Monetization Strategy: How to Make Money from Your Mobile App

App owners often believe that having a good idea is enough for users to love the app and pay a high price. Unfortunately, this isn't true. The idea may seem great on paper, but in reality, it often doesn't solve the problem it was intended for. As a result, people don’t use it, and without a user base, making money from an app is impossible.

In this blog, we’ll cover the key requirements an app must meet for owners to generate revenue. We’ll also explain what app monetization strategies are and provide an overview of each one, helping you decide which strategy or combination best suits your needs.

For better orientation, we will separate all strategies into three groups:

1. User-Based Monetization Strategies: These involve generating revenue directly from the app users:
   1. In-app ads
   2. Monthly sponsorship fee
   3. Data Monetization
2. Non-User-Based Monetization Strategies: These generate revenue from external sources, such as advertisers or partnerships, instead of directly charging app users:
   1. In-app purchases
   2. Paid apps
   3. In-app subscriptions
3. Combination model

If you have an app idea and want to launch it, you can check how much you need to invest with our Cost Calculator.

What must your mobile app have to make money?

The main difference between successful apps that generate revenue and make money and those that don't is that the first group of apps provides value to their users.

Let's use as an example Duolingo, one of the most popular apps and both Google Play and App Store.

Duolingo helps people who want to learn another language, using interesting exercises that make this process easier.

One of the reasons that people learn languages is access to higher-paid jobs. So, Duolingo helps people indirectly to earn more money, and they are interested to pay for using it because tomorrow they will earn more.

So, how to make a mobile app that will provide value to users?

To create a mobile app that provides value to users, focus on the following key steps:

1. Identify a real problem: Ensure the app addresses a specific need or solves a pain point for users.
2. Target audience research: Understand your users' preferences, habits, and challenges to build the features they need.
3. User-friendly design: Prioritize a seamless, intuitive interface that enhances the user experience (UX).
4. Deliver a core benefit: Focus on delivering one core functionality that users will consistently rely on.
5. Test and iterate: Regularly gather feedback, run user tests, and improve the app based on insights.

If you are an app developer who is not sure if your mobile app idea has the potential to make money, read more about it in our blog: How To Validate App Idea?

By focusing on these things, your mobile app will offer real value and keep users engaged, which sets you up for successful monetization. Plus, it’ll lead to more downloads and boost your revenue potential.

We have just explained what is required for mobile apps to make money. So let's talk about how to monetize mobile apps.

What is an app monetization strategy?

App monetization strategy is an approach companies use to generate revenue from a mobile application. There are different strategies, and none of them are the best overall. Some just work better for certain types of apps. Sometimes, mixing them up is a smart move to get the most revenue possible.

And before your mobile app developers start with their job, remember this: If you want money creating apps, you need to develop apps that will deliver value for users on your mobile devices.  

User-Based Monetization Strategies

This group of strategies refers to all types of monetization that generate revenue directly from users.

Many companies typically implement these models in the later stages, after validating their idea in the market and reaching a substantial user base. Starting with this strategy too early, before establishing trust with potential users, can create barriers, causing them to opt for similar apps that are already available.

Three types of user-based strategies are commonly used:

Paid apps

It's a type of app that requires users to pay a one-time upfront to download and access the app. This model was dominant in the early days of mobile app development, though it has become less common with the rise of other models. It offers a direct way to produce revenue.

Pros of using this type of monetization:

1. Immediate revenue: Every download generates instant revenue.
2. Serious users: Users who pay upfront are typically more invested and serious about the app's usage.
3. No ads:  By avoiding ads, you can enhance user experience.

Cons:

1. Reduced reach: These apps generally have fewer downloads compared to free alternatives.
2. Potential deterrent: Some users may hesitate to pay without first experiencing the app’s features.
3. Higher user expectations: Paying customers may expect higher quality and ongoing updates.

Experience has shown that to maximize revenue from your app, it's essential to:

• Set the right price point: Conduct market research on your competitor to ensure pricing aligns with similar apps.
• Offer limited-time promotions: To boost downloads, consider offering discounts or temporary price cuts.
• Highlight unique features: Focus on showcasing the app’s key features, differentiating it from free or freemium apps.
• Provide free trials: Consider offering a free trial or a “lite” version to allow users to experience the app before making a purchase.

There are a lot of examples of apps that make money using this model, and some of these apps are:

• Minecraft (Mobile version): A one-time purchase gives users access to the full game, which has generated billions in revenue.
• Facetune: An advanced photo editing app that charges users for download, offering features unmatched by free alternatives.
• Monument Valley: A beautifully designed puzzle game that gained popularity despite being paid for due to its unique visual experience.

