When it comes to monetization of modern-day mobile apps, the three most popular revenue models for apps are freemium, subscription, and fixed price.

Before we delve into the differences, let’s quickly define what these models are.

Freemium Model

As the name suggests, it is a combination of free and premium. The core functionality of the app is free. You can use the application for free but there might be some premium offerings you may have to pay for. In a lot of cases, apps use an internal currency such as points, units or coins that can be used to unlock various features.

These internal currencies can be earned by frequent use of the app but takes a lot of time to achieve a value that will give satisfactory returns. The freemium model works on patience and gives you access to content immediately if you choose to pay for it.

 

Subscription Model

In most cases, these apps or services can be used in a limited quantity or for a limited time on a trial basis. Some apps may offer limited functionality use in the free versions but in most cases a subscription is required to utilize the full potential of an app or service. Subscriptions are usually monthly, with a considerable discount for annual commitments.

 

Fixed Price Model

This is the oldest trick in the book. If you like something, you pay full price for it and you own it. This is true for a lot of current apps where there is a lot of advertising and bloatware on free versions. On premium versions with a one-time fixed price are ad-free.

Of course, there are apps that use a hybrid approach, but that is a topic for another blog post.

Now that you know what the three most popular pricing models are, you may wonder which model is best for the app you are currently building. The answer is never easy. There isn’t a fixed formula for success when it comes to defining your pricing model.

Let’s explore the differences between the three revenue models. This may help you make a decision for which approach you might want to go with.

Base Price

The base price for freemium apps is free. The subscription model may offer a free limited-time trial or limit the number of users. The fixed price model may offer a free trial as well, but in a lot of cases it comes with a licensing price.

If you have a new product and want people to try it out, you may want to have minimal barriers to entry. Offering the product for free or on a free trial is a good choice.

If you are an established business owner and customers see value in your product or are used to it, lead with a base price.

Cash Flow

Fixed price apps offer a one-and-done deal. A customer buys your app and they’re done. The freemium model offers cash flow in increments and users see value in your app. The cash flow is not consistent and may vary on seasonality, new features, and how you keep up the interest of users in the app.

The Subscription model offers ongoing cash flow and can be helpful in determining calculated risk for your future investments in your product. An annual commitment ensures that a customer stays with your service for an extended period of time.

Customer Loyalty

The subscription model is the easiest to determine ongoing customer loyalty. A higher subscriber base means a more loyal customer base. The freemium model is a close second in this category, as regular freemium purchases are indicators of a loyal customer base. It is hard to determine ongoing loyalty with the fixed pricing model.

Determine Feature Popularity

Tracking features in apps can determine the popularity of various features within an app, but a freemium pricing model is a clear indicator of which features one should focus on while enhancing an app. If users are willing to pay for certain features more than another, it helps in deciding which features the developers should focus on enhancing. In the fixed price and subscription models, one must rely solely on internal tracking and analytics.

Ongoing Maintenance & Updates

If regular updates to your product or app are a must, freemium or subscription pricing models are better because ongoing cash flow will allow you to focus on updates that matter for the users.

Fixed priced apps often offer bug fixes and limited feature updates in most cases. For any major update, users must buy the new version of the product at the full price.

Most apps in the market today offer freemium or subscription offerings. Freemium offerings are a little tricky. One has to define a strategy to determine and roll out the freemium offerings. By comparison, subscriptions are easier. Users get full access based on the subscription tier they choose. The fixed pricing model is popular for apps that have a core functionality but do not require frequent, ongoing updates.

If you’re building a new product, chances are that you’re building a brand too. Here are 10 easy steps to build a strong brand and turn users into customers.

 

We hope this article helps shed some light on your business plans. If you’re still unsure, we would love to get in touch and explore if we can help you in defining the revenue stream for your apps. Write to us at hello@dignitas.digital.