When beginning a new venture, business owners should consider the possible profits they can make as well as the actions they need to take to get to their desired financial position. When considering the various potential sources of revenue, the mobile industry is undeniably alluring. According to Statista, the total revenue generated by mobile apps around the world in 2018 was greater than 365 billion US dollars. It is anticipated that mobile app revenue will reach 461.7 billion dollars in 2019, and it is anticipated that this number will climb 2.5 times until it reaches 935.2 billion dollars in 2023.
Even while revenues for the industry as a whole are on the rise, there are still some developers who are having trouble determining how to monetize the mobile apps they have created. We are unable to use advertising to attract traffic if we do not have a strategy in place to generate revenue. Consumer applications are, in essence, miniature businesses; hence, every app needs its own unique income stream and business plan.
Today, we are going to discuss which of the three revenue models for mobile apps (free, subscription, and freemium) is the most effective. This article will take a more in-depth look at the various app revenue models and explain how one may generate money using mobile applications.
Introduction of App Business Models
A good business concept drives you to create a profit-making mobile app. Successful android app business models result from painstaking research into various factors, including customer value proposition, market trends, feasibility reports, and price points at which customers are prepared to pay. In terms of functionality, there has been a steady uptick in mobile apps over the past few years. To create a business model tailored to our technical product, it is important to grasp the numerous models already in use. Making a profit to recover the initial investment is an integral part of the app development process, including a well-thought-out plan for the Android app development and launch.
Choosing a business model tailor-made to your specific needs is a complex task. If you’re an Android developer, understanding your app market’s dynamics is essential for making a sound business decision. Before deploying your Android mobile app as a freemium or paid product, it’s important to ask basic business questions and think about your priorities. Business models are strategies for turning a profit. What is being sold, who is the target market, and how much money is planned to be spent are all spelled out in this document. Businesses typically create business models to guarantee the most efficient and lucrative delivery of their products and services. Businesses can reap the rewards if they successfully deploy and update their business models. While there are tried and true methods for running a firm, entrepreneurs and executives are free to create their own.
1. Understanding the Free Model
There isn’t progress in terms of comprehension while using the free model. How can a corporation make money if it gives free services? When a corporation gives away a product for free, it normally makes money through adverts. This concept is the “Facebook Model” and is employed by many internet businesses and app companies. For example, WeChat has had a lot of success with this method. It has garnered more than a billion users by giving its messaging and phone service away for free.
The model works well in the consumer sector, where millions of people utilize the product. When employing a free business model, the hardest aspect is attracting enough clients first so that marketers will be interested. Getting these first consumers can be expensive, and it will be hard for organizations that only naturally attract millions of people to their advertising.
Advantages of the Free Model
1. Attract more downloads
2. More likely to get positive reviews
3. Allow for multiple revenue streams based on user type (advertising to free users, offering in-app purchases or paid subscription tiers to your most active users, etc.
Disadvantages of the Free Model
1. Typically see lower user engagement and can take longer to become profitable
2. Greater uncertainty around revenue can make business planning difficult.
3. Given that 94% of apps are free it’s more difficult to stand out and make it to the top/featured lists.
2. Understanding the Subscription Model
Customers pay a weekly, monthly, or annual fee for your products or services under a subscription business model. After a specific amount of time has passed, the customer can choose to renew their subscription. If you follow this blueprint, you may use your existing connections with customers to generate income over time. Businesses and customers alike gain from subscription-based business structures. A consumer has the option of setting up a recurring order for a service or good they will eventually require. As a company, customer retention is more valuable than customer re-engagement because it leads to repeat business. You lock in MRR, which can carry your company through the leanest of circumstances. With the correct offering, audience, and market, a subscription-based company model can be highly efficient and lucrative.
Advantages of the Subscription Business Model
You would be correct in assuming that there would be a lot of benefits, given that the business model in question is one that has become so widespread.
Moving to the subscription model is transformational for your firm, in terms of both securing consistent income as well as producing considerable internal efficiency.
2. It Can Be Disruptive
If nobody in your business is currently using subscriptions, then you have the potential to reap the benefits of being the first mover and become a true disrupter.
3. It Helps Clients Budget
When someone subscribes to a service that requires an up-front investment of a significant amount of money, they might appreciate the flexibility of being able to pay for it incrementally over time in order to stretch out the expense.
4. Customers Understand It
Customers are already familiar with the operation of these kinds of services because, as we have mentioned previously, practically everyone currently has or once had a subscription of some kind or another.
5. Cost-Effective Administration
Subscription services eliminate the need for time-consuming administrative tasks like sending out invoices, collecting payments, entering those payments into an accounting system, and reconciling bank accounts.
