How Can I Develop a Profitable App?

June 10, 2016 - 10 minutes read

From interaction10

Growing your mobile app idea from concept to prototype may be relatively straightforward, but monetizing your app once it’s on the market is a totally different ballgame. In a mobile ecosystem where well over 90 percent of apps fail to generate significant revenue, any mobile app developer with industry experience can tell you that monetization requires more than just a good idea.

Historically, mobile app startups usually go months to years without turning a profit after launch. However, that doesn’t mean they weren’t conceived without a roadmap for monetization. Just take a look at Facebook and Twitter; both platforms operated without overt monetization attempts for years, yet while Facebook has scaled seamlessly, Twitter struggles to overcome user objection to poorly-placed sponsored content. (Just see #RIPTwitter for the laundry list of factors contributing to user dissatisfaction.)

How is it that business models so similar can result in radically different financial outcomes? The answer: long-term monetization strategy.

In this post we’ll unpack the factors startups need to consider when strategizing monetization for mobile apps, from picking a platform to integrating advertising.

Picking a platform

picking a platform

While approximately 26 percent of Apps in the Apple App Store pull over $5,000 USD in monthly revenue, only 16 percent of Android-exclusive developers saw the same result in 2014. Android app developers often beat the odds, but for first-time launches targeting US audiences iOS is almost always the better choice.

Brands associated with Apple usually see better results when it comes to market traction and user retention in the early stages of brand development. Early adaptors tend to favor Apple hardware, (not just NYC iPhone app developers), and iOS products overall dominate the charts at the likes of Product Hunt and Hacker News. Apple users also statistically have higher disposable income than Android users, making them more likely to take a monetary bet on a brand-new app from a first-time iPhone app developer.

Paid, free, and freemium apps: the question of pricing

Regardless of platform, every mobile app developer has to pick a pricing strategy to maximize revenue. App pricing strategies fall into three broad categories:

  • Paid: Apps with up-front one-time download costs (usually $0.99–$5.99.)
  • Free: Apps with no download cost and no in-app purchases.
  • Freemium: Apps with no download cost that feature in-app purchases and/or “premium” memberships with monthly fees for advanced features.

Of these strategies, freemium is by far the dominant category in 2016, in that it offers maximized revenue potential per user while minimizing the barrier to download.

Apple’s sales statistics show that over 90% of app revenue in the Apple App Store comes from freemium apps, and the market hold of paid apps has been shrinking in comparison every year.

App monetization strategies

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With so many apps foregoing up-front costs, monetization is by necessity a creative affair. Effective methods vary widely between audiences. Premium memberships and advertising are common, but that doesn’t mean they’re the best pick for every product.

Here’s an overview of some common (and not-so-common) monetization strategies for iPhone app developers:

premium membership

Premium memberships are based on the premise that if your tool is useful enough, users will pay a little bit for it every month. As a monetization model, it’s similar to SaaS web apps and services familiar from the pre-iPhone era — the key difference between freemium and free trials is that users don’t have to pay to keep using the app. Rather, they pay to “unlock” improved features designed for power users.

This is great for users, as it’s low-commitment; and great for iPhone app developers, as it essentially repeats the download profit continually for every satisfied user they gain, generating an ongoing budget for customer support and user acquisition.

Examples of profitable membership-based apps include Evernote and Spotify. The main catch with premium memberships is the high free-to-paid ratio. Even major brands like Evernote only convert at around 3 percent, and conversion rates between 1–2 percent are considered “good” for less-established startups.

The silver lining here is that conversion rates tend to rise among long-term free-tier app users. Evernote, for example, converts at a much higher 20 percent rate among users who remain on the free tier for rwo or more years.

advertising

startup monetization

Advertising is a necessary evil that’s exceedingly tricky to pull off among today’s jaded digital consumers. Users accustomed to high-quality free offerings from big companies like Google and Facebook tend to view blatant advertising as second-class. iPhone app developers that take the straightforward approach of plastering banners over content will quickly churn their users to less garish competitors — especially if advertising content causes delays or wait times for users.

“Integration” is the key to ad revenue in mobile apps. Considering the wealth of user data available, ad content should at the very least be catered to the individual, similar to web content that delivers based on browsing history. In feed-based user experiences, Facebook provides an excellent example of tastefully curated integrated advertising. Sponsored content also fares well compared to traditional ads in native.

Sharing economies

Some of the hottest startups of the past five years have focussed on “sharing economies,” and monetize by connecting service providers to customers rather than providing a service themselves. Uber and TaskRabbit are both excellent examples, alongside e-commerce platforms like Etsy. Monetization in sharing economy apps comes as a percentage of the money exchanged on the platform, creating a direct link between success for users and success for the business.

Application-specific strategy

Every iPhone app is unique, and the best monetization opportunities are often highly specific to a particular audience and user experience.

Snapchat, for example, demonstrates some highly unusual monetization strategies, even while rejecting standard methods like those outlined above. Branded lenses on the platform go for a whopping $750,000 a day on holidays, showing how a huge userbase can drive equally huge profits even in cases where none of them are paying a dime directly for the service. (Mobile audiences are often difficult for traditionally media providers like CNN and FOX to penetrate, so if your app can act as a go-between they’ll likely pay top dollar for access.)

Snapchat app

Duolingo, a language-learning app, is even more creative in their monetization strategy. Once users advance beyond a certain level, the highly gamified user interface actually utilizes their translations to provide piecemeal translation services to third-party companies — at a fraction the price of traditional services, without most users even being aware of it.

Always approach the features unique to your app first when considering monetization. If it’s possible to avoid churn-drivers like advertising in favor of something more subtle and unique, you’re already one step ahead of the competition.

High profits are tied to detailed planning

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Strategy, execution, and monetization all come down to the same basic practice: careful planning.

iPhone app developers that partner with skilled, experienced teams virtually always come out on top for the simple reason that more brains on the product translates to efficient, profitable execution from iPhone app development all the way to funding, launch, and long-term growth.

Competition is tough in the Apple App Store, but it’s tough for a reason; iPhone app developer revenue breaks a new record every year. Even with over a thousand apps hitting the store every day, the market for fine-tuned mobile products has yet to peak. The only question is: how big a piece of the pie can your startup earn?

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