Hi, I’m Daniil, and I run the product direction at Purrweb. Let’s be real — sometimes, projects never take off and end up folding before they can conquer the market. There are many reasons for this: some run out of funding, others can’t find their target audience, and some lack the experience to choose the right monetization strategy.
You can’t just tell users, “Pay up!” and expect them to whip out their credit cards. Before launching, you need to consider everything: the most convenient payment methods, how much users are willing to pay, and what they expect in return. There are several payment models: subscription, in-app advertising, one-time purchase, or microtransactions. Let’s dive into these monetization strategies in detail, and I’ll also show you how to calculate the profitability of each one.
Strategy 1: Subscription
Who it’s for. Subscriptions are trending in the development world. Some founders believe they can add a subscription to any app or service, and it’ll start making money. But that’s not always the case.
Here are some indicators that a subscription model might work for your service:
✔️ Your app addresses a frequent need. Users will regularly use your app to solve recurring problems.
✔️ A significant percentage of users stick around after the first month. It is called a high retention rate. For example, if 1,000 users sign up in May, but only 10 remain by the end of the month, that’s a 1% retention rate — a low number that suggests a subscription model won’t work because there won’t be enough people to pay for it.
✔️ The lifetime value is higher with a subscription. If you know that users will spend more over time with a subscription than with a one-time payment, a subscription model could be more profitable. For instance, a user might make 10 payments of $3.28 each, meaning the founder earns $32.8, whereas a one-time purchase might only bring in $10.
Examples:
✅ Habit-tracking apps: these apps help users build new habits and stay motivated. As people gradually adopt a healthier lifestyle, they might start with morning exercises, then add cold showers, more veggies, calorie counting, running, or jumping rope. The list of habits can be endless. Building a habit takes time, so users are likely to stick around for months, or even a year, leading to multiple subscription payments.
❌ Mortgage comparison apps: apps that help users find housing or compare mortgage offers are likely to be used once and then deleted since buying a home is usually a once-in-a-lifetime event. The exception might be users who offer mortgage consultation services. In these cases, a subscription model is not viable because users would only pay for one month.
Considerations. Users don’t always behave as expected. You might think the need is frequent, but users might not renew their subscriptions. For example, a calorie-counting app could be downloaded with the best intentions, but users might stop using it after a month.
In these cases, offering an annual subscription might be better: users pay upfront, motivated by their initial enthusiasm, even if they abandon the app after a month. Either way, the founder gets the money.
❗ Don’t resort to sneaky tactics that cross ethical lines. Dishonest methods can undermine user trust.
Tips for keeping users subscribed:
The actions in the right column will add at most one payment per user — they won’t help with retention.
What to do. A subscription is beneficial because it allows for various access options. Here’s what you should definitely add to your service:
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- Free trial. Offer a 7 to 14-day free trial so users can explore the product. If your service is truly valuable, users will subscribe.
- Multiple pricing tiers. Offer different tiers, such as basic, standard, and premium, similar to Netflix. Users who need more features will pay extra, and you won’t lose customers with different budgets.
Plan options for the mymeet.ai service — users buy as many minutes of transcription as they need.
Strategy 2: Paid App
Who it’s for. Paid apps are often games, but this strategy can work for any service that meets the following criteria:
✔️ The need your app meets is so clear that the app store page alone can convert users into paying ones. If users immediately see the value and want the product, they’ll pay for it.
✔️ Your app has no free alternatives. If users don’t have other options, they’re more likely to buy. If there’s a free alternative with ads or a subscription model, they’ll probably choose that instead.
Examples:
✅ ProCam X. This app for professional photography offers access to all tools, settings, and future updates after a one-time purchase. Users prefer to pay once and use the app without restrictions, making this a profitable model, even if users stop using it after a week.
❌ Spotify and other music streaming services. These services work better with a subscription model because users engage with them daily. Plus, there are free alternatives available.
A good example is a phone photography app with the same settings as professional cameras.
Considerations. I don’t have exact stats, but from my experience, conversion rates for paid apps are generally lower than those with subscriptions, ads, or microtransactions. The main drawback is that users don’t know how good your product is and can’t be warmed up to buy it without a free trial.
What to do. If you opt for a paid app, be prepared to spend money on advertising. Without it, users are unlikely to find and choose your product, so you’ll need to work hard to warm them up before they buy.
Strategy 3: Microtransactions
Who it’s for. Microtransactions are a widely used strategy. The idea is to generate revenue from user purchases. Users can spend money on almost anything, so this strategy applies to many different services. Let me give you a few examples:
✔️ Marketplaces and online stores. Online shopping is all about microtransactions. Founders can sell their products or earn commissions from other sellers.
For instance, “Handmade Marketplace” charges a commission for each sale made by crafters who list their products on the platform. Online stores like Walmart also rely on microtransactions by selling their goods through delivery services.
✔️ Services. You can sell services through your app. For example, we developed an app for EnerGO, a service that rents out power banks. They’ve placed power bank stations around the city, and users can rent them via the app. Each time someone pays to charge their phone, the founders earn money.
EnerGO power bank stations are scattered across several major Russian cities. They can be found in the subway, shops, and malls.
