Monetization and Business Strategy

Making Money From Your App

🔄 Quick Recall: In the previous lesson, you tested and polished your app — catching edge cases, verifying device compatibility, optimizing performance, and running user tests. Your app is now ready for real users. The question is: how do you sustain it financially?

The global in-app advertising market is worth $390 billion in 2026. In-app purchases generated $150 billion in 2024. And 82% of non-gaming app revenue comes from subscriptions.

There’s real money in mobile apps — if you choose the right model.

The Four Revenue Models

1. Subscriptions

Users pay monthly or annually for ongoing access to the app or premium features.

Best for: Apps that provide continuous value — productivity tools, fitness trackers, content libraries, educational apps.

Pricing benchmarks:

Key insight: Annual subscriptions reduce churn dramatically. Offer a clear discount (e.g., “$9.99/month or $79.99/year — save 33%”) to push users toward annual plans.

2. In-App Purchases (IAP)

Users buy individual items, features, or content packs.

Best for: Apps where users want specific things — customization options, premium content, virtual goods, pro features as one-time purchases.

Two types:

• Consumable: Used once and bought again (credits, tokens, virtual currency)
• Non-consumable: Bought once, kept forever (premium features, content packs, themes)

Pricing psychology: $0.99-$4.99 are impulse purchase prices. $9.99+ requires considered purchase. Most indie apps make more from $2.99 purchases than $19.99 purchases because the conversion rate is dramatically higher.

3. Advertising

Show ads to users in exchange for free access.

Best for: Apps with high daily usage but low willingness to pay — social apps, casual games, utility apps.

Ad formats and revenue:

Rewarded video is the gold standard for user experience: users choose to watch a 15-30 second ad in exchange for something valuable (extra lives, premium content for a day, bonus features). Users prefer this model because they control the exchange.

4. Hybrid (The Winner)

Combine models for maximum revenue. Over 60% of top-grossing apps use hybrid monetization.

The most common hybrid:

Free tier: Basic features + ads
Premium tier: All features, no ads, bonus content

This captures three revenue streams:

• Free users who never pay (ad revenue)
• Free users who upgrade (subscription revenue)
• Power users who buy extras (IAP revenue)

✅ Quick Check: Why does hybrid monetization outperform single-model approaches? Because users have different willingness to pay. Some will never spend money (show them ads). Some will pay to remove ads (sell premium). Some want extra features on top of premium (sell add-ons). A single model captures one group. Hybrid captures all three.

The Freemium Line

Drawing the Boundary

The most critical decision: what’s free and what’s premium?

The Value Ladder Framework:

Level 1 (Free): Core functionality that delivers clear value
    → User thinks: "This is useful, I want to keep using it"

Level 2 (Premium): Power features that make it significantly better
    → User thinks: "I use this every day — the upgrade is worth it"

Level 3 (Premium+): Advanced features for power users
    → User thinks: "I'm getting professional-level value"

Example — Habit Tracker:

The free tier is genuinely useful for casual users. The limits (5 habits, no analytics) create natural upgrade pressure for engaged users who’ve already proven they value the app.

The Conversion Funnel

Typical freemium conversion rates:

A 3% conversion rate on 10,000 downloads = 300 paying users. At $4.99/month, that’s $1,497/month — enough to cover costs and fund growth.

✅ Quick Check: Why should you offer a free trial of premium features rather than just describing them? Because users who experience premium features firsthand convert at 2-3x the rate of users who only read about them. A 7-day free trial lets users feel the difference — and losing features they’ve already used creates stronger upgrade motivation than gaining features they’ve never tried.

App Store Commission Math

Both Apple and Google take a cut of in-app purchases:

Pricing with commission factored in:

If you want $5/month net revenue per subscriber:

• Apple Year 1: Charge $7.14 → Apple takes $2.14, you keep $5.00
• Apple Year 2+: Charge $5.88 → Apple takes $0.88, you keep $5.00
• Google: Charge $5.88 → Google takes $0.88, you keep $5.00

Most apps simplify by using standard price tiers: $4.99, $6.99, $9.99, $14.99/month.

Implementation in AI Builders

Lovable/Bolt (Web Apps): Use Stripe for payments. Add subscription management via Supabase + Stripe integration. No app store commission for web apps.

FlutterFlow (Native): Built-in RevenueCat integration for subscription management across iOS and Android. Handles app store billing automatically.

Rork (Native): Expo’s in-app purchase libraries for iOS/Android billing.

Ads integration: Google AdMob (mobile ads) integrates with most native builders. Web apps use standard ad networks.

Key Takeaways

• Subscriptions generate the most predictable revenue and work best for apps providing continuous value
• Hybrid monetization (free with ads + premium subscription) captures the widest range of users — 60%+ of top apps use this model
• The freemium line is the most critical decision — free must be useful enough to retain users, limited enough to motivate upgrades
• Typical download-to-paid conversion is 2-5% — plan your pricing and growth targets accordingly
• Factor app store commissions (15-30%) into your pricing from day one

Up Next: You’ll launch your app — submitting to the App Store and Google Play, handling AI-specific compliance requirements, and preparing for your first real users.