Beyond installs: How to generate revenue with in-app purchases

Written by Raquel Ríos Dafonte - Marketing Specialist at Techsoulogy
Created Jul 28, 2023 - Updated Aug 03, 2023 | 5 min read
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Once you have gotten installations for your app, the really interesting work begins in order to really take advantage of it: monetizing it. In other words, generating revenue.

For this, you can resort to different monetization strategies depending on whether the income comes from advertisers, third companies, or the users themselves. One of the latest formulas in which users pay is in-app purchases. Let’s see what they are and how you can use them to generate revenue with your app.

What are in-app purchases?

In-app purchases (IAP) are additional content, goods, or services that users can purchase within a mobile app. This is a monetization strategy that usually consists of offering a basic version of the app for free and additional benefits for users who are willing to pay.

In-app purchases can be implemented in different ways and the most common is to integrate them either as part of the content of the app, offering the user some type of reward (to move up a level, get an extra life, a new character, or a functionality which is blocked in gaming apps), or in the form of a commercial offer of a product or service that is not part of the content of the app.

To make these purchases, users can enter their bank details directly into the app or make payments through app stores. In the latter case, Apple and Google will charge the developer of the app a commission for each transaction, which is usually between 15% and 30%.


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Types of in-app purchases

Depending on the nature of the product or service purchased, we talk about two main types of in-app purchases:

  1. Consumables: when you buy something that can only be used once and it is spent. For example, the extra lives in video game apps that, once exhausted, would have to be bought again, or any physical product that is purchased in eCommerce apps.
  2. Non-consumables: unlike consumables, non-consumables are purchases that are not spent, but are always usable in the app. Following the example of games, a non-consumable purchase would be the unlocking of a specific level or functionality. The same is true with an eBook that, once purchased, you always have saved.

In a way, the subscription models of some music or audiovisual content consumption apps are also in-app purchases or models of the monetization of apps based on a monetary flow originating from the end user. However, the difference lies in that, while in-app purchases are usually referred to as one-time purchases that are made at the present time, subscriptions are recurring payment commitments with a future periodicity of either weekly, monthly, or annually.

How to use in-app purchases to boost your revenue

The first thing to keep in mind is that in-app purchases are directly proportional to the engagement an app has. That is, the more time users spend in your app and the more they interact with it, the more likely they will see a notification, consider it and decide to buy it. Hence, the first tip to boost your income with in-app purchases is to encourage participation and engagement.

For example, a user of a language app who enters their lesson every day is a highly engaged user who is more likely to respond positively to a notification to buy a product or extra course material than another user who uses it more sporadically and is not as loyal. That is why it is important that you know your target and measure KPIs such as the average daily active users (DAU) and monthly (MAU) that interact with your app, average revenue per daily active user (ARPDAU), average session duration and user retention, among others. All these indicators will give you clues about the engagement of your users, opportunities, and weaknesses to encourage in-app purchases.

The first thing to boost your revenues with in-app purchases is to encourage engagement.

Second tip: offer incentives, rewards, discounts, or offers so that the user sees the benefit quickly and is encouraged to buy. You can even implement this personalized strategy based on the data you know about this user and its context. That is, you can offer an in-app purchase to a user who has just finished completing a level of your gaming app, taking advantage of the positive context that this produces. Or send a push notification if a product is running out which has been put in the basket of an e-commerce app, but the purchase wasn’t finalized. You could even suggest a similar one if it has sold out. It is about analyzing and tracking the data you have on your users to identify in-app purchase opportunities and even work on user engagement and retention to maximize revenue.

In addition, it is important that the discount or reward is communicated well, using the right copy and designs so that the added benefit and value are seen clearly within a few seconds.

Thirdly, you must take care of every shopping experience and, above all, the first one. The leap from using your app for free to making a purchase on it is a big step. That’s why you should think carefully about the pricing strategy of that first purchase and the most appropriate time to show it. Don’t offer purchases too early, or ever interrupt the user experience to offer paid content. If the user is in the middle of a game and you offer them an IAP before they can finish and level up, you won’t get them to buy. On the contrary, this will make them angry and cause them to not buy or continue using the app. In fact, the strategy is just the opposite: offer in-app purchases when they really help. For example, when the user has lost the game and has not managed to pass the level is the ideal time to offer the possibility of paying to complete the level next time. The same thing happens in other types of apps such as dating. When the user is actively sending likings and runs out of this function, offering a purchase to continue sending likes can be very timely.

And for those first-time shoppers, it might be a good idea to offer them a free trial of premium content and give them a chance to enjoy the benefits for a limited time to convince them to buy and even make a much greater upgrade than originally planned.

Finally, you would ideally conceive the possibility of offering in-app purchases from the beginning of the design and development of your app. Only in this way will you be able to integrate them organically with the content and ensure the consistency which is so necessary for this monetization strategy to work and yield the maximum possible revenue. This integration involves thinking about the appearance of the IAPs as well as the different purchase models that you can use and the payment process so that the experience is fluid, simple, and safe; even offering customer service to assist users with incidents and queries.

Final thoughts

With in-app purchases, the potential to generate revenue is limitless if you approach users correctly and offer them just what they’re looking for at that moment. To ensure maximum revenue, you must constantly analyze the buying behavior of your users and optimize your offers based on what you learn. One way to do this is to perform A/B testing between different IAPs. Remember that creativity will always be your great ally to generate revenue with your app. Both to promote in-app purchases and for any other monetization model you choose.

Stick with these tips to maximize revenue with in-app purchases:

  • Work on engagement to increase the chances of users making purchases in your app
  • Offer different types of purchases (consumable and non-consumable) with different pricing strategies
  • Subscription models are also in-app purchases or monetization models of apps with payment periodicity
  • Monitor your users’ data to generate the best and most personalized shopping experience possible
  • Impact the user at the most suitable time to make a purchase. For example, to help them level up in a game or when the product they had in their shopping cart is about to sell out
  • Offers incentives, rewards, and discounts for the user to clearly see the added value of paid content
  • Take care of the shopping experience, especially if it is the first one, and never interrupt the user experience
  • Conceive the possibility of offering in-app purchases from the beginning of the development of your app to ensure the consistency and efficiency of the monetization strategy

Also, remember that another way to generate revenue for your app is through in-app advertising. At Tappx we are specialists in this monetization strategy, and we can help you customize it according to your objectives to generate the maximum possible revenue.

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