Ways to Monetize an App

Apps are products just like any other. Whether we are selling accounting services, carrots, jets, or digital products (like our app), we do it primarily for one reason - to make a profit. However, monetizing an app is a bit more complex than retailing carrots.

Subscriptions

The Holy Grail of modern startups. Especially B2B tools rely on monthly paid plans that offer various capabilities depending on the price. If the product solves a significant problem, most businesses don't mind paying 100$ per month - it's just about scaling the product and waiting for a million cash flow every month.

Advantages of subscriptions:

- Recurring Revenue: The magic of "recurring income." It is convenient because you know how much money is coming in each month. If you have 1,000 users, that's 100,000$. It is also convenient for setting prices. Knowing that fixed costs are X, the unit cost is Y, and you have 1,000 users, the price should be around X/1000 + Y + margin. A simple system that minimizes the risk of loss (assuming negligible fixed costs - in many startups, founders work without salaries initially, so only accounting and other small costs remain).

- Stability: You don't end up maintaining a product that doesn't pay for itself, with users who bought the software expecting maintenance.

- Higher Earnings: It's hard to pay 2,000$ at once, but 100$ monthly seems more rational. Maintaining a user for 2 years, the company is better off compared to a single payment. Overall, if the project is useful and retains users, it is easier to earn more through subscriptions.

Disadvantages of subscriptions:

- User Reluctance: Not everyone is interested in linking a card and paying monthly for a service. Often, from a client's perspective, paying a larger amount once, for example by transfer, and forgetting about it is more convenient.

- High Requirements: The product must be really good for anyone to want to pay.

One-Time Payment

Much more popular in the past than now. An increasingly rare method.

Advantages of one-time payment:

- Simplicity: Very easy to implement from the developers' perspective (usually simpler than the whole subscription and in-app payment system).

- Customer Preference: Especially older customers like this system.

- Quick Influx of Cash: Initially, it's always harder to get cash. 100$ per month may be tempting, but sometimes having 1,000$ in the account now is more crucial.

Disadvantages of one-time payment:

- Lack of Recurrence: Lower earnings in the long run. Remember that a user may generate costs for years, but they pay only once.

- High Requirements: The product must be really good for anyone to want to pay for it.

Advertisements

Typical in many simple mobile games, but also in social media. In B2C situations - often the most default option.

Advantages of advertisements:

- Low Product Quality Requirements: The product doesn't have to be exceptional. Many people don't value their time much, so it’s enough for the app to provide some benefits (e.g., the game is somewhat interesting) for them to agree to watch ads.

- Option for B2C Products: If there are no reasonable fees (e.g., a 1% commission on in-app payments), no one wants to pay for, e.g., social media. Exceptionally useful products (like Spotify) can convince millions of people to pay for a subscription. The maximum user contribution is watching a banner while scrolling.

Disadvantages of advertisements:

- Scale: You need enormous traffic for the business to be profitable. If the advertiser pays 50 cents per thousand ad views, you need millions of views for the company to make money.

- Need to Maintain User Attention: Paradoxically, you have a highly unengaged user who doesn't want to pay a single cent for your service, but you still need them to spend a significant amount of time using your app so that the ads they see generate profit.

Advertising Commissions

This is a slightly different version of advertising. Here you have a specific provider, under whom a significant part of the app is often created. Another example is Affiliate Marketing, which is a commission on generated sales. The best system is where the user gets a discount on the product, and we get a commission. Everyone wins then.

Advantages of advertising commissions:

- Better Financial Results: 2% of the value of sold products can be extremely lucrative if we convert views into sales well. The money from views alone cannot come close to a similar level.

- Win-Win-Win Situation: The distributor of the advertised product wins (pays for results), the app creator wins (earns), the user wins (receives a discount on a product that has clear added value for them).

Disadvantages of advertising commissions:

- Scale: Requires hundreds of thousands of users. In the case of inexperienced founders, there is almost never a chance for success.

- Conversion: It's not so obvious. The money from regular ads is certain, but here either we can convert, or we can't, there's no middle ground. No one will pay for no results.

In-App Purchases

Especially known from games. In-app purchases are the ideal option, especially for engaging items - mainly games. It can also work in other situations, e.g., buying tokens that allow the use of a tool.

Advantages of in-app purchases:

- High Earnings: Achieving an average profit of 10 PLN per month per B2C user is feasible, which is extremely difficult with subscriptions or ads.

- System Simplicity: You pay to have a better situation (pay2win). Users understand this and quite commonly agree to it. It's no longer as shocking as it was 10-15 years ago when paid DLCs in games were terrifying.

Disadvantages of in-app purchases:

- Clear Value: Every payment must give a clear value. The whole system of promoting paying users must be perfectly thought out so that the user uses the app long enough to conclude that it's worth paying for something. Every payment, even 5$, must give the user a distinctly felt benefit, which is not easy.

Every app is different, and it's hard to choose what is best. It is worth noting two main trends. In B2B, it is easy to get cash, so it is worth looking for ways to achieve recurring income (B2B SaaS requires creating a very good tool, but overall, they fare the best financially). B2C monetization is very difficult; you can mainly earn indirectly from the user. In 99% of cases, a B2C startup will have a harder path to achieving profitability and reasonable profits compared to a B2B service. The issue of monetization is one of the biggest challenges for B2C startups. It is very hard to convince an average user to willingly pay for intangible things.