Freemium Magic in App Monetization

Freemium model in app monetization

In our last post we discussed the pros and cons of free and paid apps. Today, we want to discuss freemium apps. Freemium apps are free apps featuring in-app purchases, allowing great potential for app monetization.

Because ads generate most of their profit by being clicked on, they are not a dependable option for app monetization. In-app purchases offer a better revenue-source for multiple reasons. First, you don’t have to feature ads in your apps, which take away from your design. Furthermore, ads can deter users. Second, freemium apps give users a chance to test your app before paying money for it. If you create an app with a high-‘addiction’ value, people will most likely invest in in-app purchases to continue using it. Third, freemium apps, in contrast to paid apps, lower the download barrier and boost your downloads.

The above is not mere theory. Numbers reflect the revenue-generating power of freemium apps; as mentioned in our last entry, the latest numbers by Distimo show that 76% of all app revenue was achieved through freemium apps. Incredible! You might ask yourself how to jump on that train, right? So let us give you some pointers.

The key to successfully building a freemium app lies in understanding the in-app purchase essentials.

There are three different ways to monetize on users

  1. Permanent enhancements to the app
  2. Expendable updates
  3. Subscriptions (one-time and auto-renewing)

Permanent enhancements to the app, for example, are upgrades from a ‘lite version’ to a full version, unlocking your app’s full potential. Expendable updates, mostly found in gaming apps, are items which help the user achieve progress in the game. Subscriptions are mostly used in news apps and come in two ways (one-time and auto-renewing) which are self-explanatory.

It is important to note that applying all of the above mechanisms simultaneously, will not generate the most revenue. This is because a freemium app’s success varies with demographics and app type. For example, expendable updates prove to be successful in games, however, they might be useless in lifestyle apps (see the below graph for more info on in-app purchases in all categories). Furthermore, depending on countries and age groups, people’s willingness to pay for in-app purchases greatly varies. So when deciding on which freemium type to use, pay close attention to these details.

If you want to create a freemium app but you aren’t sure whether or not it will bring many people to make in-app purchases, don’t worry! A good way to continue generating revenue is by relying on both in-app purchases and ads. As previously discussed, ads can deter users, so you might want to only enable ads for people who have been using your app for multiple days without having made in-app purchases. Thus, only users who are enjoying your app will encounter ads and, therefore, are more willing to pay money to use the app without ads, just like they did before.

Freemium apps are a great way to earn higher profit margins. Make sure to understand these important details so you can start earning the money you deserve!