How to Generate Revenue From Apps?

According to recent research, apps are on course to generate over $40 billion in revenue in 2016 and are set to hit $81 billion by 2020. If you’re interested in finding out how to tap into this blossoming market, we’ve explored the different options for generating revenue from apps and assess which method is the best way of maximising your app’s ROI.

Rule #1 of in-app revenue generation: Make sure you’re adding value to your customer’s user experience before asking them to pay.

How can you generate revenue from apps?

So you’ve decided that you want to generate revenue from your app but there are a few ways of going about it.

There are four main means of generating direct revenue:

Type Description
In-app advertising Showing banner ads either within the app or when the user first loads the app.
Paid downloads Charging the user to download the app from the app store
In-app purchases Letting users upgrade or access extra functionality within the app
eCommerce app An app created by a retailer which allows users to make purchases directly from within the app

There are also a couple of ways in which you can generate indirect revenue including through brand exposure and by driving sales in related parts of the business.

The direct approach to generating revenue from apps

Back in the day when competition was low and the App Store was in its infancy, it was paid downloads that ruled supreme.

The limited supply of apps and high demand led to low-quality high-grossing apps such as the iFart, a 99 cent novelty app, which generated $40,000 for its developer in two days back in 2008.

In 2013 there are now literally millions of apps and this abundance of choice leads to high barrier to entry for paid downloads.

Utilising in-app purchases

These days the majority of app revenue is generated through in-app purchases; a recent study by Distimo which tracks downloads for major app developers showed that in-app purchase revenue now accounts for 76% of app revenue in the US and 90% in Asian markets.

In-app advertising, after initially being the replacement for paid downloads is now on the decline although it can still generate some modest revenue.

E-commerce apps, when done well, remain one of the more lucrative revenue-generating options but usually require an extremely well-designed app to meet optimum efficiency.

Taking an indirect approach to generate revenue from apps

Brand exposure can be valuable but is very dependent on context and is quite difficult to quantify in revenue terms as anyone who has ever done PR will tell you.

You could track similar metrics to those you would use to evaluate value for your website (e.g. booking clicks for a restaurant site/app) to try and get an idea of value.

In essence, the only real direct revenue generation option is in-app purchase (this still depends heavily on a lucrative enough proposition and a highly valued free app).

There are still a few options left for a paid download app if you can find a valuable enough niche. The best solution is to use it to support your existing business: ensure it has a good level of ROI before investing in an expensive app build!

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