Let's face it, you're not just building apps for fun. Building apps is a business and you need to earn money to keep going. But, with a number of options available for monetization, what tactic should you adopt for your app?
Being clear about the monetization model from day one will help to prove that your customers are willing to pay to solve the problem you've identified -- a crucial part of validating the app idea.
There are largely three pricing models that bring in all the revenue. According to Distimo's report, in-app revenue from free apps brought in the most revenue at 71 percent with paid revenues following at 24 percent and in-app revenues from paid apps at 5 percent.
If you launch your app using one of these monetization models, you have a greater chance at making more revenue than any other model.
Here's what you need to know about each one:
1. Freemium for apps and games.
This isn't just the most popular monetization option for games and apps, but also the most revenue generating one, with in-app purchases raking in 76 percent of all revenue in the Apple App Store in the US and over 90 percent in the Asian markets, according to Distimo's report.
A freemium app or game is offered free-of-charge to the user with limited features, content or virtual goods. Users can access a premium version or additional content and feature through in-app purchase. This route has also been used for subscribing for monthly content updates. The free app or game with an in-app purchase removes the price point as a barrier for people to download an app and gives the developer the opportunity to prove the value of their product.
One can offer premium or additional content or offer basic features for free that require the user to pay to use complete functionality of the application. A good example is British celebrity chef Jamie Oliver's recipe app and Pandora Radio both of which offer additional content, updated every month for a subscription fee.
Offer a free basic version of your app to consumers to get a quick buy-in with least resistance and let them buy additional features for a fixed price or a monthly subscription once they're hooked and find value in it.
2. One-time paid apps.
Users pay just once to download the app. Updates and feature additions are expected to be free.
If you want to launch a paid app, it should be compelling enough for users to pay to download even without first sampling it. Also, there is no repeat revenue from your existing customers. For a continuous revenue stream, you have to look for new customers each time.
So how do you determine whether your app should be a paid one? Most paid apps offer the core value in the first download, followed by minor additions or design and usability enhancements. Most utility apps fall into this category. Take for example, Build Your Self Esteem by celebrity hypnotherapist and best-selling author Glenn Harrold or the productivity app Clear.
3. Paid apps with added paid features.
This is a hybrid monetization model that has gained traction fairly recently, but not with its fair share of criticism. Many feel it's unfair to pay to download an app and then pay again to avail more features. It's tricky for you to build on this, but done cleverly with a value proposition, it can certainly work, and has been, going by the numbers.
An example of an app with this strategy is the flight tracker app in the top 100 apps, Flight Radar Pro.
4. Free apps with advertising.
While the above are all options that require the user to pay to use, one of the monetization models that Distimo has excluded from its research is a free app with advertising.
Many apps use this model of monetization. Take for instance the Sleep Easily Meditations by Shazzie, that costs no money to download and runs non-intrusive advertisements for as long as the app is in use. This app receives over 330 downloads every day and it runs for over 20 minutes every time it is used.
You only make money when a large number of users download and use your app on a very frequent basis. So choose this model for monetization only if your app calls for prolonged usage frequently, such as the one above.
While there are many options to monetize, the way to achieve any kind of revenue growth through the years is through repeated transactions from existing customers as much as through new ones. The lifetime value of your customer will determine whether the app is a hobby or a business.
The author is an Entrepreneur contributor. The opinions expressed are those of the writer.