In-app purchases (IAPs)

In-app purchases (IAPs) enable users to buy virtual goods or unlock additional features directly within an app. This monetization model is particularly popular in gaming apps but is also used in other types of apps, such as entertainment, fitness, or productivity tools.

IAPs can be categorized into two types:

• Consumables: Items that can be used up and repurchased, such as virtual currency or in-game boosts.
• Non-consumables: Permanent upgrades or features, such as unlocking a level.

There are several reasons why In-app purchases can be good for you:

• Scalable revenue: In-app purchases provide continuous revenue opportunities.
• Free Entry point: Users can download and use the app for free, leading to a larger user base. IAPs allow companies to make money only for the most engaged users.
• Flexible monetization: Offers various purchasing options, catering to different spending behaviors and user needs.
• Enhanced user experience: IAPs let users customize their experience or unlock premium features, which can increase user satisfaction and engagement.

But some reasons might discourage you from using this strategy:

1. User frustration: Aggressive or poorly implemented IAPs can lead to user dissatisfaction, especially if purchases feel necessary to fully enjoy the app.
2. Limited conversion rates: Only a small percentage of users typically make in-app purchases, which can limit overall revenue potential.
3. Complexity in balancing: Striking the right balance between offering valuable purchases and not disrupting the app’s experience for non-paying users can be challenging.
4. App store commissions: Platforms like the Apple App Store and Google Play Store take a percentage (usually 15-30%) of IAP revenue, which reduces earnings for developers.

If you decide on this strategy, there are some important things you have to provide to maximize revenue from your mobile apps:

1. Clear value proposition: Communicate the benefits and value users of your mobile apps will get from their purchases, whether it’s an enhancement to gameplay or additional functionality.
2. Seamless integration: Ensure that the purchasing process is easy and intuitive. Users should be able to make purchases with minimal friction, without navigating away from the app.
3. Regular updates: The most popular gaming apps continuously add new content, features, or virtual goods to keep the app engaging and encourage users to make repeat purchases.
4. Balanced pricing: Price IAPs reasonably, considering your target audience's willingness to spend. Offering a range of prices can appeal to both casual spenders and committed users.

Be free to do your research on how some apps implement this strategy. We recommend you take a look at Candy Crush Saga, one of the most popular mobile app games.

Subscription Model

Apps with this strategy generate revenue by charging users regularly, such as monthly or yearly, to access features or services.

It has become the second most popular app monetization model (after mobile ads), as users are often more comfortable paying a smaller amount each month rather than a larger one-time fee. Additionally, companies benefit from longer customer retention and a more consistent revenue stream.

There are different subscription models:

1. Monthly subscriptions: Users make recurring monthly payments, offering a lower barrier to entry for new users.
2. Yearly subscriptions: A single, larger payment for a year’s access, often incentivized by a discount compared to monthly payments.
3. Tiered subscriptions: Multiple levels of subscriptions with varying features, allowing users to choose the option that best fits their needs and budget.

Based on our experience working with apps like this, we have concluded that there are both pros and cons to the subscription model:

Pros:

• Steady revenue stream: Subscriptions provide ongoing revenue sources, creating more financial predictability compared to one-time purchases.
• Increased customer retention: Users are more likely to stay subscribed for an extended period, providing a higher lifetime value (LTV) than one-time payment models.
• More appealing to users: Many users prefer the flexibility of paying a smaller amount regularly rather than a large upfront cost, making this model more attractive than paid apps.

Cons:

• High expectations: Subscribers expect continuous updates, new features, and regular improvements. Failing to meet these expectations can result in churn and negative reviews.
• Churn risk: Users can easily cancel subscriptions if they no longer find value in the app. Retaining subscribers requires constant engagement and delivering ongoing value.
• Limited appeal: Not all app categories are suitable for subscription models such as gaming apps

Best practice of the Subscription model:

• Offer free trials: Providing a free trial period helps attract users. If your app provides consistent value, users are more likely to subscribe once they’ve developed a habit of using it.
• A/B testing for optimization: Conduct A/B testing on different pricing structures, subscription tiers, or feature packages to find the most effective strategy for maximizing revenue. Testing allows you to identify which combination generates the highest conversions and user retention.
• Provide exclusive content: Keep subscribers engaged by offering ongoing value, such as exclusive content, features, or updates that make it worth maintaining their subscription.

