By Dom & Tom
Asking “How much money can my app make?” is, of course, an important stage in designing a responsible business plan (pretty much the other side of the “How much will this cost?” question). But when consumers spent $50 billion on apps in the first half of 2020 alone, you might well feel tempted to mean it less like, “Will this be profitable?” and more like, “How rich are we going to get?”
We very much want you to make a lot of money with any app we build you, but it’s important to understand how apps earn money and to have reasonable expectations for how much any given app can actually make.
How Much Money an App Can Make
For starters, the world of apps is wide and wonderful. That means no one can give you a one-size-fits-all answer to how much money an app can make. Even when you start to segment down into categories, it is easy to oversell any given app’s profit potential.
Some apps do make astronomical amounts of money. In 2018, Fortnite (Epic Games) was making $1.9 million in a single month. Candy Crush (King) wasn’t far behind with $1.3 million in monthly revenue. In the first half of 2020 (1H20), PUBG Mobile made an estimated $1.3 billion globally. That’s billion with a b.
But it is important not to get carried away. The majority of apps do not really break out of obscurity and make no money at all. Some of them perhaps do not deserve to make money. Some of them were created for a handful of users who wanted certain functionality but were never intended to make money. Many lack adequate marketing support and thus can’t rise above the noise.
Still others make respectable and sustainable incomes among a small group of devoted fans. The competition is tight. Apple currently offers 2.2 million apps, while Google Play boasts 2.8 million apps. Consumers know they don’t need to stick around if an app doesn’t do it for them. User retention in 2019 was 32% and one-quarter of apps were only used once.
In other words, the answer to the question, “How much can this app earn?” has a lot to do with how well you design, market, and support that particular app. Thus it’s worth looking at what we know about how apps earn money.
The Market for Apps
The app market is certainly robust. To begin with, mobile devices have been responsible for around half of all internet traffic for the last several years. With the growth of wearables and smart devices, total mobile data usage could nearly double in only a couple years.
In 2020, Google’s Play Store and Apple’s App Store saw 71.5 billion first-time installs between them before July. That’s up 26 percent from the same period in 2019. And there’s a lot of money out there. The top 200 apps in the App Store earn around $82,500 per day.
Mobile gaming accounts for nearly 3/4 of all app revenues. Top-earning games like PUBG Mobile and Honor of Kings pulled in at least $1 billion each in 1H20. Non-game apps can do very well, too. Tinder earned over $433 million in 1H20, and YouTube and TikTok were close behind at $431 million and $421 million.
App Store vs. Google Play
These are the two big players in the app world, of course, and there is a lot of money being spent on both platforms. If you can launch in both, do it. If you have to choose one or the other, the common wisdom is to begin in Apple’s iOS. The App Store consistently grosses more in revenue than Google Play. For 2020, both the App Store and Google Play have seen growth over 20%, though the App Store can boast nearly twice the revenue of Google Play. In addition, Apple users seem happy to spend more than Android users on their mobile devices.
Averages Misrepresent What Your App Can Earn
One of the most important things to understand about the mobile app market and the earnings potential of your app is that all the exciting numbers misrepresent the real situation.
As Mike Sonders of SurveyMonkey Intelligence argues, average app revenue figures are unreliable benchmarks because they include too many apps that are unlike yours and they skew dramatically toward the top-performing apps.
That skew is so powerful, in fact, that it is difficult to compare your app to other apps within your own category using average revenues. For instance, on a single day in 2016, the average app revenue in the action game category was $8,400. Apps at the 80th percentile earned only $3,100 or about 37% of the average. Apps at the median (50th percentile) earned only $150.
Remember we said the top 200 gaming apps were clearing $22,500 a day (a 2016 figure)? Well, if you look at the top 800 apps, the daily revenue is more like $3,500 — 16% of what the top performers earned.
A Better Way to Gauge Your App’s Money-Earning Potential
If you’re looking for revenue benchmarks, a better approach than looking at averages is to make some strategic distinctions.
Compare yourself to similar apps.
This may seem obvious, but in this industry people like to talk about the Tinders and TikToks and PUBG Mobiles whether they’re making a game app, a recipe book, or a guitar tuner. Break out apps like yours from your category and get some intelligence on how they do what they do and how much they earn doing it.
