- It takes customers to make money: While this is a piece about monetizing apps, the amount of money you can generate from an app is highly dependent upon the number of users you have. Once apps achieve popularity, their success spirals. In order to reach critical user adoption levels, engage in user acquisition best practices, from cross-promotion to viral distribution, and from PR to paid in-app advertising. Try multiple channels to see what works for you, and stick to vendors who allow you to pay based on the performance metrics that are relevant for your unique business needs. For example, don’t pay for clicks if what you really care about is installs.
- Know your customers – and their value: Not all customers are created equal. Know the lifetime value of your customers by the channels in which they were acquired. For example, let’s say you can acquire a “high value” customer – say someone worth $6 in lifetime value — for an acquisition cost of $3, and let’s say you can acquire a “low value” user worth $2 in lifetime value for an acquisition cost of $1. Don’t think that pursuing one customer or the other is an either/or decision. You make $3 in profit from the “high value” customer and $1 in profit from the “low value customer.” Both sets of customers are profitable, so pursue additional acquisition of BOTH types.
- Averages lie: Whatever you do, do not fall into the trap of averaging your customer acquisition costs — nor your user values. In the above scenario, if you average the value of your customers, you might attempt to pay $2 for customers worth “an average of $4.” At that price you probably couldn’t get the $6 high value customer because your bid would be too low to be competitive and you’d be spending $2 to acquire a customer worth exactly that – with no margin leftover for you. Needless to say, this is not a profitable path for user growth.
- Free is often best – but not always: What you charge for an app should be based largely on how users engage with it. For example, if people use your apps just a few times, an ad-supported model probably doesn’t make sense, as you’ll earn just pennies per user. It makes more sense to charge 99 cents, $3.99 or another small fee up-front. Even though sales at the paid price will be a fraction of the free, ad-supported version, the total revenues are likely to be higher. However, if you have an app that is likely to be used many times – and this is the majority of apps – then free is probably the best option for you. And of course, free trials and freemium options are also great avenues for getting users hooked on your services. After that happens, there is a much higher chance that they’ll actually spend money on your app. A recent piece by Infoworld does a good job of discussing this user engagement model.
- Don’t play favorites with money: Too many app developers get caught up in the decision of whether to use advertising or virtual currency to monetize their free apps. Stop fretting about which is better. When it comes to money, all money is good. Try both options – many of the top app developers use both of these channels and more. Fortunately, implementing advertising in your app can be self-serve and almost instantaneous. The risk is incredibly low to try it out and see if it works for you.
- Don’t play favorites with partners, either: Ease of setup is not a license to skip due diligence in monetization partners. You should do your research, select a number of potential monetization partners — and try out all of them. Consider this app monetization speed dating. Test out several partners until you find the one or ones that monetize best for you.
- It takes two to tango: Don’t expect your monetization partner to do all of the work. You know your app better than anyone. Think critically about logical places and transition times for advertising. If you develop a game, consider placing ads at natural transition points between levels and/or at the end of a game. Think about when your users may be most willing to engage with ads, and place advertising accordingly. The result will be both a better experience for your users AND increased revenue for you.
- Analytics reign supreme: It’s absolutely worthwhile to spend the time and resources required to invest in solid analytics. Invest in internal analytics in order to truly understand user values, customer attribution models, and monetization payouts, and use the myriad of external tools available, from App Annie to Distimo, to help you make smart decisions about markets to pursue, platforms to prioritize, and other critical strategic decisions to make.
Jul 9, 2012