Examples of Subscription model:

1. Scribd - It is a digital library and subscription-based platform that offers access to a wide variety of content, including e-books, audiobooks, magazines, documents, and more.
2. YouTube Premium - It is a subscription service offered by YouTube that provides users with an enhanced, ad-free experience across all of YouTube’s platforms.

Non-User-Based Monetization Strategies

Non-user-based monetization strategies enable apps to produce revenue through third-party partnerships rather than directly from users.

These models are ideal for attracting users who are unwilling or unable to pay upfront.

They are especially recommended for new apps, as they provide an opportunity to build a user base while still generating income from sources like advertisers or affiliate marketing partners.

In-app ads

In-app advertising is the most popular app monetization model in the mobile app industry, especially for free apps. It allows developers to generate revenue without charging users directly.

The earnings from mobile ads can vary based on factors like the user’s location and mobile platform.

Typically, ads shown to users in wealthier countries and on iOS platforms generate higher revenue compared to those on Google Play (Android) and in less affluent regions.

If you've developed a free app and want to monetize through ads, there are four main ad formats you can consider for your project.

Banner ads: This ad format appears at the top or bottom of the device screen and they usually don't interrupt the user flow, and sometimes users don't even notice them. As a result, this format typically generates the least ad revenue. The average earning cost per mile (eCPM) for Android apps is about 0.68$ and 0.32$ for iOS apps. Supported ad formats for banners include text, images, rich media, and video ads.

Native ads: Add a format that is customizable and matches the look & feel of your app. Native ads only support image and video ads.

Interstitial ads: Full-page ads appear at natural breaks & transitions, such as level completion. The average eCPM is 12.3$ for the Android platform and 12.8$ for iOS  for the US market. Interstitial ads are the only format that supports all types of ads (text, image, rich media, interactive ads, and video ads)

Rewarded ads: Commonly used in gaming apps, where users receive in-app rewards, such as extra lives or bonuses, in exchange for watching a 30-second video or interacting with an ad. This format typically offers a higher eCPM compared to other ad types. It's 16.08$ for iOS apps for the US market and 13.19$ for Android apps.  Rewarded ads exclusively support  interactive and in-app video ads, providing an engaging experience for users while driving revenue.

*average eCPM data is from apodeal Q2-2024

Pros:

1. Free mobile apps for users: Ads allow developers to monetize users without requiring them to make a purchase, keeping the app accessible to a wider audience.
2. Scalable revenue: The more users engage with the app, the more potential ad impressions are generated, allowing for a scalable revenue model.
3. Diverse ad formats: Various formats like banner ads, interstitial ads, video ads, and native ads provide flexibility in how ads are integrated without completely disrupting the app experience.
4. Attracts more users: Since the app remains free for users, it’s easier to attract a large user base compared to paid apps.

Cons:

1. Disrupts user experience: In-app advertising, especially full-screen or video ads, can interrupt the user’s experience, leading to frustration or lower engagement.
2. Lower revenue per user: Ad revenue is often lower compared to direct monetization through in-app purchases or paid apps. The earnings per user are usually small unless the app has a massive user base.
3. Ad fatigue: Users may become annoyed or fatigued by frequent ads, which could lead to negative reviews, lower retention rates, or uninstalls.
4. Dependency on third-party ad network: Revenue is dependent on advertising networks, which means developers have limited control over the types of ads shown or fluctuations in ad rates.

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Partnerships and Sponsorships model

Partnerships and sponsorships are app monetization methods that involve collaborating with other companies or brands to generate revenue.

This strategy allows you to use your app’s user base by offering sponsored content or features, or through collaborations that align with your app’s goals and audience. Th

How to Use Partnerships for Monetization:

1. Collaborate with relevant brands: Partnerships with companies that share your target audience. This synergy can increase the value of both parties while providing your users with relevant and engaging content or features.
2. Offer sponsored content or features: Integrate sponsored elements within the app, such as special challenges, branded content, or in-app features that enhance the user experience.

Examples of Successful App Partnerships and Sponsorships:

1. Headspace: Headspace partnered with health organizations and corporate wellness programs to promote mindfulness and mental well-being, increasing both visibility and credibility.
2. Nike Run Club: Nike Run Club collaborated with fitness brands to offer in-app challenges and sponsored events, boosting user engagement and promoting partner brands.

Data Monetization

Data monetization involves generating revenue by selling aggregated and anonymized user data to third parties, such as businesses, advertisers, and marketers.

This strategy provides valuable insights into user behavior, preferences, and trends, but must be carefully managed to comply with privacy regulations like GDPR, PIPL, and CCPA, ensuring user trust is maintained.