Establish a range of benchmarks.
Instead of looking at the average earnings of your competitors or even the median, establish low, medium, and high benchmarks.
This way you at least give yourself a way to get your footing and begin to grow within your corner of the app world. You could look at the 20th, 50th, and 80th percentiles or the 25th, 50th, and 75th percentiles (definitely include the median). Whatever range gives you a minimum goal and an achievable aspiration.
Look for the average revenue per user.
This is a useful average because it filters out the issue of number of users. Now you can compare yourself to similar apps that may have much larger or much smaller user bases but similar monetization models.
Plan to invest in metrics.
If it hasn’t become obvious, yet, you’re going to want specific data in order to create your benchmarks. That means finding good data on the marketplace and useful analytics about your own app’s performance.
You can find lots of great market data at sites like Sensor Tower and Statista. They offer lots of high-level metrics for free and more detailed reports behind paywalls.
In the same way, there are many companies that offer analytics for your app. Many have free plans that will serve for a little while and paid plans starting around $100/month.
Understanding App Monetization
We’ve looked at a bird’s-eye-view of the app market and a strategy for choosing the right comparison points for your app. That’s like establishing that there is, indeed, an archery tournament you can enter and where the target is.
Now we should talk about getting your arrow to the bullseye. Again, how much money your app makes depends a lot on how well you design it. There are some important considerations for the development phase, but here we’ll talk design.
The first piece of the puzzle is choosing your monetization strategy. There are several primary models depending on how you divide them up:
In-App Ads – This model mimics what many websites already do by including ads right in the app. These can be in banners, pop-us, videos, “interstitials,” and so on. For game apps, playable ads are very popular.
Premium – A premium app charges a one-time, up-front download fee. This model can be very lucrative but obviously depends on user numbers.
Freemium – Offer a free version of your app that often has a lot of powerful functionality but usually also has ads. Then allow users to upgrade to a premium version with no ads and additional features.
In-App Purchases – You can consider this a version of freemium. Users download the app for free and are offered various items or upgrades for purchase inside the app. This is a popular model for games that use currencies to upgrade characters or items.
Warning: Users hate feeling like the only way to beat a game is to spend a lot of money in-app. You don’t want people start putting scare quotes around the word “free” when reviewing your app.
Subscription – Charge users a monthly fee for access to content, usually ad-free. Tinder, Netflix, and Pandora are successful examples in this category, each making top-ten revenue lists for 1H20.
Sponsorship – You’ll see this commonly for event apps, where sponsors’ logos and names appear in splash screens and banners within the app. The trick here is to find sponsors that suit your brand and to come to agreeable terms with the sponsor.
A quick note on app monetization models: Though it appears in-app purchases are a great way to make money, Statista reports that subscription models were the most popular strategy in 2019.
Know How Your Audience Spends on Apps
In order to choose the best monetization model, you’ll want to think about what kind of app you’re making and how your audience is used to spending money in that kind of app.
We’ve already mentioned that in-app purchases work great in games. Productivity apps generally use ads and premium upgrades. A fitness app might use the same, but if there are regular content upgrades it makes sense to use a subscription model.
Know Your Competitors
Get to know other apps in your space or targeting a similar audience. Understand what problems they are solving and what value you have to offer that makes you stand out. Pay special attention to their monetization models, their designs, and any flaws or gaps in their features.
Apps are popular worldwide; it’s estimated that over 2.1 billion people globally will be spending money online by 2021. Sensor Tower projects global user spending to hit $156 billion. China, Japan, and the U.S. are the top earning countries, but much of the growth in the next five years will happen in Latin America and Africa. Apps that can travel well, then, stand to gain more users and thus earn more.
Market Your App!
This may seem obvious, but the last piece of the puzzle is to tell people about your app with strategic and engaging marketing. That may mean buying in-app ads so users of similar apps or your target users can discover you while on their phones. It will probably involve developing content for your website and possibly on social media. Spend time thinking about your store page and what copy and images will appear there. Make a video showcasing your app. Tell people who you are and why your app is awesome.
If you have an awesome app idea that needs to find its way into the world, Dom + Tom can help. Let’s talk.
-Dom & Tom