App Monetization 101: How to Create a Sustainable Revenue Stream
In a competitive mobile app market, it takes time and real effort to master generating revenue and growing profits quickly and sustainably.
Maximizing revenue means constantly testing, adjusting, and improving your monetization strategy — and you need to do this while delivering the best app possible to your users. So how will your app succeed? First, let’s see what you’re up against.
4 key challenges for developers
- Find the right users – You want to attract users to generate income, but not just any. These should be high-value users who constantly interact with your application.
- Have better visibility on the user experience – You want to understand the behavior of your users in order to maintain long-term loyalty and continuously monetize this existing user base.
- Move quickly during testing – You need to test quickly and efficiently to help eliminate lengthy QA processes.
- Removal of inefficiencies – You want to automate as much as possible and minimize the time spent manually optimizing waterfalls to achieve a small increase in revenue.
Finding consistent growth and profitability starts with understanding monetization patterns.
Let’s take a look at the different monetization models to better understand them and figure out which one might be right for you.
In-app advertising makes your app free for users to download and use. In this model, the goal is to acquire a large user base, collect data from it, filter and sell this data to publishers who will serve relevant and meaningful ads to that same user base. users. Developers earn revenue each time a user clicks on an advertisement or installs the advertised application.
Over time, in-app ads have become more sophisticated and intuitive. Some include animations and videos, while others provide an even more engaging interactive experience. Playable ads are a great example of this: they allow users to try out a game or app before downloading it.
In-app ads drive more engagement because they seamlessly integrate with the app. For example, in a mobile game, you might run an interstitial ad that appears between levels. Or, you can also offer a rewarded video that gives users the opportunity to interact with the ad in exchange for a reward, such as extra lives or in-game currency.
Regardless of the ad format you choose, it’s also important to be cautious about how often these types of ads will be served to your users, as too many immersion breaking moments could lead to abandonment of the application. Learn more about the different types of ad formats.
Sometimes referred to as the “freemium” model, the sale of features, functionality, new (in-game) experiences, or other “premium” content is called in-app purchase (IAP) monetization. In this model, the app user pays real money to unlock additional features, i.e. additional weapons, time, levels, or cosmetic items in a game. to download typically use in-app purchases to monetize their user base.
Prompts to purchase items are often displayed when a user needs help. For a game, in-app purchases are usually designed to speed up/facilitate progress through the game. They can be a big source of revenue for publishers, but it’s essential to balance IAP. If a game seems too difficult (or impossible) to advance without spending money, then you’re more likely to lose a user than earn revenue from it.
Many games and most dating apps are monetized through IAP, offering enhanced features for a one-time purchase – or sometimes, a subscription (see below).
Also sometimes referred to as a paywall app, a subscription monetization model requires users to pay a monthly or annual fee to use the app or unlock premium features.
Subscription apps rely heavily on customer retention, which means they must continue to offer new ways for users to interact with their app and service. This type of model typically works best in certain verticals, like health and fitness, news, or dating.
This monetization model is simple: users make an immediate, one-time payment to download and use the app. Or, the app may be available as a trial to begin with, giving users the chance to try the app for a limited time before paying for it.
The advantage of paid apps is higher revenue per download – but with so many free apps available, the competition is particularly fierce. 96% of Google Play apps are free and 92% of Apple Store apps are free. Paid apps should therefore offer exceptional value, functionality and/or unique functionality that would otherwise be difficult to find in a free app.
Many developers today use a hybrid monetization approach to make money, using two or more of the monetization methods mentioned above. Hybrid monetization gives your target audience more ways to engage – in-app purchases, ads, and more. – which can help you expand revenue streams to build sustainability and ultimately help improve and maximize lifetime value (LTV) – and generate higher profits.
Watch our short video that further explains what this approach entails:
How to choose the right monetization solution
Now that you understand the fundamental app monetization models, let’s talk about some of the features and tools in a monetization solution that will help simplify your day-to-day work while making incremental improvements to further optimize your monetization.
The following features that help drive positive change and maximize growth:
- Ad Transparency – Knowing which ads drive conversions, which ads need improvement, and why this may be the case can help you continually optimize your ads for better returns. For example, MAX’s Ads Review tells you what ads users see in your apps and gives you full control over which ads are served, giving you insight into the top performing creatives and helping you better understand what’s going on. works and what doesn’t.
- A/B testing – A/B testing proves one iteration of your app against another to give you valuable insights into user behavior and how/why they are converting while analyzing your app’s performance. Refer to 3 Strong Tests for A/B Testing to learn more about how to increase revenue with A/B testing.
- Automating – With automation, you can reduce manual work, allowing your team to manage their resources efficiently.
- Accurate analyzes – Data is a crucial tool to take the guesswork out of measuring the success and effectiveness of your campaigns. The most complete data possible will be on the analytics platform of your choice.
Monetization in action
CookApps, a studio based in Seoul, Korea, needed a better way to monetize its portfolio of 140 apps. The team wanted to improve their ad revenue, and after implementing AppLovin’s software solutions, they achieved an 800% increase in revenue across all of their 140 apps.
Plus, they’ve saved time – with 140 games, that means there are over 8,000 line items to manage on their mediation platforms. AppLovin’s in-app bidder, MAX, helped them reduce their manual workload and automate the process. It also gave the team more time to effectively manage their A/B testing, allowing them to optimize their monetization stack.
Watch our on-demand webinar on maximizing your LTV by automating manual work so you can focus on building, testing, and launching great games.
Start improving your monetization now
There are many ways to monetize and grow your app. AppLovin offers a 360 degree approach to scaling your business with our growth suite. Our comprehensive software solutions enable developers to:
Have the right users discover and download their apps
Optimize return on marketing spend
Maximize your revenue with in-app auctions
Our software’s recommendation engine – AXON – uses machine learning to match you with relevant users who are most likely to download and interact with your app. AppDiscovery helps find the right users at scale and seamlessly integrates with our in-app auction solution, MAX.
AppLovin’s in-house creative team, SparkLabs, offers top creatives to grow and support your UA efforts.
Combine these solutions to positively impact your bottom line and get started with AppLovin today.