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Idan Waller25 min readIf you have an app idea that you want to turn into a profit, you need to get comfortable with numbers. Here’s an example: the average revenue for a single app download is $1.86. It’s less than impressive, but it might be enough. With apps, you never know. That’s why app developers rely on metrics to tell them what’s going to make money and what’s not worth their time.
App monetization and revenue metrics could be tricky if you are a beginner, but that’s why we’re here. This article will explain everything you need to know about matching a pricing model to an app type, choosing freemium over subscription and paid apps, and learning to use and analyze key benchmarks. Here’s all about app monetization metrics that help drive revenue.
| App Types by Monetization Model | Revenue Source | Key Metrics | Monetization Goal | Potential Challenges | Successful Examples |
| Free Apps | Ads | Daily Active Users (DAU), Session Length, eCPM, CTR, Ad Revenue per User | This model requires high user engagement to maximize ad impressions. | Keeping users engaged without alienating them with too many ads. | TikTok Instagram |
| Freemium Apps | In-app purchases and premium features | Conversion Rate, In-App Purchase Metrics, ARPU | Frequent purchases and free users converting to paid. | Balancing free and paid content and conversion optimization. | MyFitnessPal Peloton |
| Subscription-Based Apps | Subscriptions (recurring revenue) | Lifetime Value (LTV), Monthly Recurring Revenue (MRR), Churn Rate | Subscription apps need stable user retention rates to ensure recurring payments. | Reducing churn and maintaining ongoing value. | Spotify Netflix |
| Paid Apps | One-time upfront payment | Customer Satisfaction, ARPU, Cost per Install (CPI) | Paid apps need user satisfaction to drive positive reviews and organic installs. | Sustaining a high ARPU despite fewer users. | Procreate |
If you are a developer first and an entrepreneur second, app monetization probably feels confusing to you. Understandably so. Key decisions such as choosing the right monetization model and setting the right prices depend on too many factors. You need to consider your target market and user base and tailor a strategic approach suitable to your app’s type and category.
There are three primary app monetization models to choose from: free, freemium, and subscription. Each model has unique advantages and challenges that make it more or less suitable for certain app types and user bases and requires specific app monetization metrics.
The free model, which attracts the largest number of users and ensures a competitive edge, needs a large user base to drive revenue through ads. Freemium apps aren't entirely free – in addition to basic functionality, they offer premium features that users must pay to use. Apps with high engagement that provide long-term value and recurring revenue are subscription-based.
Which metrics go with which app monetization models? That, too, depends on many factors. In general, free apps rely on ad engagement metrics because ads are their main revenue stream, while freemium and subscription apps benefit from a combination of user acquisition cost (CAC), retention, and lifetime value (LTV) metrics because they depend on returning users for profit.
Most people don’t like paying for apps; in fact, a whopping 98% of global mobile app revenue comes from this monetization model. Why else would millions of developers decide to build free apps? The good news is that there are still ways to make money without charging for downloads. Most free app developers earn money from other brands by showing their ads to users.
The problem with free apps that live on ad revenue is an age-old one: users hate ads. There aren’t many ways to solve this, except for a fluid app design that keeps ads subtle but relevant to the user. That’s how you ensure the users don’t get infuriated by ads but actually interact with them. However, it also means that users must keep interacting with the app long enough to see enough ads.
The more people engage with the ad, the better. That’s why the free app monetization model relies on metrics like daily active users, click-through rates, and ad revenue per user.
So, you need a lot of users, and you need to keep them in-app for a while. The right metrics to use here are daily active users (DAU), which tells you how many users open and interact with your app on a daily basis, and session length, which tracks how much time they spend using your app in one sitting. High DAU and longer session lengths lead to more ad impressions and more revenue.
Ad impressions represent the number of times an ad is displayed to a user, while a click-through rate (CTR) measures the number of users who click on an ad. A combination of these metrics tells volumes about ad placement and how well the ads are integrated into the user experience. The average CTR for apps is 1%, which means that around 10 users click on an ad shown 1,000 times.
When you divide total ad revenue by the number of active users, you get an important metric called ad revenue per user (ARPU). It allows you to measure how much money you get from an individual user based on the number of ad impressions and click-throughs. Why is this important? Because low ARPU indicates that ads are not properly placed or they are not relevant to your users.
Effective cost per mille (eCPM) is a metric that helps you determine the real value of your app for shown ads. Allow us to explain. eCPM measures earnings per 1,000 ad impressions. When high, it shows that advertisers could pay more for being featured in your app, thus increasing your profit. To calculate eCPM, you need to divide total ad revenue by the number of impressions in thousands.
