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How to choose the right IAP strategy

Posted by Ben Dickson on Jul 26, 2016 12:00:00 PM
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Monetization is always a hot topic in the app industry. In fact we’ve covered it on several occasions here at Appszoom. App revenue is rising every year, and every developer and publisher is in a rush to grab a bigger piece of the pie. There are several known models, each with its own strengths, weaknesses and use cases. In this post, I want to delve a little bit deeper into in-app purchases, which is becoming one of the most efficient ways to monetize your app.

For those who need a little reminder, the in-app purchase model is where you offer users to either buy items or unlock features within your app by making a payment. This is a scheme that is being used in a wide range of app categories, including games, messaging apps, ecommerce and retail, fitness and health, etc.

Though there’s a general understanding of the benefits of using the in-app purchase model, a lot of developers don’t understand how to translate the idea into concrete actions that will help make the best out of their apps. Here are some guidelines that will hopefully help you better choose your path to in-app monetization.

app pricing options

First of all, you have to choose whether the app itself is going to be paid or you’re going to offer it for free. As a general rule of thumb, in-app purchases are for free apps, and it’s not a good idea to integrate in-app purchases in paid apps. After all, the users are paying an entrance fee and expect to have access to everything in the app, and they will grow upset once they learn that they have to yet pay for other options. This is especially true since there’ll always be free apps that’ll serve features similar to those of your app. 

That said, it doesn’t mean that paid apps can’t use the in-app purchase model. But you have to make sure that users get a very solid set of features without making further purchases in the app, or else you will turn them down and prod them toward dropping off from your app. The paid options in such apps should be very carefully chosen and only account for the nice-to-have features, not the must-haves.

After having determined your app’s pricing model, you’ll have to add things to buy. You’re going to need at least four or five purchase options in your app. This could be anything like extra levels or campaigns in games and special emojis in messaging apps. The more the better.


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in-app paid models

Once you’ve setup your showcase, you’re going to have to add incentives to encourage users to make more purchases. In this regard, you can get help from the wider business world. Here are some tactics that will help you get there.

  • Discounts on first purchase: This method implies slashing the price on an item for users who are making their first buy. The advantage of this model is that you’ll get plenty more users who will purchase for the first time. This is especially suitable for new, unknown items. It’ll give you a chance to make people familiar with the more exotic features of your app, and hopefully convert them into regular customers. However, in this model, there’ll be no further incentives for future purchases, and only the interest you plant in your customers’ minds will drive them toward future purchases.
  • Increased discounts for bigger purchases: The idea behind this model is the business concept known as the “decoy effect.” It’s like buying soda at the movies. You pay $2 for a small one, $4 for a medium one, and $5 for a large one. Given the small difference between the medium and the large option, people will be more inclined to purchase the large soda, because they’ll be saving more. The same goes for in-app purchases. If you increase discounts as the purchases increase, you’ll offer the users incentive to opt for the bigger purchases. The advantage of this model is a burst in sales from users who are likely to make bigger purchases. The downside is the fact that there’s no benefit for the small purchasers.
  • Loyalty programs: Apps offer you the exclusive option to integrate loyalty programs into your business, especially if you’re running a retail, hospitality or food-and-beverage service. In this model, you’ll be keeping track of the purchases made by each user and reward them for the increased amount of money they spend in your app by offering them discounts or even free items. This will encourage users to become long-term customers of your app and avoid scattering their purchases among different apps.
  • Time limited offers: Time limited offers are special discounts on features for a determined amount of time. This is a good opportunity that you can use every once in a while to re-engage inactive users and provide them for a reason to return and purchase from your app in the future.

test your options

Which option will work best for you will largely depend on your niche, your audience, their spending habits and preferences, and many other parameters that you can determine with a little research. Combinations do work sometimes. I’ll leave that to your own exploration.

Once you’ve made your choice, you can start testing with the percentages and prices. For instance, in the first-purchase-discount model, increasing the discount will drive more first-time clients to your app but will not necessarily generate as many lifetime-value customers.

You will have to test your way between different pricing models and ranges, and find the right balance which will provide you with the maximum revenue.

How do you maximize in-app purchases? Share your experience with us.

Topics: App marketing

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