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The Facts & Fallacies of Mobile App Cashflow: A Tribute to the Subscription Model

Behind any great app is a superior business model. If you’re confident you’ve got the next hottest app idea, and plan to generate a profit, there are a variety of different monetization strategies one could use to turn downloads into dollars. In-app purchases and “freemium” models are great for getting users in the door initially. Paid apps are a challenge to market, in our experience, and are usually quite costly to advertise for — however the ones that do succeed tend to be very profitable. The latest tactic for monetizing mobile apps that has seemed to really stick over the past few years has been the subscription model. With app subscriptions, you can create sustainable, ongoing revenue.

So why are more developers moving to subscription apps? Here’s the facts:

Increased Average Revenue Per User

Average revenue per user (ARPU) is a critical metric for app monetization. ARPU is the amount of money your average app user spends on your app within a given timeframe. To determine this number, you’d divide the total amount of revenue your app generated for the month by the number of users who were active that month.

One of the best reasons to consider a subscription model is that apps that offer subscriptions see a far higher amount of revenue per user than apps that don’t. According to studies, apps that use subscriptions as their revenue model earn 2-3 times more money per user than apps that rely on advertising or paid downloads. They also earn 50% more money per user compared to apps that offer in-app purchases. Increasing your ARPU is the fastest way to increase your overall profits – and it’s actually more effective at boosting profits than both cutting sales expenses and increasing the number of downloads.

Clearly, when it comes to app monetization, subscription models have a leg-up over other options.

Long-Term Engagement

It’s great to have an app that makes money, but how do we hold onto our users? Your app launches and is a smash hit, but when the novelty wears off, users find something else to spend their money on, and they abandon the app. Using the paid-app model can work for making a burst of income right out of the gate, but this typically proves the app is but a one-hit-wonder, which leaves you uninterested and eager to move onto your next business venture.

With a subscription model, you can rely on a stable audience of users who love your app and gladly pay you each month to use it. You’ll have a very engaged, loyal user base that wants to use your app on a regular basis. In comparison to just paying a one-time fee to use the app, if the user is paying monthly, they’ll feel obligated to use it every month in order to feel like they’ve got their money’s worth.

Reliable Income

If you’re planning to earn money from your app, you’ll want to ensure that you get paid regularly – it’ll help keep your bank account well stocked, pay your expenses in a timely manner, and build your nest egg to get through those difficult times. A subscription-based mobile app will generate a set amount of revenue per user for you every month, and the more users you get, the more your cash flow will grow. When you know that you have a reliable source of income every month, you’ll find that it’s easier to make strategic plans and allocate resources to projects.

Subscription Discounts Improve User-Acquisition

Much like magazines that give you a 20% discount if you subscribe for 3 years, mobile apps that offer discounts for 6 months to 1 year of use often perform better. Why? It’s simple: People like saving money. For the business, it means a big increase in customer lifetime value and a more predictable income. Plus, users love having a choice. People believe having more choices means having more freedom, and offering multiple models in your subscription base can boost conversions. Having just a single flat rate deprives the user of choice and is likely to make them turn away.

Businesses in every industry are starting to recognize the value of subscription models, from subscription food delivery services to shaving supplies, coffee, wearables, and more. Even savvy developers are now seeing the value in the subscription model and staying ahead of the curve by offering subscription-based apps. From consumer apps to enterprise apps, subscriptions are starting to make more and more sense as a viable revenue source.