. IAP. In-app purchases

Free apps that offer in-app purchases. This model is based on the sale of virtual goods. Most often this approach is used in games, entertainment or services with built-in gamification. The user can buy accessories and clothes for his character, as well as in-game currency. Typical examples of in-app purchases could be unlocking premium characters in a mobile game or seeing who wants to send you a message in a dating app.

It's important that the buying process doesn't interfere with the main functionality, doesn't impose itself, but simply provides additional benefits. The user is ready to buy something within the app if he feels a real benefit for himself.
Pros of the monetization model IAP:

  • A flexible model that can be applied to a wide variety of games and services (e.g., the purchase of masks and filters in photo and video editors).
  • In-app purchases further engage the audience and increase their loyalty. A user who has already spent their money is more likely to stay in the app for a long time.

Cons of the monetization model IAP:

  • The model will only work successfully in apps with highly engaged users who are willing to spend real money on virtual items.
  • Google Play and AppStore deduct a commission from the sale of virtual items within apps.
  • It's hard to integrate in a way that doesn't hurt gameplay or core functionality without giving the customer some benefit and getting them to shop all the time.
  • A very small percentage of users make purchases.
Virtual goods go beyond games

A lot of new technological possibilities, in particular, the creation of NFT and meta-universes intersect with the interests of users.
New trends have emerged that will clearly evolve in 2023:

  • Apparel brands have begun to release collections in virtual and augmented reality. Some of these collections consist of unique or limited-edition items.
  • Gaming market research confirms that demand for virtual items will rise if they find value outside of the gaming community.
  • Users are attracted by the ability to create different virtual items and put them up for sale.
7. M-commerce and services with an integrated payment system

This monetization option is called m-commerce or mobile commerce. It has naturally evolved from e-commerce and is a great strategy for selling goods and services to retailers.
Apps that provide delivery, cab, and reservation services, as well as online shopping and financial services apps, accept payments through integrated payment systems. For some businesses, the mobile app is the only source of revenue, while for others it is an additional sales channel.
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Pros of the monetization model M-commerce:

  • For a mobile application, you can use existing server systems.
  • Ability to work with affiliate programs and advertisers for additional income.
  • Mobile applications show higher sales volumes than mobile sites.

Cons of the monetization model M-commerce:

  • The costs of designing and developing a mobile app are justified only if there are large volumes of online sales.
  • The mobile app must be flawlessly user-friendly, otherwise, customers will leave for competitors.

8. Marketplaces. Getting a percentage of the deal

One kind of M-commerce monetization model is marketplaces. You create an app in which other participants are added. They interact with customers, you get a percentage of the transaction. Monetizing mobile apps by getting a percentage is very profitable, especially if the product gets popular. But you need to find a niche, develop it, provide the infrastructure for the app to work and implement systems for payment and control of financial transactions. But in spite of the complexity, the direction is promising and highly profitable.

Pay-per-transaction in a free app is another way to make money. This strategy is only viable when your app users need a monetary transaction. Especially when buyers and sellers are very involved and need the marketplace to integrate with a third party. To include this feature in your app, you need to develop payment gateways.
Pros of the monetization model Marketplaces:

  • The model works "by itself"
  • The app itself is free
  • If there is mass demand, other no less profitable methods of monetization are possible (for example, in the marketplace of used cars - posting ads for money)

Cons of the monetization model Marketplaces:

  • It's hard to find a niche and "rock" it
  • You need to implement payment to control processes and take your cut
  • You need to provide all the infrastructure and logistics, leaving the doers only the direct work
  • You become the face and all bad claims will be to you, not the performers

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9. Subscription. An application with paid access for a certain period of time

The strategy of monetizing apps by subscription applies to apps that can be downloaded for free, but require a paid subscription to access the content. Most often this model is combined with Free Trial or Freemium, because the client is unlikely to want to buy a subscription right away, without "testing" the features of the application. If the resource is interesting and the service is convenient for users, then, subject to the optimal cost of subscription, the method will be profitable.

