App Monetization 101: How to Build a Sustainable Revenue Stream
In a competitive mobile app market, generating revenue quickly and being able to sustain and grow those profits takes time and effort to get right.
Consistently testing, adjusting, and improving your monetization strategy while using the right software solutions are key components to maximize revenue while making the app experience enjoyable and worthwhile for your users.
Challenges faced by developers
Today’s developers need to move quickly in order to keep up with the pace of a competitive market. There are millions of apps in the Google Play Store and App Store—so, how will your app succeed?
Here are some common hurdles that many app developers face:
- Finding the right users: Efficiently attract users to generate revenue, but not just any user. It needs to be a high-value user who is engaged with your app.
- A need for better visibility into user experience: To maintain long-term retention and ultimately be able to monetize from their existing user base.
- Ability to move quickly while testing: Accurate and powerful software solutions such as monetization testing tools can help test quickly and help eliminate lengthy QA processes.
- Workflow inefficiencies: Lots of time spent manually optimizing waterfalls to gain a small revenue increase.
With these challenges, developers need the right tools and solutions to be able to move with efficiency and strategically scale their apps. Finding consistent growth and profitability first starts with understanding the monetization models.
Understanding different ways to monetize
Monetization is one of the biggest challenges for developers, as there are quite a few ways to generate revenue from an app. Let’s take a look at the various monetization models, and which is right for you.
In-app advertising monetization is when ads are served within the app for the user to engage with. Developers earn revenue each time a user clicks on an ad or installs the app that is being advertised.
Over time, in-app ads have become more sophisticated and intuitive. Some include animations, videos, and have a level of interactivity for the user to have more of a dynamic and relevant experience to the app. Playable ads are a great example of this as they allow users to try out a game or app by revealing key functionality before they commit to downloading.
In-app ads can be engaging, as they integrate seamlessly with the app. For example, in a mobile game with different levels, you may serve an interstitial ad that pops up after players complete each challenge and before they move on to the next level. Or, you could offer a rewarded video that provides users with extra lives or more coins after they watch the ad.
Learn more about the different kinds of ad formats.
The in-app purchase (IAP) monetization model is when a user pays for certain features such as extra lives, weapons, or unlocking levels, with real money. Free to download apps commonly use in-app purchases to monetize.
The prompt for these types of purchases often appear when a user needs help. Typically, in-app purchases make it easier to move forward in the game and are an important source of revenue for publishers.
They can also be related to upgrading to a premium version of the app. An example is dating apps that allow users to see who clicked on their profile or other helpful features.
For a subscription monetization model, users pay a monthly or yearly fee to gain access to your app, or to unlock premium features. Subscription apps rely heavily on customer retention, which means they need to continue to offer new ways for users to engage with their app and service.
This type of model works well in certain verticals, like health and fitness, news, or dating.
This type of monetization model is when an app is only available to download in a paid version which means users must make an immediate, one-time payment in order to download it. Or they may have a free but basic trial version that allows users to try the app for a limited time before paying for it.
The upside to paid apps is higher revenue per download, but the downside is competition—users can choose from lots of free apps (96 percent of Google Play apps are free and 92 percent of Apple Store apps are free), so the motivation for a user to pay for one would be high. Therefore, paid apps need to be of high value or have unique functionality that would be difficult to find in a free app.
What is hybrid monetization?
Over the years, the shift from paid apps to using a variety of different methods to monetize has evolved. These days, many developers take advantage of a hybrid monetization approach to make money, mixing two or more of the monetization methods mentioned above.
Using a variety of methods to earn revenue gives your target audience more ways to engage, which may mean higher profits. This approach also helps expand revenue streams to build sustainability and optimize profits. The goal of hybrid monetization is to improve and maximize lifetime value (LTV).
Watch our short video that explains more on what this approach entails:
The evolution of ad mediation
For years, app publishers have relied on the waterfall method to power their in-app advertising model mostly due to the lack of a better solution. The waterfall model has numerous flaws which include:
- Creating manual work for developers, resulting in hours of work around testing and setup.
- Ineffectively using historical performance as an indicator of actual performance—this data did not take new ad campaigns with higher eCPMs into consideration. New ads with higher eCPMs may not be included in the waterfall, particularly if the ad network has already moved down the “waterfall.”
- Obscuring performance by impression, which makes it difficult to tell if an ad is worth serving.
The rise of in-app bidding
With these shortcomings, in-app bidding became a great option for developers to quickly and efficiently earn more. Here are a few benefits of in-app bidding:
- Easier to monetize: Publishers can run a simultaneous auction. This allows them to maximize the value of each impression from a variety of different demand partners.
- Frees up time: Automation from in-app bidding eliminates manual work so developers can focus on building, testing, and launching great games.
- Potential to earn more: Increased competition for inventory leads to higher eCPM and increases ARPDAU.
In-app bidding in action
CookApps, a studio based in Seoul, Korea, needed a better way to monetize their portfolio of 140 apps. The team wanted to improve their advertising revenue, and after implementing AppLovin’s software solutions, they achieved an 800 percent revenue increase across all 140 of their apps.
In addition, they were able to save time—having 140 games means there are over 8,000 line items to manage on their mediation platforms. AppLovin’s in-app bidder, MAX, helped them reduce their manual workload and automate the process. This also provided more time for the team to efficiently manage their A/B tests, which allowed them to optimize their monetization stack.
Some developers opt for a hybrid approach of in-app bidding and waterfall because it’s a middle-ground solution that gives them more control over the in-app bidding process while reducing issues around latency.
What developers should look for in a monetization solution
A solid monetization solution gives you the tools you need to make your day-to-day easier while finding incremental improvements to your business. These are features that help drive positive change and maximize growth:
- Ad transparency: Knowing which ads are converting or which ones need improvement and why are important aspects of growing your business. For example, MAX’s Ad Review lets you see which ads users see in your apps. This allows for complete control over the ads that are being shown in your apps and gain visibility into the top-performing creatives and better understand what works.
- Automation and A/B testing: It’s important to understand how your users are converting. A/B tests provide you with valuable insights into user behavior while analyzing your app’s performance so you can focus on expanding certain features, for example. Through automation, you can reduce manual work, which allows your team to efficiently manage your team’s resources. Learn more about how to boost revenue with A/B testing.
- Accurate analytics: Data is a crucial tool to reduce guesswork and gain valuable insights to measure the success and effectiveness of your campaigns.
Start improving your monetization today
As you can see, there are many different ways to monetize and grow your app. AppLovin offers a 360 approach to scale your business through our Growth Suite. Our comprehensive software solutions enable developers to:
- Get their apps discovered and downloaded by the right users
- Optimize return on marketing spend
- Maximize revenue with in-app bidding
Our software’s recommendation engine, AXON uses machine learning to match you with relevant users that would most likely download and engage with your app. AppDiscovery helps find the right users at scale and seamlessly integrates with our in-app bidding solution, MAX.
AppLovin’s in-house creative team, SparkLabs delivers top-performing creatives to further grow and support your UA efforts.
Combine these solutions to positively impact your bottom line and get started with AppLovin today.