The subscription app market is growing at an exponential rate. According to Statista, in 2020, the annual spending in the top 100 subscription apps in the U.S. reached the $4.5 billion mark on the App Store and $1.4 billion on the Google Play Store. Moreover, on the worldwide arena, Sensor Tower indicates that “the top 100 subscription apps generated $10.3 billion on the App Store, and $2.7 billion on Google Play”. With so much growth and spending potential — no wonder developers are interested in monetizing their creations through subscriptions.
Annual spending in the top 100 subscription apps in the United States from 2016 to 2020 by platform
For those just starting with app development, it might be worthwhile first to check out the most popular app categories. By getting insights into the most successful apps, you can better identify the direction you want to take with your development project.
Today, we will discuss everything you need to know when getting started with subscription-based apps:
- What are subscription apps, and how do they work?
- Pros and cons of subscription apps
- Key metrics
- Must-have services for subscription apps
- Starting your subscription-based app journey
Let’s dive in!
How do subscription apps work?
Subscription-based apps are self-explanatory, but let’s ensure we are on the same page. Unlike traditional purchases, where customers pay once to get the product, a subscription model allows them to pay a recurring fee to continue accessing the premium features. Applications like YouTube, Tinder, Headspace, and Disney+ are excellent examples.
Online app marketplaces like the App Store and Google Play have a massive role in the subscription app business. They’re the places where end-users go to find your application. Unsurprisingly, these platforms don’t grant you free access to the developer ecosystem. Instead, they charge a commission.
However, not every app developer has to pay a commission—only those who sell digital goods or services via their app. As you can imagine, subscription apps fall into this category.
The App Store and Google Play have similar commission structures, but let’s examine each one separately.
App Store
Apple’s App Store typically charges a 30% commission in the first year and 15% after that. However, Apple added another way for developers to decrease commissions last year. The company announced its new App Store Small Business Program. It aims to accelerate innovation and help small businesses by offering eligible developers the opportunity to reduce their commission to 15%.
If you’re a little confused — don’t worry. Apple’s in-app purchase fees can be easily understood via this table:
If you’re a small business owner, you’ll likely want to check your eligibility and apply for the Small Business Program. It’s an excellent opportunity to increase your share and reinvest the money into scaling your business. Enrolling in the program isn’t too complicated, but follow these steps to avoid mistakes.
Once you’re up and running, you’ll be interested in receiving your share. However, Apple Fiscal Calendar might be confusing to a newbie. Hence, check out our quick guide to Apple’s fiscal calendar year and payout dates. The most critical aspects that you need to know are there. Don’t forget to bookmark it for future reference!
Google Play
As we’ve previously mentioned, Google and Apple have similar commission structures. Google Play also charges a standard 30% commission in the first year and drops the rate to 15% in the second year.
Moreover, following Apple’s suit, Google also announced a 15% commission cut for developers. Just like iOS and Android, the two marketplaces are competitors. Hence, it’s no wonder that their commission structures are so similar.Surprisingly, Google Play’s payout to developers is much easier than that of Apple. It simply occurs on the 15th of each month for the sales made in the previous one.
Why use a subscription-based app monetization model?
Now that you understand how subscription-based apps work, it’s time to learn about other monetization models and why subscriptions are the best option.
1. In-app advertisements
First, let’s briefly cover the alternatives:
With in-app advertising, you earn revenue by showing ads on your application. It’s one of the most popular monetization models and suits almost all apps. Typically, the app is free for users, while owners earn revenue from advertisers. However, it’s also possible to combine this strategy with others.
2. Consumable in-app purchases
In-app purchases usually work as add-ons within apps. By purchasing an in-app offer, a user can gain access to additional features or goods. For example, take the gaming category as a life point; extra time and valuable items are the typical in-app purchase offers.
3. Paid download
Paid apps are probably the easiest to understand for anyone outside the industry. It’s the monetization model that we face most often in our daily lives. In this case, you pay once and get the entire application functionality. However, it’s an approach that’s losing popularity thanks to the vast benefits of subscriptions and in-app purchases.
