Smartphones have become such a regular part of life that it’s hard to imagine the world without them. It wasn’t that long ago, 2007 for the first iPhone and 2008 for Android, that mobile apps were a brand‑new concept.
Since then, mobile software has exploded across every category from games to health and education, creating a highly competitive marketplace. Most apps are free to download, so developers need ways to earn revenue to survive. That’s where app monetization comes in.
Thus, in today’s article, we are discussing what is app monetization, models, and how it works.
Table of contents
What Is App Monetization?
App monetization is the process of generating revenue from a mobile application. A monetized app can be either free or paid, and it may utilize one or more methods to generate income. The goal is to cover development and operating costs, reward creators and, ideally, turn a profit, all while delivering value to users.
When smartphones first appeared, it was common to pay a small amount up front to download an app. Over time, expectations shifted. Today, users generally expect to download apps for free and then decide later whether they want to pay for additional features. This shift has made monetization more complex but also more creative.
How Does App Monetization Work? 
At its core, app monetization depends on the user journey. A person discovers your app, installs it, and starts using it. From that point forward, you can earn revenue by showing advertisements, offering premium features, charging a subscription fee, or selling digital goods.
Successful monetization strikes a balance: the app must provide enough free value to attract and retain users while enticing a portion of them to spend money.
Choosing the right model requires understanding your audience. For example, productivity tools may succeed with a subscription model because users rely on them daily. Games often rely on in-app purchases or ads because their audience expects entertainment to be free.
But Why Most Apps Are Free?
The app marketplace is highly competitive. Offering a free download removes a significant barrier to entry and encourages more people to try your app. Once you have a large user base, you can generate revenue through additional channels. This approach also lowers marketing costs because users are more likely to recommend an app they didn’t have to pay to try.
However, building and maintaining an app can be costly. Servers, customer support, marketing, and continuous updates all require investment. Free apps survive by converting active users into paying customers indirectly.
Monetization Models Explained
As we’ve learned about application monetization and how it generally works, we must explore ways a brand can easily monetize its mobile applications in the future years.
First, it is essential to understand that setting up monetization models should be chosen before developing the mobile application, in tandem with considering user experience, user privacy, and developers’ workflow.
There’s no point in developing a fully functional mobile app and modifying it later to implement monetization strategies. As a result, many app developers are integrating monetization models into their overall mobile app business plans.
Furthermore, it is projected that by 2026, mobile app spending will reach $161 billion, with $72 billion on the Apple App Store and $89 billion on the Google Play Store. Where does this leave us?
1. Paid and Free App Version Model
This is considered one of the most popular strategies as it offers both a free and a paid app version, depending on how a brand monetizes its best features. Limiting premium features can motivate users to pay for those additional features, and by providing a free version, you can monetize with in-app advertising.
LinkedIn is a company that offers both paid and free app versions. It offers its traditional business and employment-focused social media platform app, as well as LinkedIn Learning, for additional features, such as learning.
Take a look at the statistics below to get a better idea. They provide a rough idea of how it began and where this monetization strategy is headed.
2. The Freemium App Monetization Model
Freemium isn’t new and is considered one of the most popular application monetization strategies. Ultimately, it makes users want more content, functionalities, and the app’s high-premium offerings.
It all starts with a free and primary application to attract a large user base. Then, the premium features determine the user’s ability to upgrade to unlock additional content, remove the ads, or gain access to more advanced features.
Spotify and YouTube are two of the most well-known examples of monetization models that employ this type.
3. In-app Advertising
Since it’s related to the first monetizing method, it offers third-party ads between app sessions. This strategy balances publishers’ need to fill out and sell their available space and advertisers looking to increase their brand awareness through digital ads.
One potential solution to these challenges that app owners face is Sevio Ad Manager. This monetization platform provides opportunities for app owners to monetize their ad space and customize their ad preferences.
This monetization method is most used in freemium apps.
Top Ad Monetization Formats:
- Banner Ads: This ad format consists of text and graphic components placed at the top or bottom of the screen and usually has a clear CTA.
- Video Ads: Video ads are used before, after, and in between video sessions. Also, the videos can be overlay ads, semi-transparent banners displayed during video playback, or out-stream ads embedded on non-video apps.
- Rewarded Video Ads: These ad formats are often used in gaming apps, whereby the user is rewarded with in-app currency or extra lives for watching the entire ad.
- Interstitial Ads: Also known as full-screen ads, interstitial ads appear after completing a specific transitional phase, such as completing a level. Moreover, full-screen ads use rich media and can be videos, images, or text-based. If you’ve used Duolingo Basic, you probably saw this video interstitial ad for Duolingo Max.
- Native Ads: These appear and function like the surrounding content, without compromising the user experience, yet are clearly marked as sponsored content.
4. Subscription-based Monetizing
This method is most often associated with free apps, similar to the first method discussed. However, users must choose a subscription plan to enjoy the full benefits of the mobile app. This monetization strategy is primarily used for service-based apps or news applications, and it can be implemented from the application’s early development stages.
Many big brands like Netflix, Disney+, Strava, and Office 365 use this app monetization model. Yet, when developing such a model, there are three main stages of the app:
- Basic means no subscription, and users only get access to essential features.
- Pro uses a certain level of its subscription, where only certain features are available, but it’s more than the basic subscription plan.
- A premium subscription unlocks all features that the app offers.
5. Paid App Models
The pay-to-download or premium model is another option for monetizing the mobile application. Yet, the app should offer a unique value that can’t be found elsewhere to survive in the market.