TikTok’s meteoric rise is propelled by a unique user acquisition strategy: rather than paid ads, TikTok uses user-generated content and out-of-app shares to draw more users into the network. The third and most powerful part of this strategy is the watermark, which gives TikTok viral brand equity. That way, the app can generate a lot of monetizable DAU fast without spending a single dollar on it.
Duolingo is everyone’s favorite language-learning app, with over 14 million downloads in 2024 alone (the second-runner has less than 2 million). More importantly, around 100 million people from all across the world use Duolingo every month, and only 8% of them pay a subscription. Duolingo manages to maintain a large user base and monetize on ads and conversions by turning lessons into games.
According to some estimates, there are currently around 8.93 million apps worldwide. With so many options available across stores and categories, why would anyone choose a paid over a free app? Well, it’s up to you as a developer to give users a reason to make an in-app purchase or subscribe to a paid plan. Monetization metrics can help you figure out what works and what doesn’t.
Successful paid apps have one key thing in common: they have a loyal user base. Metrics like retention and churn rate, as well as average revenue per user, are immensely valuable here.
The average retention rate across 31 mobile app categories is 25.3% on the day of download and falls to 5.7% in the next 30 days. That’s abysmal. Nevertheless, the retention rate is the single most important metric for paid apps because they need a stable user base to sustain revenue. A well-optimized app that provides ongoing value can keep its retention rate growing and capitalizing on it.
For the uninitiated, the churn rate measures the rate at which users stop using an app. That includes both inactive users and users who unsubscribe. iOS has an average churn rate of 96.3% by day 30, while Android is higher, with 97.9% churn. It’s obvious that high churn rates are the enemy of app revenue, especially when it comes to subscription-based models that depend on renewals.
Paid app users are attracted to premium features they can’t find anywhere else, but they are also drawn to flexible payment options. However, allowing users to choose what they pay for and how much means more work for you. This metric gives you insight into the total revenue generated by a single app user over a period of time, which helps determine fluctuations in revenue based on user behavior.
Lifetime value calculates revenue per user for an extended period of time—more precisely, throughout the user’s relationship with the app. It’s a simple metric based on simple math: the longer the lifetime value, the higher the revenue. Successful app developers maintain a stable LTV by offering personalized app content and providing a consistently excellent experience for long-term users.
When you are trying to make it in a highly competitive app market, such as games, sooner or later, you must invest in paid advertising in order to boost downloads. And that’s OK, as long as the users acquired in this way generate enough revenue to cover the costs of advertising and put some money in your pocket. High cost per install, the metric that measures this, means your pocket has holes.
2023 was a huge year for Spotify. The popular music streaming app has 113 million monthly active users, of which 31 million are premium ads! Spotify is clearly a champion in converting free to paid users and says volumes about its retention strategy. How does it do it? A combination of flexible payment options (freemium and premium), hyper-personalization, and continuous UX enhancement.
The fitness app market is expected to reach $6.86 billion by the end of 2024, so these developers must be doing something right. Most of these are freemium apps with two main revenue streams - premium features like personalized meal plans, workout routines, and advanced analytics (MyFitnessPal) and in-app purchases that let users buy fitness products, apparel, and more (Peloton).
Do you already have a monetization plan for your app? Great! We’ve prepared a breakdown of metrics by app type so that you can start measuring key performance indicators right away.
When done right, a freemium app can generate more revenue compared to an average paid app. Users are more likely to download - and subscribe to - an app that they don’t feel obligated to pay for. 69% of surveyed app users say they would be willing to pay for additional features. So, on top of easier and less expensive acquisition, you get improved retention and higher conversion rates.
Of course, that’s what all app developers aim for. It doesn’t happen overnight, and sometimes it doesn’t happen at all. If you want to improve your chances of turning free to paid users, you must optimize for conversions and have the best premium features. The key metrics for this are:
Subscription apps sometimes include a freemium version with basic functions, but their main source of revenue is multi-tiered subscriptions. Consequently, they depend on a stable user base that keeps their subscriptions active month by month or year by year without churning. The popularity of subscription apps keeps rising. Why? Because both users and developers can rely on them.
In order to ensure consistent income, subscription apps must give users a value-packed experience that keeps growing. Subscription users expect ongoing value and regular content and feature updates. An app of this type hinges on longevity, and that’s what you need to ensure and track.
If you have a unique app idea that users won’t be able to find anywhere else, you can use the paid app monetization model. These apps give users full access for an upfront fee without additional payments down the line. Once they pay for it, users basically own the app, which means they must pay again to receive major upgrades. One example of a successful paid app is Procreate (iOS).
Paid apps have fewer users, so they rely on customer satisfaction to ensure profitability. Although they are no longer a source of income after they buy an app, satisfied users are crucial for acquiring and converting new ones because their reviews and ratings help drive organic installs.
