How do I make money from my app?
What a great question. And if the answer was simple then we’d have retired a long time ago. There are different ways to make money, or “monetize”, an app. Here are the main ones:
- Advertising. This is how big social apps and Google make most of their money - selling eyeballs. Everytime someone clicks on an ad, the advertiser pays the platform. Sometimes it’s just for displaying the advert, sometimes only when it’s clicked on. It’s a bit like an auction to determine which ad is displayed, so the amount the advertiser pays depends on who else wants to promote their products to that audience at the time.
Pros: It’s actually quite simple to implement in the app if we use an existing solution such as Google’s Adsense or AdMob. There’s no financial cost to your users.
Cons: It will only make real money if you have lots (as in tens of thousands+) of users who are engaged and ideally returning regularly. Ads can also annoy users and you don’t want to irritate your first customers. So perhaps better only to add at scale.
- Sponsorship. This isn’t a mainstream option, but we’re adding it here because it’s similar to advertising. This is where you charge a fee to, for example, a large corporate to display their brand and potentially sell their products in the app. This can work well when the app is trying to do a “good” thing companies want to be associated with or help such as public health, safety or education. It can also work well if the app offers something that complements what a big company wants to sell.
- Paid Apps. This is the simplest and most obvious way to monetize your app. Users pay to download it or in monthly subscriptions. You have to use Google and Apple’s own billing system (which makes it easy for the user because they can just approve charging the same account they buy music and other apps on). Don’t forget that Google and Apple will take 15% commission on it (rising to 30% if your revenue is over $1M/ year).
Pros: Simple and people “get it”. Works well for some apps, such as reference apps where the app is providing the same or more content as something else, for example a book, that people can put a value on.
Cons: It’s really difficult to get people to pay for digital products, especially before they’ve even tried it. If you want lots of users, or your app has network effects (where it gets better for everyone with more users) this isn’t the right model.
- In-App Purchases (IAP). This is a bit like a paid app but the fee is just for something inside of the app - for example a blue tick status on Twitter, a new weapon in a game or to access premium content. What is critical is that the basic app must work without the user having to buy the IAP, but the IAP must be valuable enough for users to want to buy it eventually. So it’s a fine line to tread. Again the app stores will take a commission on this payment. There is sometimes confusion between “in-app purchases” and other types of payment that can happen inside of an app so carry on reading.
Pros: People get the basic app for free and can understand what it’s about and, when they see the value of what the IAP can bring on top of the free version, they buy it. So it doesn’t stop gaining scale and network effects.
Cons: The IAP must be worth enough for people to be willing to purchase it. They can be quite technically complicated to implement. The app stores will still want their commission.
- Selling inside the app. This is the most common monetization model for companies who sell real-world things such as Amazon or Uber Eats. Users shop inside the app to buy things just like they would on a website. But apps can also do things websites can’t so sometimes the app is part of the product. For example Uber uses your (and the driver’s location). App features such as location, notifications, photo sharing, payment saving are integral to many business models - think any on-demand or delivery service.
Pros: No commission to the app stores (see note below), no financial cost to users, the app revenue is just like the other sales revenue for the business (the same products can be sold through other channels making inventory and order management a lot simpler).
Cons: None really. However, if your app is just the same as your website, why are you expecting people to go to the extra effort to download it?
A BRIEF INTERLUDE: The In-App Purchase War.
Disclaimer: #itscomplicated. There’s a lot of information online and there are court cases/ legislation ongoing. Here’s a really simplified version…
Apple and Google will not approve apps that sell digital things that don’t use their own payment mechanism and where they take 15-30% commission. You will have to ask them why (actually there are many reasons, some of them good, but that’s not a discussion for today). Apps that sell “real-world” things (such as a mobile phone on Amazon, or a ride on Uber) can use normal payment gateways such as Stripe. You’re also not allowed to encourage app users to pay or subscribe on a website rather than in the app by offering a lower price or linking from the app to the website at payment time. However, increasingly it seems a blind eye is being turned to some companies who are getting a bit sharp on this. We’re looking at you Spotify and Netflix.
What does this mean for you, as an app creator? When you think about what it is you’re actually selling, and if you want to avoid the commission, consider how to describe it and whether there is a real world component to it. And ask us for our advice.
- Cost Saving. Providing some services through apps (and other digital channels) is often a lot cheaper than through a physical or call centre channel. By creating a good app that allows customers to service themselves, companies can save a lot.
Pros: Big impact on bottom line and customers often prefer self-servicing 24/7.
Cons: The UI must be very good (simple and clear) and the app mustn’t be buggy.
- White Labelling/ SaaS. This option is often overlooked. Organisations often want pretty much the same sort of app as each other but in their own brand and with some customisation. However, the same companies are not good at building apps, don’t want to spend too much on something they don’t know will work. If you can identify such a need and build a platform that can be easily re-branded and customised - “white labelled” - then you can charge such companies licence fees. This is called a “SaaS” or Software as a Service model. Sometimes the fees are per user, for usage or just a fixed fee. Investors love this sort of annuity income. We built one security app that has been white labelled over 30 times.
Pros: Annuity income, typically your customers are companies with deep pockets.
Cons: If you allow too much customisation, maintenance can become very complex. You need a support/ maintenance mechanism with SLAs in place to support your customers.
Pros: Make money from something that will, or does already, exist.
Cons: Laws, compliance, permissions, ethics. Plus it’s only valuable when there’s a lot of it.