We’ve all been there: the CEO has a great idea and just wants to get started with building, without any agreement on the goals, or even who this new feature or product will be targeting. The focus is on launching the product as quickly as possible, so that the money can start pouring in.
But monetisation is a tricky beast. Get it right, and you have an audience of happy users, who are willing to pay for your product. But misprioritise revenue targets over other Key Performance indicators (KPIs), such as active or repeat users, and your audience numbers quickly drop, along with your revenue.
There is no right answer regarding how a product generates revenue, or when that is appropriate. For some, it will make sense to acquire a significant number of users before pursuing revenue, while for others, generating revenue will be one of the first things that needs to be achieved in order for the app to succeed. And there will, of course, be some apps that never monetise, such as public sector apps.
As a quick TL;DR on the subject of monetisation: as with most things, your approach needs to based on your knowledge of your product, your audience, the competition and your business goals. There simply isn’t a one-size-fits-all solution, and your success will largely depend on your research, understanding and testing. But I’ve outlined six of the most common strategies below - they were chosen on the basis of those we explored with CCleaner, a project that saw us increasing revenue by 388% over 12 months. Each is worth considering when it comes time to put together your own monetisation strategy.
First, let’s deal with the basics.
So what is a monetisation strategy anyway?
Simply put, it’s a plan to generate revenue for your product. Like with any plan, it’s not something that is fixed - it should be flexible enough to develop with the product, the market the product exists in and its users. Goals can and will change over time, and so strategies need to evolve to continuously achieve the goals they’re designed to target.
How do we measure the success or failure of a monetisation strategy?
To enable us to learn from our hypotheses and adapt our approach, we first need to define appropriate KPIs, which in turn, requires us to understand our market and users thoroughly.
With CCleaner, we examined the available data to determine that Total Cleans, Cleans per User, Average Ratings and Revenue were all KPIs. We also defined the countries that we wanted to perform the tests in initially.
Your KPIs will, of course, be specific to each product - a news app will probably want to measure how many articles each user reads, while a fitness app might want to know the average miles run per workout to figure out how dedicated their user is to their fitness.
Regardless of the KPIs you choose, regular assessment is crucial. For CCleaner, we performed monthly check-ins, where we reviewed the data with the key stakeholders and decided on the next steps of the rollout. Once we were satisfied that our strategy wasn’t negatively impacting our KPIs, we would expand to the next country, until we eventually achieved the global rollout we planned.
6 classic monetisation strategies
Since there’s more than one solution, it’s worth carefully considering all of the strategies below. Your decision should be based on your knowledge of your product and your audience, which will you allow you to prioritise these, and perhaps consider a mixed solution (more on this later).
This is likely to be the first revenue stream to test, as it’s often far simpler to introduce a freemium model (a free ad-supported version and paid-for version without ads) as a tester to a larger monetisation strategy. There are simple solutions to test this relatively quickly in your app, such as Google's AdMob. Implementing Google's Native Ads Advanced is an effective solution to monetise your user base with simple banner ads.
This was our first experiment with CCleaner. Thanks to our status as a Google Certified Agency, we were able to get access to a beta program of native ad integration - advertising that is shown using native UI components, meaning faster, less intrusive ads. Using Firebase, we implemented Native Ads Express behind Remote Config. This allowed us to control which users, using which devices, were targeted within each country.
This was crucial, since Google had recently disabled a crucial function of the app for newer Android devices. By disabling advertising for these users, we didn’t negatively impact their experience, which allowed us to maintain our rating - a KPI that we were closely tracking.
Remote Config was essential to help us limit the impact of the advertising. Going one step further, we were able to A/B test things like changing the colour of the ‘Upgrade to CCleaner Pro’ button. This enabled quick testing of the colour, as well as the location and type of ad that was most effective in terms of revenue, or least impactful on other KPIs.
These kind of expertise are the reason that we’re part of Google Developers Agency Program, which is further explained in this video.
There are, of course, many different ad networks that can, and should, be implemented if advertising is core to your monetisation strategy. The Chinese market, for instance, has ad networks specifically tailored for that market, which are designed to work within the various restrictions that advertising in this heavily regulated country entails.
As our CCleaner advertising rollout progressed, we started to experiment with Facebook advertising, in addition to AdMob, and found that the Facebook adverts had a far higher eCPM than the AdMob ads. (eCPM is the ‘effective cost per mille’, which is calculated by the ad revenue generated by a banner or campaign, divided by the number of ad impressions of that banner or campaign, expressed in units of 1,000.) As a result of that, Facebook advertising was prioritised in the second iteration of the advertising strategy.
- For apps with a large user base, ad revenue can be substantial and is automated, thanks to the ad networks available.
- This isn’t a revenue strategy that needs to run alone. Displaying adverts naturally lends itself to offering a non-ad based Pro version, allowing you to upsell your users to a more valuable proposition.
- Advertising comes in many forms, from intrusive pre-rolls to more subtle or relevant banner adverts. With that comes the potential to annoy users, and ultimately negatively impact app store ratings, which is why this is such an important KPI to measure. Mitigating this is a question of experimentation, as well as finding the right ad platform for your audience.
- Tailoring the types of ads that you allow to appear within your app can be a time consuming process. As well as ensuring you’re not advertising your competitors, you may also want to consider if there are any types of ads that are you don’t want shown, such as for religion, smoking or alcohol.