✔️ In-App features. This is common in games, where users buy skins or characters, but it can be applied to other apps as well. For instance, we developed a running app where users can purchase clothing for their avatars. Want to dress your avatar in Adidas sneakers or a Nike T-shirt? It’s possible for a fee.
Considerations. If you’re considering microtransactions, look at mobile games — they’re the experts at this strategy. You might even borrow some creative ideas from them to use in your app.
What to do. One way to boost revenue with this model is to increase the average transaction value. For example, delivery apps often suggest additional products, and you can do the same with services.
This method is used by all services with microtransactions: on the left, ASOS allows users to add items, while on the right, Doordash offers you the most ordered items.
Strategy 4: Advertising
Who it’s for. Any app can add ads, but to make it profitable, consider these factors:
✔️ Your app has an audience of more than 100,000 users. Only with this number of people can you talk about the profitability of showing ads.
An article on the AdMob website shows how much popular apps earn from ads. When Cherry Chaser Slot Machine had an audience of about 300,000 people, they earned $100 a day from ads. This means that over the course of a year, one user brought the service only about $0.13.
Today, the game has more than a million downloads, and the cost per user may vary. There’s no fresh data available, so we rely on the numbers published by AdMob.
✔️ Your audience is growing organically, meaning you’re not spending money on acquisition. Otherwise, advertising will be unprofitable. Even if acquiring a new user costs two or four dollars, and you earn one dollar per ad view, you’ll still suffer a significant loss.
Considerations. Advertising is the lowest-margin monetization strategy. I generally don’t recommend choosing it because founders earn pennies per view. If you created an app without any investment and don’t plan to promote it, you can use this strategy to earn a small additional income.
There are no publicly available prices for ad impressions on ad service websites, so we can only assess profitability based on their case studies. Source: “How Much Can You Earn from In-App Advertising” article on AdMob website.
What to do. One way to make money from ads is to add them to the app and then introduce a subscription to disable them. But I can’t comment on conversion rates because, in my experience, no one has done this.
Another option is to introduce a combined monetization strategy. For example, make the app paid in the store with a small download fee and add in-app advertising. But be prepared for negative user reviews for such “greed.”
How to calculate monetization profitability
Calculating profitability is not difficult, but you need to understand the context and remember the terms. Don’t be intimidated, I’ll explain everything to you.
I made a Google Sheet for you, which is easier to use for calculations: copy it and change the indicators to compare the profitability of strategies. Below, I’ll explain step-by-step how to use the indicators and what we’ll need for the calculations.
Step 1. Gather key indicators. To calculate user revenue, you need certain metrics.
On the left is the data needed for the calculations, and on the right is what we’ll calculate.
Depending on the chosen strategy, your AvPrice and AvPaymentCount indicators will differ. For example, with a subscription, AvPrice will be low, while AvPaymentCount should ideally be 12 purchases per year. To compare the profitability of different strategies, you should have several values for these indicators.
It’s logical that if you haven’t launched the project yet, you won’t have any data. In this case, you can do the following:
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- Gather data from competitors. Their prices, margins, and frequency of purchases by users. These data can be obtained from open sources, such as company reports, interviews, and market analyses.
- Conduct customer surveys. Survey potential customers to understand how much they’re willing to pay for your product or service and how often they plan to use it.
- Create a pilot project. Run a limited pilot test in a small market segment to collect real data without significant investment risk.
Step 2. Calculate profit per user. Suppose you have an app with a subscription of $2.00 per month and the margin is 30%. Some users renew the subscription every month, while others use it for only one month and then delete the app, so the average number of purchases is 3. Now, you need to calculate revenue per user over 365 days.
Step 3. Calculate average revenue per user, including non-paying ones. You’ve figured out how much money your paying users bring in. But besides them, there are also those who saw an ad, downloaded the app, used the trial period, and didn’t purchase a subscription. Founders spend money to attract them, too, so they need to be included in user revenue.
Step 4. Compare user acquisition costs to revenue. On average, the cost of acquiring one user (CPUser) could be $0.20, $0.30, or $0.40. According to our calculations, this is significantly higher than the revenue per user, so the chosen strategy will be unprofitable.
To understand which strategy is suitable, change the average product price (AvPrice) and the number of payments (AvPaymentCount).
Tips instead of a conclusion
💡 The earlier you choose a strategy and calculate unit economics, the better. In my experience, 30% of products fall off at this stage because developing them turns out to be unprofitable. So, before investing resources in development, estimate when and how much you can earn from the product.
💡 When calculating unit economics, model different situations. Don’t get fixated on one strategy — calculate what happens if you introduce a subscription, microtransactions, or make the app paid.
💡 If one user costs significantly more than they bring in, don’t develop the app. You don’t have to abandon the idea entirely, but at least hold off until you figure out how to increase profitability or reduce acquisition costs.
💡 Every app needs onboarding, where the user gets acquainted with the interface, and activation, where the user realizes its value. These actions can significantly increase the conversion of users to their first purchase. Simply directing them to the payment page won’t do the trick. First, show them how useful and convenient the service is and how it will make their lives easier, then offer to pay. This can be done differently: introduce a trial, create a detailed dashboard, or a demo version.
