Developing a successful app is only the first step. For your business to be sustainable, you need an effective monetization strategy. In this article we explore the most popular models and how to choose the right one.
1. Freemium Model
How Does It Work?
Free app with limited functionalities. Users pay for premium features.
Advantages
- Low Entry Barrier: Easy to acquire users
- Virality: More downloads = more organic reach
- Try Before You Buy: Users value the product before paying
- Gradual Conversion: Free users can convert over time
Disadvantages
- Only 2-5% of free users convert to premium
- Requires large user base to be profitable
- Difficult to balance what's free and what's premium
Successful Examples
Spotify, Dropbox, LinkedIn, Evernote
When to Use This Model?
- Your app has clear value that justifies conversion
- You can offer genuinely valuable premium features
- You have a strategy to scale user base
2. Subscription Model
How Does It Work?
Users pay a recurring fee (monthly/annual) for complete access.
Advantages
- Predictable Revenue: Stable MRR (Monthly Recurring Revenue)
- High LTV: Customer lifetime value multiplied by months
- Continuous Relationship: Incentive to constantly improve
- Better Valuation: Investors love recurring revenue
Disadvantages
- Constant churn (cancellations) to manage
- Must deliver continuous value or users cancel
- Requires frequent updates
Successful Examples
Netflix, Apple Music, Adobe Creative Cloud, Calm
Pricing Strategies
- Free Trial: 7-30 days to hook users
- Annual Discount: 20-40% off vs monthly (better LTV)
- Multiple Tiers: Basic, Pro, Business
3. In-App Purchases (IAP)
How Does It Work?
Free app, users buy items, content, or virtual currency within the app.
Types of IAP
- Consumables: Coins, lives, power-ups (depleted)
- Non-Consumables: Permanent features, additional levels
- Subscriptions: Recurring access to premium content
Advantages
- Very high revenue potential (especially in games)
- Flexibility in what to offer
- Users spend more than a one-time payment
Disadvantages
- Risk of creating frustrating "pay-to-win" experience
- Can alienate free users
- Requires careful balance of virtual economy
Successful Examples
Candy Crush, Clash of Clans, Fortnite Mobile, Pokemon GO
4. Advertising
How Does It Work?
Free app, you monetize by showing ads to users.
Types of Ads
- Banner Ads: Persistent banners (lower pay, less intrusive)
- Interstitial Ads: Full-screen ads at transitions
- Rewarded Video: Users watch video in exchange for reward (better experience)
- Native Ads: Ads naturally integrated into content
Advantages
- Doesn't require users to pay
- Scales with number of active users
- Easy to implement with AdMob, Facebook Audience Network
Disadvantages
- Degraded user experience
- Low revenue per user (CPM $1-$10)
- Requires A LOT of traffic to be profitable
- Best users (who would pay) hate ads
When Does It Work?
- Apps with high usage frequency (casual games, utilities)
- Large user base (100K+ DAU minimum)
- Combine with freemium: ads in free, no ads in premium
5. One-Time Payment (Paid App)
How Does It Work?
Users pay once to download the app.
Advantages
- Immediate monetization
- No distractions from ads or paywalls
- Users are more committed
Disadvantages
- Huge entry barrier (99% of apps are free)
- Few downloads compared to free apps
- No recurring revenue
- Difficult to compete with free alternatives
When Does It Work?
- Professional or specialized tools
- Apps without viable free alternatives
- Premium games without IAP
6. Hybrid Models
Freemium + Subscriptions
Free app with premium subscription tier. Example: Spotify
Freemium + IAP + Ads
Free app with ads, in-app purchases, and option to remove ads. Example: Mobile games
Free Trial + Subscription
7-30 days free, then requires subscription. Example: Productivity apps
How to Choose Your Model?
Consider:
- Your Audience: Who are they? How much can/want they pay?
- Your Competition: What models do successful similar apps use?
- Your Value: Does your app solve a critical problem or is it entertainment?
- Usage Frequency: Daily, weekly, occasional?
- Operating Costs: How much does it cost to maintain your app?
Recommendations by Category
| Category | Recommended Model |
|---|---|
| Casual Games | Freemium + IAP + Rewarded Ads |
| Productivity | Freemium + Subscription |
| Content (music, video) | Subscription |
| Utilities | Freemium or One-Time Payment |
| Social/Community | Freemium + Premium Features |
| E-learning | Subscription or Course IAP |
Optimizing Your Strategy
Key Metrics
- ARPU: Average Revenue Per User
- LTV: Lifetime Value - total revenue per user
- CAC: Customer Acquisition Cost - cost to acquire user
- Conversion Rate: % of free users who convert
- Churn Rate: % of users who cancel
A/B Testing
Test different:
- Prices ($4.99 vs $5.99)
- Trial duration (7 vs 14 days)
- Features in free vs premium tier
- When to show paywall
Conclusion
There is no perfect monetization model for all apps. The key is to deeply understand your users, test different strategies, and optimize based on real data.
Remember: the best model is one that balances sustainable revenue with an excellent user experience. An app that no one uses generates no revenue, no matter how brilliant your monetization strategy is.
Need help defining your app's monetization strategy? At MisterProSoft we have experience implementing various models and can help you choose the right one. Let's talk about your project.