You’re not in business if you haven’t built a viable and profitable business model. In other words, if you’re building an app having a relatively clear idea of how you’re going to monetize it, should be a part of your product strategy.
And it’s definitely not an easy task. According to App Store data, over 50% of all app revenues go to less than 2% of app developers. Likewise, high customer acquisition costs are the number one startup killer today, according to Startup Genome report.
Having the right monetization strategy in place makes everything easier. You can justify high CAC, grow faster and claim a bigger market share as a result. If you’re working on you app idea right now, here’s an overview of popular revenue models.
1. Paid Apps
The paid app revenue model simply means the app costs money to download. Paid apps can cost anywhere between $0.99 to $999.99, and the benefit of this business model is that you make money upfront.
On the other hand, Apple is going to cut 30% of your revenues, and the user-acquisition and subsequently growth becomes harder. The workarounds are free trials and having strong branding and marketing game.
The global advertising industry is a trillion dollar market, and mobile ads represent a $40 billion fraction of it, growing at an incredible rate of 64% a year.
As a developer, you have several options available. You can display 3rd party ads, build your own network, charge a premium listing fee if you’re a marketplace or offer classifieds for e.g. job listings if you cater to the particular user base.
The downside, however, is huge. You’re forced to make trade-offs and users usually hate ads. A workaround is combining freemium ad-powered version with a premium ad-free version. A good example is Spotify.
3. Affiliate / Lead Generation
Lead generation can be a great and highly profitable business model, depending on the industry you’re in. Many personal finance apps, generate leads for their banking partners and finance industry is willing to pay a premium.
Not surprisingly this space has seen numerous $100+ million mobile app acquisitions in the recent years. (Check $360M, Mint 170M, etc.)
4. Selling Data
If the product is free, the chances are users are the product. A great example of selling data as a business model is Foursquare, which recently signed multiple licensing deals with companies such as Microsoft.
If you’re a marketplace, charging a transaction fee is the most natural way to make money. Examples include Airbnb, Kickstarter, Uber and a number of payments and investing apps.
6. Virtual Goods
Believe it or not, selling virtual goods is a multi-billion dollar market. According to SuperData Research, the worldwide market for virtual goods will exceed $20 billion this year.
Selling virtual goods can be applied to games, gifts or any other electronic form of goods. It can be a great complementary revenue source in addition to main monetization strategy.
You don’t have to be an e-commerce company to make money this way. Selling goods can be a great source of additional revenue. A great example is Evernote.
Aside from charging a subscription fee, users have access to an in-app marketplace where they can buy all sorts of physical products including Moleskine, pens and wallets.
Freemium is probably the most popular revenue model across mobile and web products. The main advantage is scalability. If the success of your startup depends on scaling fast, it’s the model to consider.
There are several ways to monetize it. Options include capacity-based freemium (free version up to a capacity, usage, or number of users), feature-based freemium (some features are locked until you pay) and
time-based freemium ( a free trial that expires after a fixed period).
9. Recurring Revenue / Subscription
Recurring revenue model offers great advantages in terms of revenue predictability and lifetime value of customers. Examples include Tinder, Spotify or brain training app Lumosity, and many more.
Obviously there are no limits to monetization. It all comes down to innovation and creativity. A great example is the free language learning app Duolingo. It uses power of crowds to sell translation services to customers like CNN or BuzzFeed.