Data monetization is particularly suited for apps with a large user base, making it less ideal for apps in their early stages.

An example is Google's approach with free apps like Google Maps, Chrome, and Calendar, where user data is collected to enhance ad targeting and improve services.

Combination model

Freemium Apps

There are free apps available to download from app stores like Google Play or the Apple App Store. These apps provide users with access to basic features at no cost, while offering additional premium services.

This model allows users to experience core functionality for free, encouraging them to upgrade for enhanced features. Freemium is commonly used in non-gaming apps, though it's also popular in various mobile services.

Pros of using the freemium model for monetization:

• Large user base: The free entry point attracts a significant number of users.
• Higher conversion rates: Users can try the app before paying, often leading to higher conversion rates.

Cons:

• Perception of limited value: If the free version is not engaging or valuable enough, users may lose interest before considering premium upgrades.
• Revenue dependency on premium users: A small percentage of users (often referred to as "whales") may drive most of the app's revenue, making the model risky if they don't convert. A good idea is to combine this model with a third-party party ad network

If you want to make money from this model, we advise you to use these best practices:

• Balance free and paid features: Offer enough value in the free version to engage users
• Seamless upgrade experience: Make it easy for users to upgrade to premium features with minimal friction.
• Optimize for engagement: Regularly improve the free version to keep users engaged and encourage them to explore paid features.
• Effective onboarding: Communicate the value of paid mobile app features during onboarding, so users are aware of what they gain by upgrading.

The most popular mobile apps that use the freemium model:

1. Dropbox: Dropbox provides a limited amount of free cloud storage with options to upgrade for more space and advanced collaboration features.
2. LinkedIn: Users can access basic networking features for free, but premium accounts offer insights, advanced search capabilities, and messaging options that enhance job searching and recruitment.

FAQ about Mobile App Monetization

Can I generate revenue from free apps?

Absolutely! Free apps can generate revenue through several strategies, including:

• In-app Advertising: Display ads within the app, earning revenue based on impressions or clicks.
• In-app Purchases: Offer users the option to purchase virtual goods or upgraded features.
• Subscriptions: Provide ongoing services or content for a recurring fee.
• Data Monetization: Analyze user data to provide insights or sell aggregated data to third parties.

This approach allows users to enjoy your app without an initial cost, potentially leading to higher user engagement.

• Freemium Model: Offer a free version with basic features and charge for premium features.
• Apps Ads: Integrate advertisements within the app to generate revenue based on user engagement.

It’s advisable to test different strategies to determine which works best for your specific app and audience.

How much does an app with 1 million downloads make?

The revenue generated by an app with 1 million downloads can vary widely based on its monetization model.

For example, a free app relying on in-app advertising may earn anywhere from $1,000 to $10,000 per month, depending on user engagement and ad placement.

How profitable are free mobile apps?

Free apps can be profitable by effectively engaging users and leveraging monetization strategies like in-app purchases or App ads, though profitability varies by niche and user retention.

One other example is the game Clash of Clans which is free to play but offers various goods for players and has a revenue of $471 million in 2022

If you want to know more about how monetizing mobile apps  that are free, come back to the section where we talk about Non-User-Based Monetization Strategies

Which type of apps generate the highest revenue?

Certain types of apps tend to generate higher revenue, including:

• Gaming Apps: Often the highest earners due to in-app purchases and ads.
• Social Media Apps: Monetized through ads and partnerships.
• Productivity and Utility Apps: Can charge subscriptions or in-app purchases for premium features.

Conclusion - What is the best strategy for your apps?

Each monetization model comes with its own set of advantages and disadvantages, and its effectiveness depends on the type of app and its target audience.

For example, the freemium model can be excellent for apps that aim to attract a broad user base, while in-app purchases are often successful in games where users seek additional functionalities. On the other hand, the subscription model offers a steady revenue stream but requires ongoing user engagement to be effective.

It is often best to test multiple approaches to decide which one works best for your app. Experimenting with different monetization strategies can help you find the optimal balance between revenue generation and user satisfaction.

In some situations, combining different monetization strategies can boost your revenue and make more money for you. With the freemium model, you can offer a free version of the app with ads and provide an ad-free version for paying customers.

Aetherius Solutions is a mobile app development company whose developers have years of experience working on different projects from the healthcare industry to education.

If you want to learn more about the service or have an app idea that you want to realize, you can find more information on our service page or book a free 15-minute call where we are going to answer all the questions you have!