The app monetization guide: Boosting and diversifying revenue streams

As with any  business model, profitability is central to the viability and growth of mobile apps. During the ideation, planning, and design phases, app developers often build in strategic revenue streams known as app monetization models, to safeguard an app’s budgetary needs in the long term. While app monetization is usually considered at these early stages, it is dynamic and can be rethought and diversified on an ongoing basis, reacting to user behavior and satisfaction, amongst other factors.

The goal of all commercial apps is to monetize every user in some way. Whether your app is paid (i.e. monetized at the outset, when a user chooses to download the app from the app store) or free-to-download, choosing the right monetization model is critical. There is a balance to be struck between an unburdened user journey and your required level of profitability.

App design and development are evolving in ways that offer more and more creative options for monetization. To optimize efforts in this area, developers and marketers should remain on top of current trends and user preferences, and potentially diversify the monetization models used rather than relying on a single stream to boost revenue.

What is app monetization?

In the simplest terms, app monetization is how apps make money. Generating revenue to support your app can be achieved in a number of ways, via a number of different models. Revenue diversification is prudent for any business, and when it comes to apps it’s the recommended approach to monetization. The five main app monetization models that we’ll cover in this guide can be combined to reap greatest rewards. Maximize and optimize opportunities to benefit from revenue streams appropriate to your vertical and target audience, all the while being careful not to vex users or negatively impact their experience.

Considerations and decisions around app monetization will influence much of an app’s marketing strategy, including user acquisition and retention plans. A poorly executed app monetization approach is likely to increase your app’s churn rate and impact brand reputation, so the stakes are incredibly high.

How does app monetization work?

There are five main ways app monetization can be implemented: paid apps, in-app purchases, in-app advertising, a freemium model, and a subscription model. We’ll return to these terms later to explain the practicalities and benefits of each.

Each method comes with its own advantages and risks, impacts on user experience, and associated costs, so making informed decisions and continuing to monitor impact and success are paramount.

As with many aspects of overall app success and growth, truly understanding your existing user base and the users you’re targeting is a must for implementing and maintaining successful monetization. Through analysis of data and awareness of trends, you’ll develop a sense of user preferences and behavior that could make or break  the monetization models you’ve implemented.

With both your app’s survival and its growth on the line, monetization demands time and attention from all members of an app team, from development to marketing and beyond.

Strategically diversifying monetization models

Diversified monetization (or “hybrid monetization”) refers to employing multiple monetization models, and is a very common approach among today’s app developers. For example, an app may offer in-app purchases and also a subscription model, both of which can be attractive to particular user segments, offering different options when it comes to committing to app spend.

Considering your diverse user base and tailoring your in-app experience to a broad range of user behaviors not only has a positive impact on user retention but also on lifetime value (LTV), a key KPI for many marketers and a reliable barometer of success. Achieving the greatest value possible from each and every user results in a positive trajectory for app success and growth.

The benefits of successful monetization

Aside from the obvious financial benefits, app monetization delivers a host of advantages to your app and its long-term prospects.

• Reliable revenue stream: A robust monetization strategy—especially one with diversification built in—provides your app with reliable and forecastable cash flow, so you can plan for future investment in your app and the team behind it.
• Greater investment equals greater development: One result of increased cash flow is your ability to improve your app’s offerings and content on a regular basis. Indeed, the very nature of having paying users drives this continual improvement, as it’s often expected by the user base.
• Users feel in control: A carefully considered monetization approach will make users feel comfortable and in control—they’re not being pressured into payment in any sense, but appreciate the ways in which payment can enhance their experience.
• Increased engagement among paying users:  Users who decide to make payments are more likely to use your app on a regular basis and make the most of their financial commitment.

In March 2024, 96.99% of Android apps and 95.1% of iOS apps were free at the point of download. This is clear proof that the vast majority of app developers opt to implement monetization within the app environment itself, rather than as a barrier to entry. This means that the app has a chance to prove its worth to a user before there is any question of an investment on their part, and puts the onus on a seamless user experience and an app that offers real value.

The abundance of free apps also means that competition is fierce—there is every chance a user could move on to an alternative free app if not immediately impressed by your app’s offering.

Let’s dive into each of the main monetization models and discover the benefits they offer.

Paid apps

As mentioned, pay-to-download apps are very much in the minority. This monetization method—requiring a user to pay a fixed amount at the point of download—was popular in the early days of app development because the technical capabilities to introduce alternative revenue streams were yet to be developed.

In a sea of apps across multiple app stores, your paid app must stand out, offering a uniquely valuable user experience that cannot be served by a free alternative—and has the power to compete in a large and ever-changing market.

In-app purchases

A favored monetization model of recent years, in-app purchases are popular thanks to their low-profile nature, which keeps user disruption to a minimum. Designed to be beneficial to the user rather than a barrier, they serve to enhance the user experience and often take this experience to a new level.

