Every day, someone believes they have the next big idea. The app to beat Facebook, Uber and Spotify. While this is certainly possible, the 'head in the clouds' approach often leads to problems down the track. The key to a lasting, profitable app is how it has been monetised. There are a number of techniques available for app developers where the right technique(s) depend on the individual app. These techniques have become increasingly important given the financial burden caused by app development costs.
The most common technique used to monetise an app is incorporating advertisements throughout the app. However you need to be wary when adopting this strategy. Society has become impatient and will grow increasingly frustrated if your advertisements are too pushy or unrelated to the users needs. Good integration of advertisements within the content of the app is an effective way of avoiding unwanted friction. Another consideration is how engaged users are with your app and its advertisements. Higher engagement (along with more users) will attract advertisers. Competition amongst advertisers and the perception that users engage with your app allows you to charge a premium for advertisements.
While they are somewhat of a rarity, paid apps monetise their idea at the earliest possible stage. The obvious risk is that users will avoid the app in favour of a free alternative if one is available. The temptation to download an app that costs as low as $0.99 fades as soon as a free alternative is found. Evidence for this can be found in the graph below. App developers won't create a paid app when there's no market for it. There are exceptions where charging to download an app is an effective means of collecting revenue. For example; apps that allow users to create music, plan trips or play interactive games.
One strategy that may persuade users to eventually pay to use the app is to develop two versions, a freemium and a premium (paid) version. The freemium version introduces the app to the user, permitting access to some features. However to unlock all features, the user would need to purchase the premium version.
Alternatively, a free app doesn't need to be monetised through a separate premium version. Recently, many app developers have gravitated towards in-app purchases as a monetisation strategy. This strategy is best explained through an example. Let's take the popular gaming app Clash of Clans. The only version is free, however the app allows users to purchase items that would otherwise require a huge time investment to obtain. This gives users an option; either continue to gradually improve or fast track your player development by making in-app purchases. Notably, there's no cap on the amount that can be spent, with some highly engaged users capable of spending hundreds of dollars. Just remember not to keep your credit card near your children with one fifteen year old spending $50,000 on in-app purchases.
If you find a partner with a similar customer base who can add value to your app then there may be an opportunity to increase exposure to your app. While the partnership arrangement may merely involve reciprocal advertising (ie. not a revenue stream), it can increase your user base which leads to monetisation options. The end goal is for users on another app to stumble across your logo or a feature of your app. That exposure may convince them to download your app.
If your offering is a subscription service, you may be able to create different subscription tiers. Take Atlassian as an example. They have a number of different subscription levels depending on your usage levels. As users (and administrators) increase, so to does the subscription level. This is a good way of maximising return for usage.
Ultimately, the best monetisation technique will depend on your app offering. You may choose more than one technique or even run at a loss for a period of time to grow your user base before commercialising your app. Before you can monetise your app, you must first build it. Don't get bogged down with app development. There are ways to avoid slow and expensive app development!