As of the first quarter of 2021, the App Store and Google Play have over 5.5 million apps combined. And among those apps, only 6.6% in the Apple App Store and 3.1% in the Google Play Store are paid apps.
If your app is not one of these paid ones, you might wonder how to monetize free apps. Great news! There is a strategy apart from advertising that we are all aware of both as app publishers and users: in-app purchases (IAP).
The monetization strategy based on in-app purchases started in 2011. From that point on, in-app purchases means the act of buying extra content, services, special features, or subscriptions while using the app. To illustrate, the user might buy levels in a gaming app, shoes on a shopping app, or subscriptions on a health and fitness app.
While users are on the app stores, they can see whether an app offers in-app purchases just below the “Get”(for iOS) and “Install” (for Android) buttons.
After developing an app, the first thing you should consider is how you can make money through it. At this point, you can have a look at free, fremium, subscription-based, premium, and paymium app business models.
The business model of apps that don’t require users to pay to download or use the app is the free model. The free model increases the likelihood of downloads and brand awareness. Publishers of such apps monetize them through ads. It is important to keep in mind that ads should be relevant and appropriate for the user segments. Obtrusive and inappropriate ads decrease engagement and retention.
In the freemium model, users download your app for free, and the app offers optional in-app purchases to give access to extra content, features, subscriptions, or services. This allows users to have an experience in your app and engage more if they are willing to.
The subscription model allows users to make in-app purchases to access content, features, and services for renewable and non-renewable durations. See the next section for more information about subscription options. Subscriptions can be offered as a part of freemium or paymium models and with other in-app purchase types.
If the users pay a one-time fee to download an app, this app runs on a premium or paid model. This model reflects a more traditional purchasing process where the user commits buying the product without trying it. The cost of download pushes users to evaluate your app’s value more carefully. So, if you want to have a successful premium/paid app, you should offer a premium experience with great functionality, design, and marketing.
Some apps require users to pay to download the app but also offer in-app purchases for additional features, content, or services. These apps run on the paymium model. If you want to have a paymium model, make sure that you know your users’ expectations when they pay for your app and extra features. With the paymium model, you can lower the cost of downloading for users while using in-app purchases.
Consumable Purchases: These in-app purchases are the ones that you usually find in gaming apps, in the forms or lives or gems to go further in the app. Users make consumable purchases, deplete, and buy again.
These in-app purchases allow users to reach premium features within your app. Once they are purchased, they don’t expire, such as additional filters on a photo editing app.
By making these in-app purchases, users gain access to periodically updated content such as news, streaming services, or magazines. This type of in-app purchase automatically renews the subscriptions and charges them until the user cancels their subscription. Spotify and Hulu are great examples for auto-renewable subscriptions.
Users buy access to content for a limited duration if you offer a non-renewing subscription. Hence, users need to renew it each time.
To offer in-app purchases to your users, you need the StoreKit for iOS apps. You should first show the user the product (consumable, non-consumable, etc.). After they take an action, the StoreKit Framework connects to the App Store to process payments on behalf of your app. The framework then notifies your app and delivers the product.
For Android applications, you should have Google Play Billing. Once the user takes action to make an in-app purchase, your app sends a billing request for the product. After the Google Play Store completes the checkout process, it sends purchase details back to the app.
It is important to know what your user is looking for and stay relevant to their expectations, wants, and needs. By following the user journey, you can get to know your user and send them targeted messages aimed at engagement and conversion based on their real-time activity.
In-app messages are delivered when the users are using the app. So, you send your users in-app messages based on their behavior in your app. If they like a product, you can send them a promotional message.
Push notifications increase clickthrough rate by up to 23%. You can use push notifications to remind the user of your product, service, and any time-sensitive information. So, you can use push notifications as a tool to convey your in-app purchase message.
You can use in-app stories to grasp the attention of your users on your in-app purchase products. You have the chance to show what you have to offer the moment the user opens your app. You can easily show the value and functionality of the extra features, extra content, or subscriptions with the power of visual without any competition on the screen.
If you have a health and fitness app, you can use in-app stories to reach your audience to encourage them to subscribe and upgrade their app to the premium version. Or for an e-commerce app, it would be great to utilize product tags on stories to lead users directly to the purchase page.
Creating a great app is a big success, and making money out of it is even bigger. Many mobile apps, whether paid or free to download, use in-app purchases to monetize their apps. Although not every app is not suitable for in-app purchases, if you think your app can have a place for them, follow one of the strategies above to drive substantial revenue and increase conversions.