Typically, this model is most commonly used among productivity apps, but it is not limited to them. Please note that if you wish to use this monetization strategy, your app’s offerings must be on point; otherwise, your user base will suffer, resulting in decreased revenue.
6. In-app Purchase Model
In-app advertising is a pay-to-play model we often see, from dating to gaming and fitness apps. This model provides users with access to basic features; for more advanced features, a one-time fee unlocks them. At other times, users can access premium features without paying, but this isn’t a general rule.
Moreover, there are two types of in-app purchases:
- Consumables are limited purchases. A notable example is the Pokémon GO game, where users can earn PokéCoins through gameplay or purchase them with real money. Also, NintendoLife stated that Pokémon GO had surpassed $6 billion in player spending.
- Non-consumables mean one-time purchases, such as unlocking a gaming level.
Understanding Store Commissions
There isn’t a one-size-fits-all app monetization formula; however, the revenue is related to the most well-known app store platform fees. Indeed, getting your app listed in the top app stores can be done in a few clicks. However, gaining brand awareness and those many downloads could be challenging, as the competition is tough in this domain.
As a result, listing your app on multiple marketplaces may be the best approach. Yet, at this stage, it is essential to research the report to determine the difference between the initial fee you must pay for a listing and the commissions charged by each platform.
Let’s discover a breakdown of some of the most popular app marketplaces.
Apple App Store
- Apple charges a standard commission of 30% for app downloads or in-app purchases.
- However, developers generating less than $1 million per year qualify for Apple’s App Store Small Business Program, which charges only a 15% commission.
- For physical products, there aren’t commissions.
- For subscription-based products, commissions are lessened to 15% after one year.
Google Play Store
Like Apple, Google uses the same commission percentage: 15% for every paid app download and in-app purchase up to $1 million in sales and 30% once the threshold is reached.
Amazon App Store
On the other hand, Amazon has three commission levels:
- 30% standard commission for paid app downloads and in-app purchases;
- 20% video app commission;
- 20% commission and 10% promotional credits for Amazon Web Services for developers under $1 million sales per year;
As you can see, choosing from some of the best app marketplaces should yield a beneficial report that balances commission, your application monetization strategy, and potential revenue.
Key Metrics of App Monetization Models
It’s time to move forward and learn more about the key metrics that help you measure the success of your app monetization strategy, as well as how data can improve your monetization strategy.
Funnel Conversion Rate
With the help of this metric, your business can determine your users’ quality from top to bottom of your marketing funnel, meaning from when they initially see your ads until they take your desired action, which could vary from in-app purchase to app download and more.
As a result, measuring your funnel conversion rate can help you identify potential pitfalls in your app marketing and work to correct them.
Average Revenue per User (ARPU)
You’ve probably wondered how much you earn from each user, right? By dividing your total revenue by the average number of users from the same time frame, you could determine your ARPU.
Lifetime Value (LTV)
LTV helps your business track a user’s value over time while using the app, determining how much capital is invested in advertising to acquire customers while maintaining profitability.
App Stickiness
In short, app stickiness refers to a mobile app’s ability to keep its users engaged and encourage them to return over time. The higher the user engagement, the stickier the app is.
The basic formula is Daily Active Users (DAU) divided by your Monthly Active Users (MAU).
Retention Rate
Lastly, the retention rate is the final measure of whether your users remain engaged with your app. The retention rate is a metric that helps your business determine if your app provides value to its users, which can translate into loyalty. As a result, measuring their impact on users’ behavior is equally essential when implementing in-app advertising.
The more loyal your users are, the more likely they will engage with an ad and perform a conversion.
As you can see, there are many ways in which your business could analyze its marketing efforts for monetization. However, be sure to take it step by step and look for metrics that directly relate to your mobile app and your current level of development.
Common App Monetization Mistakes
Many mobile apps fail to address some common mistakes, which could impact their revenue stream. Let’s discover the most common application monetization mistakes:
- Overcomplicating the user journey could have a direct impact on a user experience;
- Failing to be specific with your promotions and your app offerings;
- Ignoring other relevant traffic sources, such as the organic ones from social media platforms;
- Ignoring app store optimization, which could increase your app’s visibility;
- Failing to ensure user retention strategies.
Trends Shaping the Future of App Monetization
The world of app revenue is constantly changing, and several new patterns are beginning to stand out:
- Subscription overload: With numerous products requiring monthly or yearly fees, many people are becoming more discerning. Developers may need to offer more flexible pricing or a mix of free and paid tiers to stay appealing.
- Privacy-first advertising: As privacy rules become stricter and tracking technologies evolve, ads that respect consent and rely on contextual cues are becoming increasingly important.
- Unified multi‑device strategies: Applications that appear on the web, on phones, and on connected TV sets are looking for ways to use the same revenue model across all platforms.
- Tailored user journeys: Advances in artificial intelligence and data analysis enable the display of offers and promotions that match each user’s habits, helping to improve conversions.
- Developer-friendly solutions: A growing ecosystem of tools and services is emerging to help small teams deploy advanced monetization methods without requiring extensive resources.
Keeping tabs on these shifts will put you in a better position to adapt your approach as the market evolves.
Final Thoughts
App monetization is the process of turning your app into a sustainable source of income, whether through ads, in-app purchases, subscriptions, or paid versions. Understanding how app monetization works helps developers choose the right model for their audience while balancing user experience and profitability.
As the market grows, trends like privacy-first advertising, flexible subscription models, and cross-platform monetization will shape how apps generate revenue. The key is to stay adaptable, prioritize transparency, and test what works best for your product and users.
In short, understanding what is app monetization and applying the right strategies can transform a simple mobile app into a long-term business opportunity.
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