The global in-app purchase market grew from $141.75 billion in 2022 to $176.63 billion in 2023. Commonly found in the gaming vertical, an example of an in-app purchase is obtaining coins or lives to continue or give gameplay a boost. Outside of the gaming vertical, exclusive access or exclusive content could be something provided at the point of in-app purchase. In-app purchases mean that paying users enjoy a superior experience while not having any financial outlay at the download stage.

We can broadly categorize in-app purchases as consumables or non-consumables. Consumables are temporary or limited purchases, for example, PokéCoins in Pokemon GO. Non-consumables only need to be purchased once, for example, making payment to unlock a gaming level.

Optimizing your chosen app monetization methods leads to increased revenue as well as a more satisfied and engaged user base.

To truly leverage the power of app monetization, remain mindful of the advantages and disadvantages of the methods you’re using, and keep best practices in mind:

• Onboarding: No matter the monetization in place, quality app onboarding leads to happier and more confident users, keeping them in an app for longer periods and therefore boosting monetization opportunities. Users with a clear idea of the value of an app will be more likely to return to it.
• Paywalls: While paywalls can’t be avoided when it comes to monetization, they can be designed in such a way that they work seamlessly for paying users and offer an obvious one-click exit route for users choosing not to pay.
• Timing: Particularly for the subscription model, do not push this option too early in the user journey. App value must be clearly demonstrated first.
• Free trials: Giving users a chance to experience what is on offer first-hand is often a very successful way of encouraging paid commitment.
• Transition: If you’re moving from one monetization model to a noticeably different one, show respect to your existing user base by communicating clearly, and carefully considering how the changed options will appear and how they’re likely to be received.
• Pricing: The user-facing costs you’re featuring in your app have the potential to make or break your monetization success. Competitor research is key to ensure you’re in the right ballpark. An app usage vs. pricing matrix (the expected frequency of use per user compared to price) can help you to land on the ideal pricing structure.

Where payments are passing between user and app, there will always be a need to tread carefully to maintain user trust and satisfaction. Any lapse in judgment in terms of costs and unnecessary barriers may serve to alienate a loyal user base and drive them towards alternative options.

Ethical considerations around app monetization exist in the form of three pillars:

• Transparency: Clarity around what exactly is being purchased is a must. Clearly articulating the value provided by a purchase will help a user to make an informed decision. Stay away from hidden or misleading costs.
• Fairness: When you’re considering paying users, don’t lose sight of the non-paying users. Will the monetization strategy you’ve put in place create so many barriers that they will no longer be motivated to use your app?
• Value: Will users making purchases or signing up for subscriptions feel like they are getting value for money, and that their use of the app is enhanced in meaningful ways? Will their experience differ significantly from that of non-paying users? Avoid applying any sort of pressure to make payments—this will likely serve to have the opposite effect.

By keeping your users (all users—paying and not paying) at the center of your monetization strategy, you’ll be able to prioritize user experience in a sustainable way, ethically grow your revenue, and keep your community of users satisfied.

While planning and strategizing your app monetization is paramount, monitoring and measuring its success is equally important. The ability to make quick decisions around what is working well and what’s not working so well allows real-time optimization and sustained growth.

Working with an advanced mobile measurement partner (MMP) offers you clear visibility of the data around your monetization efforts, allowing you to make the strongest gains both in terms of revenue and user satisfaction.

Partner with Adjust to make app monetization work for you

Adjust’s RevWorks solution centralizes all of your revenue sources, giving you the real picture of your return on investment (ROI) and LTV, and empowering your monetization strategy.

• Measure your granular ad revenue: Analyze and optimize user/impression-level data from mediation platforms, connecting this data to attribution sources to optimize your user acquisition (UA) strategy.
• Measure your monetization ad performance: Gain oversight of aggregated ad revenue coming from monetization network partners.
• Know your users’ true LTV: Remain on top of all revenue and subscription events at a granular level to optimize efforts in this area. With access to both acquisition cost and revenue delivered, your LTV figures are more accurate.

Adjust’s one-stop solution collects, organizes, and combines your ad revenue, attribution, and ad spend data, uncovering the real value of your marketing efforts.

Ad revenue data at the user level involves flexible data collection methods with S2S, SDK, and API integrations. Daily pulls for API integrations are in place, with data updated retroactively if needed. Ad performance data at the network level incorporates API integrations with 31 network partners, with data import available to ingest all revenue data, even networks not supported by mediation platforms. Armed with this data, you’ll be able to make a transparent comparison of ad revenue reported by mediation platforms and networks to easily spot discrepancies.

Partnering with Adjust allows you to truly understand your revenue in terms of the number of users accounting for it and the value that each ad network is delivering. By using these data-driven insights to understand exactly where revenue is coming from (including which ad network is delivering the most high-value users) you’ll be able to optimize and scale.