2. One time in-app purchase
This often comes in the form of an an upgrade to a Pro tier, which offers more features, or fewer/no adverts. This is something we implemented for CCleaner, offering a Pro version that had both more features and was ad-free.
It was crucial to make sure that we didn’t degrade the experience for those that were already regularly converting to Pro, so we sliced our market into:
Countries where users were more likely to upgrade to Pro.
Countries where users were least likely to upgrade to Pro.
We initially tested our advertising/Pro strategy with the second group, tracking our chosen KPIs over time, while slowly enabling ads for more users in those countries, and then beyond. The KPIs we tracked were:
- Average Revenue Per Paying User (ARPPU)
- Average Value per Transaction
- Revenue by country
- Cumulative Average Rating
- Installs on Active Devices
- Uninstalls by Device
We made sure that these didn’t dip to a predefined level, rolling out advertising slowly. Eventually, we achieved worldwide rollout.
- This approach is quick to implement, so it’s easy to test your market.
- A one-off payment, when the proposition is right, can generate income quickly. And experimenting with what that proposition is can be easily A/B tested, in terms of things like the price point you set, and the way you frame the offering.
- A one-time payment is just that: one time only. This caps your revenue, with the only route to more being based on acquiring new users - and depending on your market and your product, you may reach the limit of that quicker than you’d like.
3. Subscription model
As the name suggests, subscriptions, if implemented correctly, allow for a recurring, periodic payment. This can be more complicated to implement, but has a longer-term benefit.
When considering the former, it’s worth asking yourself if you’re able to do the work that comes with offering a subscription service. For instance, will you offer refunds? Will your users expect more regular updates if they’re paying monthly (or otherwise)? How would this affect your existing development pipeline? Do you have the resources to cope with all of the above?
- It’s increasingly common for apps to offer a subscription model, and it’s something that users are comfortable with - as long as they feel like they’re getting value for money.
- Apple actively encourages subscriptions, offering a 85/15 revenue split, versus the standard 70/30 split for non-subscription apps.
- A regular revenue stream makes for a more predictable financial outlook, so planning, development and committing to marketing efforts becomes easier.
- You can incentivise people to upgrade for longer easily, offering a discount on 6 or 12 month subscriptions.
- As mentioned, this strategy is more complex to build.
- It also requires ongoing commitment from users, so you need to have a plan for keeping users engaged.
- If you’re collecting subscriptions from all users on a certain day, you will see your revenue uplift only once per month.
This can take many forms, but overall, involves defining the goal you’d like to pursue - app session length, for instance - and a game to drive user behaviour to meet that goal.
This isn’t a standalone monetisation strategy - rather it’s based on advertising revenue, and/or incentivising people to upgrade to Pro.
One example is creating an in-app digital currency, which can be earned by watching an advert, for example. These 'coins' can then be exchanged for rewards, such as limited access to Pro features, or going ad-free for a limited time.
- You only have to look at the app store to see that humans love games, and are easily incentivised through gamification. This makes it a great way to showcase your Pro tier - you’ll get lots of people trialling it, who can then be upsold to the paid version.
- This keeps users engaged within the product's ecosystem, as they work to unlock levels, collect coins or whatever else you’ve created to gamify the experience.
- This can be large and complex, and requires a degree of creativity. It’s not uncommon to require a dedicated team to own this in its entirety.
5. Invitation rewards
As the name suggests, this involves offering rewards to users who successfully entice friends or family to join the app.
Again, this isn’t directly a monetisation strategy. Rather, it answers another KPI: user numbers. Depending on the app, these new users can be monetised through advertising etc - although for many just increasing the user base (and therefore increasing sales) is the aim.
It’s a strategy that is popular with extremely well-funded start-ups, who are engaged in a land grab for customers in a new market. Uber, for example, gives each customer account credit for each new customer they introduce, although the amount has decreased over time, as the service becomes more ubiquitous.
- As evidenced by Uber et al, this approach can quickly aid growth for new products into a market.
- Paying for user acquisition is a strategy with an expiration date - it simply can’t be sustained forever - and you need deep pockets to begin with.
6. All of the above?
But why settle for only one solution? With CCleaner, we found that users across different countries reacted differently to advertising and in-app purchases (IAP), so opting for a hybrid approach was the best solution for this product.
We tested this with CCleaner, in territories where users were more likely to upgrade to Pro, validating our hypothesis that a mixture can work best. We found that we could drive IAP by displaying adverts, while still monetising free users.
Interestingly, this approach was particularly effective in the German market, where we not only saw a spike in ad revenue following the initial enabling for all users, but a general increase in IAP from users who didn’t want adverts, but until that point had chosen not to upgrade to Pro.
This combined monetisation approach allowed us to take advantage of both models, while not overwhelming us. Thanks to Firebase, we were able to test things like the placement of the adverts, and the most effective colour of the ‘Go Pro’ button, to fully optimise each model to increase revenue as much as possible.
And the results were impressive: in-app upgrade increased by 211% worldwide, and overall revenue, including ad sales, increased by 388%.
Ultimately, this success was as much down to research and testing as it was the quality of the app itself. By rolling out advertising slowly and in a controlled manner, first to the markets that were contributing the least financially, negative impacts were minimised. This, in turn, allowed us to use agile methodologies to iterate on our findings, so that by the time we came to use advertising in high IAP value countries, we were several versions into the strategy. The result? The rating of the app was maintained at 4.4 stars worldwide over the 12 months we spent rolling out the advertising worldwide.