Mobile App Monetization Basics

Monetization is defined as “the action or process of earning revenue from an asset, business, etc.” In other words, monetization is the process of converting non-revenue generating assets into sources of revenue. In financial terms, monetization means the conversion of any event, object, or transaction into a form of currency or something with transferable value.

In some ways, the definition of monetization parallels that of a revenue model, which is the framework for how a business will generate financial income, generate profits, and produce a higher than average return on investment. A revenue model is typically used for mid and long-term projections of a company’s profit potential and is a key component of your business model.

What Is App Monetization?

App monetization is a group of techniques that generate additional revenue within an app. Several monetization strategies exist, such as subscriptions, in-app ads, cross-sells, and abandoned shopping cart reminders, and you can use some of them at the same time.

With the number of free apps currently available, mobile marketers and app product managers must work diligently to create revenue within their app. Generating revenue is usually accomplished by influencing user behavior to encourage more ad impressions, purchases, or other conversions and can start as early as the point of app download.

App Monetization Techniques

There are a few techniques that app developers employ to generate revenue. A retail app may encourage users to convert by offering an incentive, such as a discount, as a way of thanking them for downloading the app. Even if this amounts to a small purchase, it’s more likely that the user may remember this interaction and convert at a later date. Ideally, mobile marketers and app product managers should attempt to monetize users through this method within the first few days of an app download, especially since nearly 25% of users abandon the app after the first day

Upselling and cross-selling is also an effective method of creating additional revenue within an app. For example, by tracking user data of purchase history, you can present users with related product suggestions later on. Marketers can also encourage users to return to their shopping cart with push notifications. For example, if the user searched for hotels in an app and failed to complete the purchase, you can send them a notification or message to remind and encourage them to return and take action.

Influencing user behavior is one form of app monetization, but revenue can also be generated through external sources. For example, in-app ads can generate additional revenue for app owners, with more ad impressions typically translating to increased ad revenue for marketers. Revenue may also be generated by offering users the option to pay for an ad-free version. Another option is sponsorships and affiliate programs, which can benefit the app developer and the sponsor by creating brand awareness.

Ultimately, mobile marketers and app product managers should use a variety of app monetization methods to ensure the greatest return on investment by encouraging in-app purchases to earn commissions by working with big names.

What Does App Monetization Mean For Marketers?

Industry experts estimate that when combined, the total number of iOS and Android OS apps installed on people’s smartphones and tablets numbers over five million, and the number continues to grow. From just a few thousand apps in 2008, the industry has seen massive growth fueled by smartphones, tablets, smartwatches, and other wearable hardware innovations, the continuous shift from a featured phone to smartphone use, and the rapid growth of the middle-class in Asia, particularly in China.

App monetization is essential for mobile marketers and app product managers who want to remain competitive in a world of free mobile apps and still make a healthy return on investment. An additional benefit of making money with these marketing methods is a better user experience. For instance, marketers can personalize ads to target specific users, delivering more relevant content and encouraging them to re-engage later. Additionally, users who have been targeted early on with personalized incentives tend to feel more valued and often will continue using the app on a long-term basis.

Growth of The App Industry

The amount of business conducted online represents an increasing use of the internet for goods and services that users traditionally purchased from brick-and-mortar locations. As the percentage of online businesses continues to grow, so does the number of services offered through smartphone apps. In addition, as a result of the COVID-19 pandemic, online business has grown exponentially over the past year, creating a massive opportunity for mobile marketers and app product managers.

The global revenue generated by mobile apps surpassed $318 billion in 2020, an increase of over $60 billion from 2019. Industry experts predict that the app industry will continue to flourish over the next few years, with revenue estimated to reach $613 billion by 2025. Thus, the vast majority of people in the app industry are involved in generating income.

In an industry filled with intense competition, the question is often is it possible to monetize and generate revenue from an app and, if so, how. There are several approaches and models that mobile marketers and app product managers can implement to monetize apps in various categories and from mobile platforms around the globe. Determining the best monetization method for a specific app requires careful consideration of these models.

Before investigating different monetization techniques, it is vital to have a basic general knowledge of the opportunities for app monetization. The popularity and demand for quality mobile apps have increased dramatically over the past several years, creating massive opportunities for mobile app monetization.

Trends in App Usage

In 2012, people averaged about 1.5 hours using mobile apps and accessing the internet from their smartphones and tablets. Today that number has more than doubled, with users spending on average of over four hours a day on their favorite apps during the first quarter of 2021. These figures demonstrate a dramatic increase in app usage, creating a tremendous opportunity for mobile marketers and app product managers to capitalize on the trend by monetizing their mobile apps.

It is also critical to understand that while the use of mobile apps continues to grow, so does the competition. Research shows that most of the 3.5 hours people use mobile apps are spent on a handful of the most popular apps, such as Facebook, Facebook Messenger, Instagram, and WhatsApp. The remainder of this time is destined to be sought after by many apps, creating intense competition.

Statistics show that over 90% of all apps offered on the Google Play marketplace are free. Therefore, the focus of an app monetization strategy should be on the models that can generate revenue from free apps. Free apps are not a barrier to earning a profit, but they must employ monetization strategies to ensure the app’s long-term success.

Models for App Monetization

While there are various mobile ad formats, there are three popular monetization models for mobile ads.

Effective Cost Per Mile (CPM) Model

For app publishers, this model is one of the most lucrative. This model rewards app publishers regardless of whether the mobile user actually took any action with a mobile app ad and is calculated with the following formula:

The total earnings are the value of revenue the app publisher generates with a specific ad, divided by the total number of impressions the ad acquires throughout the ad campaign.

Cost Per Click (CPC) Model

The Cost-Per-Click model differs from the eCPM model in that a mobile user must take an action, such as clicking on a mobile ad. CPC is calculated by dividing the total amount of money spent on the ad by the number of clicks delivered. The CPC model places mobile marketers and app product managers in a good position to attract a wide range of advertisers from a highly diverse pool. This model enables advertisers to effectively measure mobile user behavior and delivers them a better return on their investment. The potential downside of this model is that if a specific mobile ad doesn’t produce a high click-through ratio, CPC won’t be profitable for the app publisher. This unpredictability makes it much more difficult for mobile marketers and app product managers to estimate their future revenue and build a financial pipeline.

Cost Per Action (CPA) Model

The third model available for mobile marketers and app product managers to monetize their app inventory is Cost-Per-Action or CPA. With this model, the app publisher only gets paid when a mobile user takes specific actions after viewing a mobile ad and clicking on it. Often for the app to generate revenue, the user must have either downloaded an app and launched it at least once, made a purchase, subscribed to a service, and more. The CPA model has the potential to generate high revenue for an advertiser, and accordingly, offers mobile marketers and app product managers the opportunity for a greater payout. However, the biggest drawback of the CPA model is that it has the highest risk for mobile marketers and app product managers to be forced to deal with mobile ad fraud.

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