8 App Pricing Models and Strategies
So you’re considering building an app, or maybe you’re already getting installs. There are different ways of monitizing your app. Take a look at our comprehensive app pricing models and strategies guide below.
About the author
Bart Stemkens is a growth advisor for tech startups. He loves building online businesses and bringing them to live through bold ideas.
In the global information superhighway, it has been estimated that most people spend about 4.8 hours each day on their mobile devices. In a generation where people consume a third of their waking hours on mobile app usage, the app market has developed into a booming industry.
Mobile applications are now in-demand with the rapid production of smartphones, the surge of internet users, and the increasing use of digital technologies, like machine learning and artificial intelligence in mobile apps.
Thus, the digital age anticipates a steady rise in the app market in the following years because of this persistent demand for mobile applications. Research predicts that in 2022, the app market will bring a total of $437.80 billion in revenue.
8 Types of Pricing Models for App-Based Companies
Here’s what you should know: if you belong in the app-based industry, the early stages of building and marketing your application or company are not easy.
Designing, launching, and successfully monetizing a new app is undoubtedly challenging. However, there are several essential things that you can and should do. One of the most difficult questions you will have to face is: how should I price my app?
1. The Free Model
True to its name, your app does not need payment. Most people are likely to download and use your app because it is free. It increases the likelihood that your target audience will become aware of your application. This pricing model is highly beneficial for boosting brand exposure and user base. It can also make room for several monetization strategies. However, it does not guarantee a steady revenue or revenue at all because it requires higher user engagement. TIDAL, a music service application, and Bitmoji, a personal emoji maker app, are two of the most popular free applications up to date. Although this is not technically a “pricing strategy,” it is essential to consider if your application necessarily requires pricing. In some circumstances, a company may choose to focus on building an app and choose to temporarily offer the app completely free of charge.
2. Ad supported apps
This is also another way of gaining new users. By incorporating advertisements into your mobile application, you may maintain the availability of your product at no cost to users; nevertheless, it is not the most user-friendly approach. This pricing strategy is often paired with other different methods. Although it is better to monetize your app than the free model, it does not guarantee steady revenue. Users might find multiple ads distracting, especially those who simply want to use utility apps and be done with it. It may also negatively impact user experience because ads may compromise screen space. Spotify and YouTube are prime examples. Both are audio streaming and media services providers that allow people to listen to any available music anytime, anywhere, however, at the cost of ads interrupting your vibing moment.
A user may download the app at no cost and enjoy its most basic but gated features. Its user-friendly functions and detailed overview of what your app can offer may undoubtedly look appealing to people without giving away too much. It increases the chances of user engagement to the point where they are willing to go the extra mile and upgrade to the full version. However, your app should make your users hooked to do this. App turnover rate is high if you give out too few features. If you give out too many features for free, it will be tough to get current users to opt for an upgrade. You must be cautious not to give a substandard app experience to your free users. Grammarly, a cloud-based typing assistant, is a freemium app popular with students. VSCO, a popular app for photography, allows users to access free features but requires a paid subscription to use premium filters. Cloud storage providers like Dropbox, OneDrive, and Google Drive are also examples.
4. Paid App
It is a pay-to-download and one-time purchase in the app store for the user to have lifetime access. Paid apps guarantee revenue with every new download. However, its success relies heavily on the high value of your app, shown through user reviews, screenshots, and the like, to demonstrate that your app has first-class functionality. Potential users often have higher expectations, and you should prove that your app belongs to the cream of the crop. Moreover, it secures more user engagement since people paid for your app and are more likely to use it. The absence of ads also improves user experience. However, it does not guarantee more downloads because app stores are filled with free apps, which a practical user might prefer over a paid one. The goal is to market your app well because when customers see that they get what they paid for, they will be more willing to pay for it. Mobile games and apps like HotSchedules and Calendars 5, which belong to the top paid apps in the Apple store, are examples.
It is the holy grail in the world of mobile apps. Users must pay a monthly or annual subscription fee to continue using your app. Dating apps and music streaming apps like Apple Music are examples. Even though you are not continuously bringing in new users, you are guaranteed to generate consistent income. A subscription is also a more promising approach than asking for direct payment. It gives the customers the impression that they are only spending money as long as it serves its purpose. Those that opt to subscribe demonstrate their commitment to using your application. Thus, letting you have long-term customers. However, you need to provide your customers with the right reasons to stick around by constantly looking for ways to improve, occasionally updating, and adding new features.
Your mobile app serves as a meeting spot for purchasers and sellers of goods. This pricing model allows monetization through a transaction fee or commission from one or both parties as they negotiate with each other. It relies on good reviews and a user-friendly interface to ensure continuous engagement. You need to reach a broader audience and ensure that your application is credible enough for users to trust you with the conduct of their dealings. Amazon and eBay are examples of well-established and popular marketplace applications.