4. Affiliates
Affiliate marketing isn’t exclusive to the mobile application industry; you’ve likely heard of this revenue stream before. This profit-generating method involves joining an affiliate program and sharing unique links within your app that let you earn a commission every time a user clicks or converts into a lead or a sale for your affiliate partner.
5. Data monetization
Finally, data monetization is a less common model but one that might gain traction in the years to come. As a developer, you can access much user data, and companies are willing to pay for it. Researchers, marketers, and anyone interested in your target audience’s behavior might want to buy the non-personal data you can access.
You now know all the major app monetization models, but let’s not forget the main one we discussed today. Subscriptions provide a multitude of advantages, so we need to take a closer look at each one.
Advantages of subscription apps
A subscription-based monetization model offers quite a few benefits:
Lower entry barriers for customers
With a subscription, you can charge visually “smaller” numbers that look more attractive to potential clients. For example, a $5 monthly payment looks more appealing than a $100 one-off payment. Hence, subscriptions can attract more customers to your application as they provide a lower barrier to entry.
Recurring revenue
The beauty of a subscription-based app is its predictability in terms of revenue. Of course, you must work on keeping your subscribers, but generally, it is an excellent source of steady, reliable income.
Stronger customer relationships
Customers will automatically engage more in your application’s activities because they must pay regularly to maintain access. Hence, you get a highly engaged audience eager to get the most out of the app. As a developer, you can then use this increased engagement to fuel the creation of new features and keep subscribers for the long term.
Downsides of subscription apps
Every business model has a few drawbacks. So, we also need to cover the disadvantages of subscription apps so that you can be more informed about the implications of choosing this model.
You have to provide new content continuously
The downside of recurring billing is that you need to keep users interested in staying subscribed. Hence, customers expect regular new features and content. Ideally, you should be clear about the frequency of the updates and always keep working on providing valuable new materials.
You must ensure excellent support
Of course, excellent customer support is essential for all kinds of apps. However, subscribers will expect to get their money’s worth at every turn. If you fail to fix a problem quickly and smoothly, they’ll lose time off their subscription period and won’t be thrilled about it. Conversely, if you consistently deliver excellent support, you’ll leave a lasting positive impression on the users and increase the likelihood of them becoming your promoters.
You need to offer a trial period
This may not be a drastic downside, but it is something to remember. It would be best if you allowed customers to try out your app. Otherwise, how can they decide whether to commit to a recurring payment? Moreover, the trial period shouldn’t be a simple access-granting option but a thought-through onboarding process. Without onboarding, you’ll leave users stumbling around the app without discovering its full benefits. Overall, you must ensure you “wow” the users in the short amount of free trial time while they are with you.
Critical metrics for subscription apps
We’ve covered how subscription apps work and their significant pros and cons, and now it’s time to discuss critical metrics.
In any mobile app business, performance tracking is imperative. Every mobile app needs several essential metric formulas, but we’ll only cover the top ones today.
Daily active users or monthly active users
The Daily Active Users (DAU) and Monthly Active Users (MAU) metrics show how many individuals use your app daily or monthly. Since both these metrics indicate the number of active unique users, they are invaluable for understanding how well your app performs for the people who have installed it. After all, if a thousand customers have downloaded your app, but only ten are actively using it — there might be a problem.
Subscribers and active subscribers
The subscribers metric is relatively self-explanatory. It’s the amount of users who have chosen to pay for your premium features. On the other hand, the active subscribers number refers to those who have not only been paying for premium features but haven’t churned. In short, they haven’t canceled the subscription for the next billing period yet.
Monthly-recurring revenue or annually-recurring revenue
Monthly Recurring Revenue (MRR) and Annually Recurring Revenue (ARR) indicate the revenue growth of your subscription mobile app. As the name suggests, these metrics illustrate the average revenue you are getting monthly or yearly. Usually, both can serve as benchmarks to maintain and are great numbers to show potential investors.
Churn rate
The churn rate shows the percentage of customers that have chosen to unsubscribe from your app’s full features. Knowing how many users are churning is vital. A high churn rate speaks volumes about your existing features and calls attention to the fact that it might be time to think of creative ways to retain your customers.