6. Regular Cashflow
The wonderful thing about business models based on subscriptions is that you can count on receiving the same amount of money each and every month. This makes it much simpler to prepare for cash flow and other aspects of the firm.
Disadvantages of the Subscription Business Model
Before making any significant alterations to the method in which your business functions, you should give careful consideration to the impact that these alterations will have.
1. Crowded Market
Make sure that your subscription model is a cut above that of your rivals. Are you providing your end customer with a detailed explanation of the benefits? Would it be possible for you to give rewards to those that sign up initially? It may be sufficient to encourage more people to sign up provided you ensure that you are providing something that is somewhat unique.
2. Operations Impact
You will need to give some thought to what changing to a subscription model will entail for the internal systems you currently use. There is a possibility that there will be an initial setup phase, but once that is finished, your payments will be regular, and you will be able to automate them using an API.
3. Pricing Research
Pricing can be difficult since you want to make sure you set it at the proper level so that you don’t lose potential customers, but you also don’t want to set it so cheaply that you have to raise your prices too quickly.
4. Costs for Initial Setup
If your company charges its existing customers for set-up fees, you will need to take those costs on yourself and spread them out over the first few months of the subscription in order to make a profit.
5. Assess Your Marketing Strategy
Because of the inextricable link between pricing and marketing, you will need to reevaluate how you market your company. If you want to sell a subscription model, you will also need to take into consideration the long-term benefits that will accrue to your clients. It is always a good idea to re-evaluate your strategy in order to determine what you start, stop, and continue doing.
6. Check your Cancellation Rates
It is essential to determine what your monthly churn rate is and how this compares to the churn rate of customers who may have paid for a service on an annual basis in advance. You might notice an increase in early cancellations, but you’ll discover that this is counterbalanced by customers who would rather pay for the service on a recurring basis rather than make a single large payment.
7. Keep it Fresh
Making sure that your messages are checked over and updated on a regular basis. Because consumers have a limited attention span, you should make sure to update your offer or your perks on a regular basis. There is always the chance that they will abandon you in favor of something else.
Understanding the Freemium Model
The Freemium model categorizes users into two groups, “freemium” users who do not pay for an account and “premium” users who do pay for an account. Premium users get more access to the product’s features than free users do. A freemium acquisition model’s primary objective is to reduce the expense of acquiring new paying customers (CAC). A free sign-up process makes it easier for potential customers to try out your product.
Costs for paid advertising and sales efforts can be reduced while time and energy can be redirected into establishing credibility and demonstrating the worth of your product to users at no cost. Free-tier users who have found success with your product may eventually decide to upgrade to a paid plan in order to access all of the features you offer. Customers who have tried your goods in advance are more likely to make a purchase since they are confident in their quality.
Advantages of the Freemium Model
1. No Usage Barrier
There are hundreds of products available to consumers nowadays. Furthermore, the popularity of SaaS in recent years has resulted in the proliferation of a wide variety of SaaS offerings. SaaS companies, like app developers, now provide solutions for anything from time tracking to WordPress data backup. That’s why it’s up to the consumer to go through the options and settle on the one that best suits their needs.
2. User Base
When a product is offered for no cost to the user, it attracts a big number of people. Free users can become paying clients later on. If they decide to pay for an upgraded version, these users can become a revenue stream. In addition, you may utilize free to increase brand recognition, which can then be used to your advantage when making upsells or down sells.
3. Reduced Expenses
Premium app users have higher standards for the developer support they receive. This has the potential to lessen expenses and shorten maintenance windows. For this reason, the free version may encourage consumers to pay for more support from the creator. The stakes are even higher if the service or product is essential to the user’s daily operations. Developers of WordPress plugins, for instance, typically provide upgraded support for paying customers.
Disadvantages of the Freemium Model
Freemium has serious issues as a business model. The most significant problem is that maintaining a sizable population of people who never pay can quickly deplete a business’ cash reserves. It’s also important to note that in most circumstances, non-paying customers require additional support, which can imply diverting resources away from the development of the service. There are other issues besides the need to help out free users. The success or failure of a SaaS venture comes down to raw numbers.
The greater your base of paying customers, the better. More users equal more potential customers in a freemium business. On the other hand, you can’t just keep giving away your service for free in the hopes that someday your users would start paying. Converting free users to paying customers takes time, energy, and money. It’s important to strike a balance between investing and buying.
Make Your Business Profitable With App Business Models
With the above discussion, it is clear that picking the correct app business model is crucial to making money. There are other ways to monetize apps; however, each of these has its own advantages and disadvantages, and some of them can help you zero in on your ideal customer base and increase your exposure. While some provide assistance solely in the form of financial resources. In order to make the greatest choice for your app’s business model, it’s a good idea to work with a professional mobile app development company that can create a one-of-a-kind app as well as the appropriate business strategy.