4 Best Pricing Models: How to Monetize a Mobile App?

We already talked about how to easily make an app and discussed which key metrics could define your product success. Now, I guess, it’s time to learn about modern pricing trends for mobile applications. It’s actually one of the biggest challenges for all developers to find a suitable way to monetize their product.

Pricing Models Number of Apps

[Number of apps available in leading app stores as of March 2017]

Source

The app market is booming over 2 million apps already, so you have to be wise and strategic when it comes to launching the product if you want it to be noticeable and top-ranked among others on the Marketplace. Especially it concerns fresh startups who aims for quick and essential profit without a clear business strategy. Let’s see what are your options out there?

Monetization Model – what is this and how to choose

Pricing strategy literally means how you make money with your product. And this isn’t an easy task pricing a mobile app, some professionals make it their career goal to understand the laws of the market.

There are four most common pricing strategies – free, freemium, paid and paidmium. It’s crucial to apply a suitable price to your app because customers already have seen all kinds of them and seek for something truly outstanding. Therefore, you have many factors to consider when selecting the pricing course and understanding the user’s behavior habits.

So, how to pick the right monetizing strategy?

Well, reasonably, you should ensure that it makes the most sense for both, entrepreneurs (stakeholders) and customers. There is no need to fit in one particular strategy, just because it’s popular or seems the best option according to your opinion.

Always remember that the app have to stay valuable for consumers and the ROI is high enough to show investors that it’s smart to continue supporting your project. So, to choose wisely, you should keep in mind the following:

  1.  The value of the product has to be greater than its price.
  2.  You’ve to decide whether you aim for the large target audience or plan to win over a small market niche.
  3.  Price must be reasonable for users – you need to consider the development cost for the app and then learn what to do to make it profitable.
  4.  Test the product at the variety of prices.
  5.  Users expect more from the paid apps, so check out what your competitors are doing with their pricing tactics.
  6.  Understanding of Market demands is a key.
  7.  Make sure that you create something that users will crave to get.

And when you’re done with this stage, then it’s a green light for you to pick an actual monetizing course.

4 Best Pricing Models for your Application

Throughout the app making history pricing models have been changing and evolving, but today there are four worldwide recognizable types of them. Shall we take a look at them more closely?

1. Free apps

Those are completely free in terms of downloading from the app stores, and the main source of revenue is in-app ads. Contrary to what you may think, making money from the free mobile products is a common business idea which has already been tested by various corporations across the world.

Pricing Models Free Downloads

[Number of free mobile app downloads worldwide from 2012 to 2017 (in billions)]

Source

Usually, free applications are designed to be a tool for customers retention, communication, customer services etc. (Facebook, Instagram, Twitter). Which means, instead of making money off directly from the app, its developer leaves it free, while putting in there some coupons, discount notifications etc. to show users a path where to look for desirable items outside of the application.

So, in case, you plan to build an app that will guide customers to make purchases in some external stores – free is a nice way for you.

Advantages:
  • Most of us prefer free options first and only then we check out paid features, so the number of downloads will be impressive.
  • An advertisement is a powerful tool for generating a huge revenue (take a look at Facebook’s success in 2014).
  • A good free app is able to speed up business exposure and level up customers engagement.
Disadvantages:
  • To start making a meaningful amount of money from the ads you’re gonna need lots and lots of users.
  • If the app doesn’t perform good enough then regular updates can be canceled.

2. Freemium applications

This pricing model is a somewhat modified version of the free one and represents apps that are free to download, but limited in terms of functions and features. So, here we have in-app purchases, you can buy any features you like and neglect those you don’t need.

Pricing Models Freemium

Users give more money to the app when they want specific functionality or speed levels for some games, therefore, the app’s value will eventually increase. This is the most common monetization model that are used by developers nowadays.

There are three freemium strategies for your consideration:
  1. Two-tiered approach – customers download and use the app for free, but premium features and advanced functions are available to purchase. This is common for game applications, where users have to buy additional levels, in-app currency etc.
  2. Second model – an app with full functionality is available for free for a given period of time  to let users get familiar with the product’s utility. Then, after that period, owners charge for the services.
  3. The last one is where all the features are free at the expense of built-in ads. The developers charge a small fee from those users who want to purchase the advertisement free app.
Advantages:
  • These apps attract much organic customers traffic, that could be converted to following upgraded versions.
  • A model is so popular that users won’t be surprised by the need to pay some money for the product they tested and enjoyed for a period of time.
  • Properly developed and design for the right target audience, freemium applications like games turn out to be an infinite source of income.
Disadvantages:
  • Notifications for upgrades have to be managed appropriately, in order to avoid being an invasive irritation for the customers.
  • These apps are actually a bit of a burden for their developers because there is a need manage the in-app purchases and keep the product engaging and up-to-date.

Pricing Models Install-to-buyer Funnel

“In Q3 2016, across both iOS and Android, less than 2% of global app installers turned into buyers. This demonstrates that deriving any meaningful revenue from the majority of apps is an ongoing pain point for developers and publishers.” (c)

3. Paid apps

Literally, direct sales. This category represents the apps for which customers have to pay once just for download, then the usage is free. But their popularity is somewhat low these days, due to the expansion of the free and freemium applications.

According to the experts from mobile app development companies – this model is the least effective. However, for certain business apps, it’s still a chosen pricing strategy. Only it’s wise to keep in mind that if you absolutely must put a price on your App, make the charges as low as possible.

The competition on the market is super close, you won’t want to end up at the bottom of the rank. Bear in mind that the higher a price tag is, the higher will be the expectations from a product being sold.

Advantages:
  • User buys the app before experiencing it, so the revenue boost doesn’t dependent on the customer’s interaction with the product. However, those future interactions can make a significant impact on reviews and ratings.
  • Best choice for business brands with the loyal base of customers.
Disadvantages:
  • The price may scare off a part of prospective clients.
  • If the paid app delivers a lower performance than expected by most of the users, it’s doomed to get tons of bad reviews and ranks.

4. Paidmium (Paymium) apps

As the name says, here is a mixture of paid and freemium strategies, direct sales with in-app purchases. One of the latest pricing models, still emerging, where customers have to pay for the app, but then there is an option to purchase additional features by future payment.

Pricing Models Paymium

There is a promising potential in terms of new ongoing revenue streams. This model may work nicely for music, social media, and navigation apps. But in order to gain user base, developers must keep the content up-to-date and exciting, provide unique useful features, subscriptions etc.

Advantages:
  • Provides for owners a tangible ongoing money stream (compared to paid apps).
  • Obliges developers to stay creative when it comes to ensuring new ways for attracting users and pursue them to pay more within the app.
Disadvantages:
  • Users may find these product double taxing and with a low-quality content.
  • Such apps require constant marvelous updates which take a lot of time and efforts from developers.

And which Pricing Model Is Good for Your Mobile App?

The answer to this question will be only yours to give ‘cuz you and you alone know the complexity, a type and the features set of your mobile product. As you can see from this post, the pricing model will define whether an app will be a success or a total failure.

But the choice depends on so many factors, not to mention a strategic planning. However, the modern app market trends to combined models these days, so you can, in fact, mix and match some of the described strategies. No matter how hard it seems, you must choose the monetization strategy as early as possible, so be prepared for some difficulties along the way.

And there is always more to learn about this topic, so if you have some other questions – shoot us your feedback anytime you like. We know a thing or two about pricing strategies and would gladly discuss them with you, hopefully helping you to move forward with your development process.

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