It’s important to note that specific app monetization metrics can be more or less indicative of your app’s financial health, depending on the app category. Take gaming apps, for example. They heavily depend on in-app purchases and lengthy sessions, so your focus as a developer should be on user engagement and purchase frequency. Game developers also track cost per install and eCPM.
Social apps, on the other hand, need user retention and ad impressions. Productivity apps, which are often subscription-based, depend on maintaining lifetime value and reducing churn. Each app category relies on a different mix of key performance indicators to ensure long-term sustainability. Don’t forget to consider this when setting up an app monetization metrics system for your app.
Now that you know what you need to measure and why, it’s time to talk about how. But before that, we need to discuss benchmarking. Benchmarks are standardized values for key performance indicators that are traditionally measured against successful competitors in the same market segment. Experienced developers set their own benchmarks, which serve them as goals they aim to achieve.
Industry-standard benchmarks change with user behavior and trends. Even so, they are valuable to app developers because they help make informed decisions and give you something to aspire to. You can find app monetization benchmarks in reports published by market research companies and consulting firms or on online platforms like Google Analytics, App Annie, AdMod, and Mixpanel.
Other tools, like Adapty, offer a more advanced combination of subscription management and tracking features. Using this tool, you can implement dynamic paywalls, manage subscriptions, and analyze user behavior from a single dashboard. It also allows you to integrate and deploy in-app purchases in minutes without a single line of code, run deep cohort analysis, predict revenue, and more.
Another powerful tool for app performance optimization and analysis is SplitMetrics. We recommend it in addition to benchmarking platforms and Adapty because it allows you to A/B test anything from your app icon and description to paywall architecture. A/B testing can save you a lot of time and money - you can test different engagement and conversion strategies and pick the ones that work.
In case we didn’t mention, measuring app success is an ongoing process with constant iterations. Don’t expect to build a large user base and start making a profit without some trial and error. Every aspect of an app, from design to monetization model, must be continually tracked and improved.
Having a data-backed monetization strategy is only the first step. If you hope to build a steady revenue stream from your app, you must keep refining your strategy for long-term success:
A/B testing is an effective way to determine whether your app monetization strategy is viable in practice or not. A and B stand for two test groups using two variants of the app. For instance, one group can test a free model with in-app purchases while the other uses a subscription model. By measuring conversions and user retention for both, you can decide which model is more profitable for the app. A/B testing can help you test paywall design, subscription tiers, prices, ad placements, and more.
User feedback is critical for success. Failing to hear criticism can only get you so far, but embracing it has a far-reaching effect. There are several ways to encourage and collect feedback. Feedback management tools help automate the process as it gets longer and more complicated. Combining feedback with app analytics can tell you exactly why users get frustrated and at which point in the user journey. Over time, these feedback-driven adjustments will improve user satisfaction and boost revenue.
Finding the right balance between what users want and what makes financial sense for your app is not easy. Showing too many ads too often will drive them away, but doing too little too late won’t make your app profitable. Take Instagram, for example. After years of experimentation, the social media giant has found that the best approach is to incorporat into the content and make them relevant. That way, they don’t disrupt the user journey but may actually contribute to it and add value.
There’s no way around it: adopting a metrics-driven approach to app monetization is how you ensure long-term success in a volatile market. Tracking key performance indicators can help refine your pricing strategy, optimize your app for downloads, and boost engagement, satisfaction, and retention. As a continuous measure, app monetization metrics drive growth and optimize revenue.
While average revenue per user (ARPU) and lifetime value LTV) are both important for measuring monetization success, these metrics tell different things. ARPU measures the monetization value of an app user over a certain period of time, which makes it indispensable to developers who rely on in-app purchases for profit. On the other hand, LTV quantifies the value of an app user throughout their entire relationship with the app, so it is crucial for gauging the success of subscription-based apps.
Increasing average revenue per user without setting off the churn rate is tricky because users don’t like to be told to pay more. If you increase prices for in-app purchases and subscriptions without offering something in return, you risk driving users away. You should add more value to your app by introducing new features and functionalities or enhancing user experience through personalized recommendations. Either way, you must focus your attention on user engagement and retention.
If you want to make sure that nothing can slip through the cracks, you should track CPI using Google Analytics or a tool like App Annie, in addition to LTV, churn rate, and other monetization metrics.
Idan Waller
A die-hard digital entrepreneur and app industry innovator, I’ve dedicated my career to revolutionizing mobile applications. After growing in direct response marketing and founding the 100K and 10M clubs, I co-founded BlueThrone with my brother Alon. We’re committed to elevating extraordinary apps and shaping the app industry’s future, focusing on creating unparalleled user experiences worldwide.
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