Lifetime value
The Lifetime Value (LTV) metric helps identify whether customers bring enough value to your company. LTV should be greater than the customer acquisition cost. Otherwise, you’re losing money. If you see that you’re doing well after calculating your LTV, your long-term strategy will likely focus on increasing this metric since a higher LTV translates into higher profits.
Cost per acquisition
Cost Per Acquisition (CPA) centers on attracting new customers. This metric is often used to determine the success of a marketing campaign. If the price of converting a user to a subscriber is very high — your campaign didn’t do so well. In short, the lower the CPA, the better your marketing campaign performance.
When managing a successful subscription app, you need to keep track of these metrics. Mobile subscription analytics helps you stay on top of your game.
Must-have services for subscription apps
Some services may be needed for a subscription mobile app to have long-term success and perform at the highest level. Whether it helps with analytics or tools that improve marketing efforts — finding the must-have services for your app is non-negotiable. So, let’s cover some of the typical services subscription-based apps turn to when looking to scale their business.
Attribution
Attribution refers to the ability to match marketing campaigns with installations. How many users did a specific campaign attract? Which traffic channel drove the latest addition of users? What banner ad has proven to be most effective? You’ll be able to answer these questions with traffic attribution services.
So, what traffic attribution providers are out there? Some of the most popular include:
In essence, all these services help mobile app developers improve marketing performance. However, providers may offer slightly different services and rates, so it’s worth doing your research before committing to one.
Product analytics
Moving on to product analytics, these services help you better understand existing users. What do they do inside your application? Which features are the most popular? In short, these services are similar to Google Analytics for websites.
The two most popular product analytics providers are Amplitude and Mixpanel. Both provide insights into user behavior and product usage and are similar tools. Everything depends on your personal preference. It might be worth checking both out to discover which is more intuitive for you to use.
Push notifications
The third must-have service is push notifications management. As you probably know, push notifications are critical in subscription-based mobile apps. They improve the user experience of relevant activities and notify you that they can help you win back lost customers.
OneSignal, Airship, and Firebase are the established, ready-made push notifications tools that you can already start using. They differ in pricing and certain features but are worth the bucks if you want to develop a coherent push notifications strategy.At Qonversion, we take push notifications a step further. You see, services like OneSignal and Firebase may only sometimes be enough for complex automation. For subscription apps to have the ability to win back lost customers, push notifications must be triggered by any subscription event, even when the app isn’t running. So, if you want to enhance your push notification strategy — don’t hesitate to reach out.
In-app purchases or subscription data platforms
Finally, in-app purchase data platforms are a must for app owners, developers, and marketers looking to manage user access to paid content better. Of course, you can always build your purchase infrastructure, but that’s not the most viable option for many mobile app providers.
Qonversion is the service you can turn to when looking for cross-platform backend infrastructure, integrations, analytics, and growth tools. We help you grow your app faster and serve as a single source of truth for mobile app data.
The previous three must-have services don’t show data about purchases, subscriptions, trials, references, etc. Hence, you need a tool to send subscription data to the abovementioned platforms! Qonversion’s integration service was created precisely for that. It can track and send many events to 3rd party analytics and marketing partners. Thus improving the depth of insights you get.
So, why do you need Qonversion? Please propel your subscription-based app forward and avoid the common roadblocks mobile app creators face while scaling their businesses.
Ready to start growing with subscription apps?
You now know everything about getting started with subscription-based apps — how they work, why this monetization model is great, the key metrics to track, and the must-have services to implement.
It may seem overwhelming initially, but a thorough approach is necessary to build a successful subscription app. Take the entire process step by step and make sure you’re leveraging the tools that can aid business growth.
The Qonversion team is always happy to help you grow in-app subscription revenue, so don’t hesitate to contact us. We’re looking forward to collaborating with forward-thinking companies!
Michael
CEO at Qonversion
Michael leads Qonversion with a vision to help mobile apps maximize their subscription revenue.