Developers can use a “per feature” app pricing model that gives end-users the choice to tailor their own experiences according to their needs and experiences. Instead of paying for the whole package, users can determine which individual app features warrant payment. For example, if the bundle contains 10 streaming channels and one only prefers 5 of them, it may be less expensive to have a la carte pricing for every channel a user prefers. A La Carte services designed for iPad, travel and restaurant app services are examples of this.
Apps can also extend their businesses into the domain of physical products or vice versa. Developing drawing-based or design applications is beneficial for a user who utilizes tools like drawing tablets. An example of an application similar to this is ProCreate, a raster graphics editor app for digital painting developed and published by Savage Interactive for iOS and iPadOS. It was launched on the App Store in response to the artistic possibilities of the iPad and its Apple pen.
This mobile app pricing strategy allows your app content and features to be free or free from ads for all users. The source of revenue for your app depends on charity and voluntary donations. Some users may be more than willing to donate because they enjoy your app, plus you’re giving out your services for free. However, there is no incentive to pay, so you must rely heavily on user generosity. A tiny fraction of individuals will likely contribute to your revenue since there is still a strong freeloader mindset in the market. Since it may be complicated to optimize and predict your revenues, it may be difficult to sustain your app in the long-run. Givelify, is an example of a well-designed donation app that employs electronic contributions.
Often a B2B pricing strategy B2B pricing strategy. It is the practice of determining prices for products or services with the intention of selling them to other companies rather than to individual consumers directly. For instance, a company can sell marketing tools to other businesses. This pricing model helps you plan your pricing strategy but doesn’t determine the price. It may fine-tune your pricing and boost user willingness to expend. Mobile apps such as Google Analytics, EverNote and Flipboard are examples.
A pricing strategy is a type of model used by business owners in determining the best price for their products and services. It helps businesses to choose prices and maximize profits without compromising the needs and satisfaction of customers. Pricing strategies take the following factors into consideration: account segments, target customers’ ability to pay, market conditions and trade margins, competitor knowledge, and input costs. In short, a pricing strategy refers to all the various methods that you can use when setting app prices.
Meanwhile, a price point is the standard price set for a product. A product price is the amount of money expected, required, or given in payment for something while a price point indicates a point on a scale of possible prices at which a product is marketed and monetized. It is the point where you are making the most and at the same time allows you to keep a relatively high demand for a product. App pricing can be influenced by many factors and helps in determining return, demand, market share, countering competitors, and building a good product image.
Now that you’re already aware of the different pricing models for app-based companies, here are some important questions to answer in order to help you choose your pricing strategy and pricing point:
How much do you know about your target market and audience?
Every business owner knows that market research is important in determining if a product is viable and feasible to potential customers. Market research will help you know your customers while you also check what your competitor is doing.
Market research has two different main components that include: research (interviews, questionnaires, focus group discussions, surveys, competitor location visits) and data analysis. Take geographical location into consideration as it allows you to appeal to and provide potential customers with relevant and personalized offers and messages. It is a win-win situation between your customers and your business.
Is your product ready yet for monetization?
A monetization strategy aims to generate revenue from a certain platform or type of content. App pricing and monetization gives your business a chance to leverage your user base in such a way that you can profit or generate revenue without too much funding.
An important question to ask yourself is whether or not your products are good enough for customers to pay for it. In some cases, if your product (or market) still needs some maturation, then it could be a good decision to keep your app free.
Once you feel like your product is already worth using and delivering meaningful value to your customers in some way, it is natural to think that you can expect to receive revenue or something in return. You’ll onboard more users that’ll provide you with product feedback.
What do customers think about your product?
As mentioned earlier, the more users try your product, the more product feedback can be gained. The most important thing in deciding your price point is to talk to customers. There are times when customers do some things that you didn’t expect or find values in your product that you didn’t anticipate therefore creating opportunities to evolve your product/service and overall marketing strategy. Good communication between you and your customers will help develop trust and understand needs, expectations, and challenges clearly.
Feedback from customers is important to guide and influence your decision making when it comes to changing or improving your products and services. It is also essential to maintain good customer satisfaction. It is invaluable to know a way on how your customers view and support your business. You can base your app pricing in such a range that balances customer satisfaction and business revenue.
The bottom line
Picking a pricing strategy is highly dependent on your audience, the stage of your product. Knowing your customers and understanding their needs is the heart of every successful business.
Having a price point for your products and services shouldn’t be a haphazard decision that is focused entirely on profit. Remember, if your product is not yet ready to be monetized, you might lose some customers. App pricing should be a calculated and informed choice to help establish your business identity while considering your brand and financial stability. You need to assess the goals and needs of your business and then you consider your market and potential customers.
Overall, choosing an app pricing strategy depends on these three important factors: market research, readiness for monetization, and customer feedback. Market research helps you discover your target market about their interest in your products and services. By determining the needs and wants of your target audience will help you determine if your app is ready for monetization. Lastly, once you have your customer knowledge, you can use it to encourage and persuade potential and existing customers that your using and paying for products is in their best interest.
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