The subscription model can be profitable for service-oriented or content-oriented applications, such as music streaming services, news applications, e-book libraries, collaboration services, and CRM. Many offer tiered subscription services that try to convert lower-tier users and eventually try to resell users to higher-priced tiers. This model can provide you with consistent revenue without significantly impacting the user experience.
Pros of the monetization model Subscription:

  • Subscription provides a stable, guaranteed income.
  • Increases LTV and user loyalty
  • Platform holders are extremely interested in subscriptions. For example, Apple takes 30% of the subscription fee only in the first year, and the next year only 15%.

Cons of the monetization model Subscription:

  • This monetization model applies only to certain categories of apps.
  • Subscription is not suitable for most apps with content that does not have regular updates.
  • As with Freemium, it is important to strike a balance between free services to attract users and a paid version to monetize.
  • A loyal paying audience is very difficult to gather.
  • You need really premium content for which people would be willing to pay - and not just pay, but regularly.
  • The comparative difficulty of technical implementation and tracking the effect of subscriptions.

10. Partnership or sponsorship

An affiliate or sponsored monetization strategy can be beneficial for niche markets. This method allows you to inform app users about other brands associated with your brand, and some offer related promotions for users. For example, a hotel booking app can partner with a car rental app to encourage users to book trips through both apps at a discounted price.
One of the newest methods of monetization is sponsorship, which implies that in-app advertiser sponsors will reward certain user actions.
For example, in the fitness app, users get coins for activity, which they can spend to get discounts at partner stores, as well as prizes from sponsors for certain achievements and records.
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Sponsor advertisers receive additional advertising and increased sales, and app owners receive affiliate rewards from sponsors.
Collaborations are one of the fastest-growing trends. Interactive campaigns attract the attention not only of app users, but also of the market as a whole.
For example, the North Face x Gucci and Pokémon GO collaboration has attracted a lot of media attention and interest in all the participants. In the game Pokémon GO appeared clothes from the collection of brands, in which you can dress your avatar.
11. Ads. In-app advertising

In-app advertising is one of the most common strategies for monetizing apps.
You can work with advertisers directly or through intermediaries. Each region has its own popular solutions. Well-known advertising platforms include AdMob, Unity Ads, MoPub, Appodeal, InMobi, Conversant, etc.
After registration, the publisher of the app gets the opportunity to place advertising banners or video ads in it. They will be seamlessly integrated into the interface of the mobile app, as if they were specifically designed for it.

There are three types of ad revenue to consider when monetizing an app:
- Price per thousand impressions (CPM).
- Price per click (CPC)
- Price per action (CPA)
Pay per thousand impressions is preferred among free app developers because it doesn't require the user to click on ads so developers can make money. The fee is less, but it is less intrusive to the user.
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Types of in-app advertising include:
  • Banner ads
    Banners usually look like horizontal bars at the top or bottom of the app page. These ads are inexpensive and easy to embed in almost any app. The user can close the banner at any time. However, they may interfere with the user's work or seem insufficiently large on small screens.
  • Interactive ads (Playable ads)
    This is a more complex format of advertising, which appeared on the market relatively recently. But it has already become quite promising. This kind of advertising invites the user to try a mini-version of the product. For example, if the advertiser has developed a game, the user can pass the first level in it.
  • Interstitial Ads. (Rich Interstitial)
    Interstitial ads are displayed as full-screen ads between streams of users, such as after passing a game level. This type of advertising provides a consistently high CTR, which is associated with actively attracting the attention of the user. Game developers should use interstitials with caution and place ads only during natural transitions and pauses between levels in the game. Low-quality interstitial ads can distract the user and reduce audience loyalty.
  • Native advertising
    Native ads are ads designed to blend seamlessly with other messages in the app. These ads often have a higher level of engagement, but it's important that they look like ads but feel like native posts. Native banners complement the interface. These ads look natural, enhance the user experience, and are less annoying to users.
  • Video (Video Interstitial, Rewarded Video)
    The most popular advertising format in applications. Video can be Interstitial or In-banner. Interstitial video can be shown in the application interface, between game levels, at the end of the text, etc. In-banner video can be activated during a standard banner display.

