Research Your Competitors
When you're looking for a pricing model, it's essential to do some research on your competitors. Compare your product to others in the same category. What features are common among similar products? What features are unique to your product? What features are missing from competitors?
It's important to consider that users may already be inclined to a specific pricing model for your niche. For example, if most of the apps in your category have free trials but no monthly subscriptions (like QuizUp), then it might be worth offering a free trial instead of charging for downloads upfront. If you elect for a paid ad when all of your competitors are free, you run the risk of being instantly outcast as an option.
Understand Your Customer
Understanding your customer is the most critical part of pricing in mobile. Customers aren't looking for a bargain; they're looking for value. If you don't understand your customer's needs, you can't precisely provide them with what they want.
Customers deserve to be recognized as individuals. They want to feel their opinion is heard and that the company or brand cares about them and their needs. No matter how amazing the app you create is, it's almost guaranteed to flop if it doesn't serve a purpose or fulfill a need.
The best way to truly understand your customer is by thoroughly researching the demographic you're attempting to target. For example, creating a dating app requires having a deep understanding of who they are marketing to. If the app isn't inclusive, they'll miss out on a large amount of revenue. A great example of this comes from the app Bumble. They recently added more gender options to increase inclusivity and expand their reach. Aside from this, they also included a section where users can reach out if they feel anything is missing. This not only lets the customer feel heard but also valued.
Consider Your Pricing
The first thing to consider when determining your pricing model is how much you want to charge. The customer will likely dictate the price if you're working on an enterprise project. But if you're developing a consumer app, it's up to you to set a price point that makes sense for the features and functionality within your app. This is what's called "variable cost"
You'll need to consider how much it will cost for development, maintenance, and any additional features or functionality after launch (if applicable). You'll also want to consider profit margin—how much are you making per sale or download? If one pricing model doesn't work out as well as another (for example, no one buys an ad-free version of an app for a specific niche), then at least knowing what percentage of users are paying for different versions will help inform decisions about future updates or new apps altogether.
Choose A Model
With all these factors in mind, you can confidently step into the pricing model selection process. These four models each offer unique benefits to app developers, and although more than one may sound fitting, there is likely to be one that will suit your app the best. Taking into account the long-term goals of your app is the best way to ensure you select the right model.
Free: The name of this model is self-explanatory in that the app is entirely free to the customer. Apps that elect to use this model make their revenue from advertisements. While some customers value this, others may be discouraged by the pop-ups and timed ads.
Using this model is advantageous because it can attract more users, but the likelihood of long-term retention could be lower. One free app that has made this model work for it is Instagram. This social media platform costs users nothing, but they've managed to make over $35 billion dollars this year alone. Although this is not the norm for non-social media apps, it shows potential for significant revenue as a free app.
Freemium: This model is a great way to entice users to download the app and then effectively hook them with upgrades. A freemium app is free to users, but they can elect to purchase upgrades inside the app. This model works well if it's done correctly. A popular app that uses the freemium model is HootSuite, which targets social media users. They allow users to get the app for free, understand its features, and then hook them with the unique advantages they can offer. They keep their costs relatively low (starting at $9.99), further appealing to users.
Freemium apps do well when they limit the time the user can use the app for free. This way, the consumer becomes hooked by the offerings and is incentivized to pay for more time. An app that does this well is Tinder. Instead of limiting time per se, they limit the number of likes a person can send per day. To acquire more likes, they need to pay for an upgrade. The same goes for other benefits within the app, all of which cost a fee.
Paid: A fully paid app is arguably the least desirable model for users as they are immediately faced with the charge without being able to explore the app and test it out. Paid apps can gain traction from word of mouth or strategic marketing ploys. The most commonly seen paid apps actually come in a subscription form, which generates repeat revenue and can be highly effective.
Netflix, Amazon Prime, and Hulu are some examples of apps that do this well. Hulu alone brought in $9 billion in revenue last year. Granted, these are top-rated companies with years of experience under their belt. Generally, this model works best for well-established companies and is less likely to be successful for a startup app. They have done so well for themselves for various reasons, one of which is their pricing strategy. Users can pay each month at a flat rate, or they can pay for a year at a discounted rate. Not only does this ensure their user-generated revenue is locked in, it lowers the risk of users canceling at any given time.
Paymium: This model charges users a one-time fee to download the app and then continues to charge within the app itself. This can be a challenging model to find success with because it requires continuous selling. This requires more effort and upkeep than paid apps, which charge a singular fee. Another downside to this pricing model is that it can be discouraging for users to continue to pay fees. The need to consciously pay can deter customers from continuing their use as they make the payments themselves. With subscription services, payments are usually auto-generated; as a result, spending is monitored less by the user.
One app that has done exceptionally well with paymium is Minecraft. In 2024 so far they have generated over $71 million dollars in revenue. Interestingly enough, they did roughly double this amount last year. This goes to show that paymium apps can find immense success but still experience ebbs and flows with user-generated revenue.
