Knowing how you plan to sell your product is important because it means the difference between getting paid for your work, and just doing it as a hobby. You might think you should wait until the end before you consider how to price it—build the dream product, figure out the value, determine how much it should cost and then release it. Right? In reality, your plan for making money—also known as your monetization strategy—is something that is best defined early on, and considered throughout the entire creation process. It will help define your product, your audience, and your go-to-market plans.
In this article, we’ll look at how thinking about monetization near the beginning of the development process can give you an opportunity to tailor your strategy to your target audience—and integrate it more seamlessly into your product.
Ways to Monetize
There are as many ways to approach monetization as there are types of apps. You’re probably familiar with all of these, both as a developer and as a consumer, but here’s a brief refresher of the most common methods today:
- Paid — Paid download of complete app/program
- Free/Premium — Two versions of the app or program: one that’s free to play, and a premium version that's paid
- In-App Purchases — Free to download and play, with extra content available for purchase in the app/program
- “Paymium” — Paid download, with additional premium content available for purchase
- In-App Advertising — Free to download and free to play, without any restricted content, but the user will see ads
- Subscription — Service or content that’s available for a monthly fee
Identify Your True Customers
When it comes to defining your monetization strategy, you’ll need to think about your audience a little differently than you’re used to. Who are your true customers for this product? Often, the people using your app are also the ones making purchasing decisions. However, if you are monetizing through in-app advertising, your advertisers are your true customers. You’ll want to consider what will motivate them to support your product. Will advertisers want to see a certain user base? Would access to certain customer information be a draw?
Whether it’s through market validation or brainstorming from a customer’s perspective, considering the payer’s point of view is key. Sometimes the model you prefer isn't the one your customers will like best, and knowing that upfront can help you design a product that meets both their needs and budget.
For example, if you’re creating a casual game, like a spot-the-difference picture game with a few levels, you might want to price it at 99 cents, because that's what you'd be willing to pay. But it turns out that your audience is primarily college students, who won't pay to download but are happy to see ads and invite their friends to play.
On the flip side, maybe you've created a depth-of-field calculator and were planning to implement in-app advertising. However, the professional nature photographers who will use your app are happy to pay for the download instead of seeing ads. In that case, you should focus your attention on creating the best high-end experience, based on what you know these users want.
Develop for Monetization
It may seem like knowing your monetization strategy upfront is overkill, but in reality, it can have a significant impact on the actual development of your app. When a product is built with monetization in mind, execution can be seamless. The first and most important question for app developers, as always, is about platform. Paid apps are more common on iOS*, while Android* users are generally more comfortable with free/premium models and in-app purchases; iOS* users spend more money on apps, but the user base for Android* is much larger. But development considerations go beyond platform. In the spot-the-difference example above, in-app advertising will be most successful if it's both highly relevant to the target audience—and if the design and user journey are developed in such a way that it feels like a natural part of the experience.
That being said, in-app purchases and premium features also need to be carefully considered. In both cases, you want to strike enough of a balance between free vs. paid content to engage a high number of users and create advocates, but not provide so much for free that no one is compelled to pay for more. Are there features that it would make sense to pay for? Is there a meaningful way to split content between free and premium? These are decisions that go right to the heart of development, and shouldn’t be put off to the end, or you’ll end up with something that looks slapped-on or feels forced.
Validate Your Strategy Choice
You already know how important market validation is—and this is another great opportunity to sync with your customers and market. Don’t forget to test out one or more pricing strategies as part of that process. Talk to your potential consumers about pricing, and about free or premium content. Ask them—would you pay for this? If so, how much? If not, why not? Even if they aren’t actually paying money for the product during validation, make sure they go through that step so they can consider it and give you feedback.
Measure Your Success
Once you’ve decided on a monetization strategy, built your app, and taken it to market, you’ll want to make sure you made the right choices. To successfully monetize your app, you need to balance the cost of user acquisition with the user's lifetime value—how much does it cost to attract this person, versus how much they will spend on their app throughout the time they use it? In order to know how well you're doing, you need to measure it. The number of downloads and user retention can help determine the effectiveness of your promotion and pricing. User engagement, which includes time spent in the app, session interval, and in-app activity, can help in determining whether your free/premium content balance is working and help you understand your value to potential in-app advertisers. Taking a look at some or all of these measurements can help you figure out what is working for your app and your audience—and if something isn’t working, you can always change it!
There are many factors to consider when deciding on a monetization plan. Taking the time to determine your strategy early in your process can help integrate it seamlessly into the concept and design so that it feels like a natural part of the experience, not an afterthought. Thinking ahead about monetization also allows you to position your product in the right place in the marketplace, where it can be discovered, downloaded, and enjoyed.
Have you seen a mobile app where the monetization strategy works really well? Or on the flip side, really doesn’t? Let us know in the comments!