    Rewarded video viewing. In order for users to view the video, you can offer them a certain reward. For example, an extra life or a hint in the game, a ten percent discount, an extra sum in game currency or an item of equipment for the character. Usually such ads are perceived by users as a positive experience of interaction with the application, rather than as a hindrance in the process of using it.
  • Ads list (Offerwall)
    Advertising in this format offers users a list of tasks that they can perform in exchange for a reward. It can be viewing ads, taking surveys and mini-games, or subscribing to free newsletters. These ads allow the user to receive premium content for free, which means increasing user retention rates at zero cost. Reward ads provide users with rewards for completing certain tasks, such as getting extra lives in a game for watching 10 seconds of advertising.
Pros of the monetization model Advertising:

  • Popular apps collect a lot of behavioral data about users' habits and preferences, which advertisers value.
  • It's easier to attract users to a free app, which means you can monetize it from the start.
  • A variety of advertising formats, which can sometimes even improve the user experience.
  • Relative to the other models - the simplest scenario.

Cons of the monetization model Advertising:

  • Intrusive advertising can lead to a drop in loyalty and user churn.
  • Ad blocking. If the user has an ad-blocking app installed on their phone, advertisers will be left at a loss.
  • If ad placement is poorly implemented, it can detract from the user experience in the app.
  • Not suitable for niche apps that solve a user's immediate need (ordering a cab).
  • Low revenue per user - you need a very large audience to start making money.

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12. Data monetization

Data monetization uses the data that users generate every time they interact with your app. You can anonymize and quantify this data so you can use it to gain valuable insights into your customers' behavior. Using this data can help you better understand how users interact with your app and what they like, allowing you to better market to them or meet their needs to retain them. In addition, this method rarely disrupts or affects the user experience.
User data is usually needed by advertisers, telecommunications companies, research institutes, brand marketers, etc.

How to choose an app monetization model?
The choice of monetization method depends on the following parameters:
  • Ability to pay and geography of sales
    For example, Apple device users are more likely to pay for access to certain features than Android users. US users are much more solvent than, for example, Indian users. For a paid application, it is best to create an English version of the IOS app right away, and connect other versions later as needed.
  • Age and tastes
    You need to understand what potential users will be willing to pay money for, and what features they will not be interested in. For example, people of middle and older age agree to pay for switching off ads in the "reader", because they understand that it is more like a copyright payment. And buying "outfits" in the shooter will be mostly young people.
  • The demand for paid services
    Users are not particularly willing to part with their money. And if almost everyone is ready to pay for sharing access to a business project or other solutions that contribute to making a profit, it makes no sense to charge for entertainment, music or the ability to use tools that are available for free. It's better to set up ads and offer payment for extra convenience.

  • App subject matter and advertising
    Sponsors and advertisers are willing to invest in apps, but you need to be able to interest them. It's best to work within a specific theme. For example, sellers of goods for sports and health will sponsor a fitness app. A weather informer will be suitable for advertising consumer goods and services with a particular region in mind. And contextual advertising should be built into the cinema or an online library.
It is not necessary to focus on one method of monetization, models can be combined. Some monetization models allow you to start earning immediately upon release, while others involve building revenue from monetization over time. Advertising is one of the most flexible sources of income, which is combined with all models except subscriptions. Choosing a monetization model for your app should be based on your niche and the interface of the app, as well as the characteristics of your target audience.

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Based on our expertise in mobile app development we can suggest the most suitable monetization model for your project as well, and then competently implement it and create an MVP ready for testing.

At HF-Solution, we not only develop apps, but also help create user journey maps and effective interface designs with UI/UX best practices in mind.
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