Subscription models are dominating application stores. From Tinder Plus to Grammarly Premium, every SaaS business has leaped subscriptions for stable revenue. In fact, over 70% of global app revenue comes from free apps offering subscription packages to their users.
This begs the question: how do you make money by generating and retaining your subscribers? In this article, I’m answering that and more. From the outlines of the monetization strategy to deep dives into factors that can skyrocket your revenue. Let’s start talking about all things subscription!
What Are Monetization Strategies?
A monetization strategy refers to a plan that helps you generate revenue from your application and audience. If you’ve wondered how to make your app start making money, the answer’s in your monetization strategy. To give you a general overview, let’s check out some strategies with examples.
Freemium Strategy
The freemium strategy comes with a free and paid version of the app. The free version has great features to generate a dedicated user base on a “free trial” period. On the other hand, the paid version unlocks greater features such as early access or skipping ads.
With a net worth of $2.89 billion, Duolingo is an excellent example of a freemium business model. Launched in 2011 as a free way to learn languages, it now profits over $250 million annually from more than 500 million users. The secret? Users can upgrade to Duolingo Plus for unlimited lives and an ad-free experience.
From Grammarly to Fortnite, freemium models reel in users, and convert some into paying customers, which subsidizes the app to still be free for a lot of people!
In-App Purchases Strategy
Have you ever paid for something in a game or bought premium features? If you said yes, you’re already familiar with an in-app purchase strategy. While your app stays free for most, users can decide to pay for certain items or features. It may provide an added advantage to the paying users, incentivizing their purchase and generating revenue in the process.
With over 230 billion game downloads annually, in-app purchases pull roughly $170 billion in revenue. Here’s a list of apps that use this strategy to boost profits with their net worth:
- Roblox ($16.57 billion)
- Calm ($2 billion)
- Candy Crush Saga ($1.2 billion)
- Coursera ($1.78 billion)
- Udemy ($279.6 million)
- Genshin Impact ($3 billion)
Subscription Model Strategy
Think big, like Tinder and Netflix, when you think of subscription model strategies. Creating a recurring revenue cycle, customers are required to opt for a subscription plan to enjoy the full benefits of the service. So with a subscription model, you can leverage your customer relationships and create a steady income.
There are many benefits of a subscription model. Not only are they convenient for customers to find new products but it also acts as a customer magnet. Businesses can build stronger relationships with their customers and also accurately predict revenue. On the other hand, subscription models are highly competitive, which can be bad news for startups. They also require constant value-adding or else customers might not sign-up!
How To Make Users Pay For Subscriptions?
Once you craft the perfect subscription model for your business, you’re on the way to your seat at the big boy table. The main objective is to get users to pay for your subscriptions and here’s where you wonder, “how exactly do I do that?” First, you have to offer some incentive to your users for buying that subscription and there are two ways to do that.
You can bring them a lot of value for very little prices, or you can simply differentiate your product and charge more. Product differentiation is the most crucial key in converting users to customers for your business. Not only does it improve customer experience but also develops brand loyalty and lets your business compete creatively.
Let’s just take apart a successful business and how product differentiation led it to become a market leader. Tinder started as a free dating platform in 2012 in a competitive environment. To garner a user base, they identified a market gap and differentiated their product from competitors by targeting a younger audience and introducing a two-way swipe system. While the app stays free, Tinder added multiple tiers of subscription models for users who want the advantage of unlimited likes and super likes.
How To Figure Out Your Subscription Strategy?
Now I know you’re all pumped up yet confused about where to begin. When crafting your strategy, you want to look at your service from the game theory perspective. You’re more likely to sell your service if your price matches the added value your customers receive and to determine that, you need to know who your customers are.
This brings us to our second factor to consider. In this case, you’ll use data-driven decisions to differentiate your product for your typical customer. Doing competitor analysis, identifying market gaps, and applying accurate pricing strategies will help give a framework to your subscription strategy.
Research shows that companies that update their pricing every 6 months usually earn double the average revenue per user than those who update once a year. So, connecting your monetization strategy with an effective and updated marketing plan will seal the deal!
Optimizing Your Subscription Models For Profits
Only making a subscription model isn’t enough to make the big bucks. Successful business models need more in-depth testing and often require multiple optimizations to reach a profitable stage. So let’s check out the top 3 ways you can optimize your strategy!
Analyze Important Metrics
How do you make sure your subscription model is healthy, realistic, and functioning? By analyzing important performance metrics, that’s how! The following set of metrics tracks and monitors the health of your monetization strategy:
- User liquidity – how many users are ready to pay for your service?
- Monthly recurring revenue – how much revenue will your app generate monthly?
- Renewal rate – how many users will renew their subscriptions?
- Customer lifetime value – how long will a typical user pay for your services?
Introduce Multiple Subscription Models
Match your incentives with your subscription charges with multiple tiers. Apps with multiple subscription tiers generate 27% greater revenue than those with a single tier. The reason behind this is that your premium content can be distributed into different price levels and become appealing to users who want to pay for specific features instead of everything.
Optimize Subscriptions With Premium Features
I’d like to point out the most recent platform that made a global buzz when it introduced subscription plans. Youtube bloomed as a free video platform in 2014. Initially, there was no strong monetization strategy apart from ads placed outside the video content. But in 2022, YouTube enjoys $19.8 billion in annual revenue.
So how did YouTube unlock this ridiculous amount of revenue? They used their simplicity as a way to differentiate their services. With a range of content creators easily uploading content, the audience grew and so did the user base. Slowly, affiliate programs and ad revenue started pouring in. In the latest news, they brought in Youtube Premium and the user base jumped on to skip ads amongst more premium features!
Top Tip: Not sure about a premium feature? Test it out in controlled environments with beta testers or specific geographical locations.
Conclusion
Before I bid you farewell, let me give you some key takeaways from this article:
- A monetization strategy is your plan that helps generate app revenue. Subscription-based models are the most profitable and steady type of strategy.
- Product differentiation is key in selling your subscription to potential customers because people will only pay for something that they find value in.
- Figuring out your subscription strategy relies on data-driven decisions and effective marketing.
- Businesses should optimize their subscription model every 6 months using technical metrics, and a range of tiers.
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References
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