Between 2013 and 2014, freemium app revenues grew by over 70% indicating that the freemium monetization model for mobile apps has been a very profitable one so far. Generally speaking, the freemium model is a strategic way of making money through free apps. The very point of this model is to onboard new users, get them hooked to your app and then charge them for gated content or offerings.
If you don’t have a lot of users willing to pay for your premium features, you’re doing something wrong. Here’s what you can do to improve your in-app purchases instead of blindly hacking away at it:
1. Use the ‘Decoy Effect’ to your Advantage
Dan Ariely, a professor of behavioral economics and the popular author of ‘Irrationally Yours’ and ‘Predictably Irrational’ – digs deep into the human psyche to explain how we make decisions. If anything, our decision-making skews towards irrationality. He proved that when a customer is presented with three different pricing options – he goes with the one that looks like the best bargain. For e.g. if you want to sell virtual currency or a ‘new life’ through in-app purchase model, you should list three different prices:
Virtual currency: $5
New Life: $15
Virtual currency + New life: $10
In the above example, the customer will be more inclined to go with the third option. As Paul Olyslager points out, just including a third pricing option that’s made to look like it’s a better deal or a “popular” deal (by being partially better one of the other two options) could heavily affect decisions consumers make. This is also called the “Decoy Effect” – the asymmetric dominance effect. It is largely exploited on the web today (especially with pricing tables).
Take a look at Apple’s Pricing Strategy, The Economist, or The New York Post and the decoy effect makes it all happen.
2. Give Just Enough to Bait Users
The freemium model needs some strategic thought to be implemented. You have to make your offering good enough to attract first time users but not good enough to give away everything for free. The balancing act can be tricky but that’s what you’ve got to nail. Take a cue from many of the popular SaaS businesses we have today: there are free plans and these free plans give you only so much. While you use these apps or design your workflow around these tools over time, the premium features will almost make you feel like you are losing out on opportunities.
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The free options for each of these SaaS tools give you almost everything; but just not “everything”. For that, you’d need to upgrade. Make those in-App purchase a logical upgrade to awesomeness.
3. Selling is Effective only when you Time it Right
The carrot and stick approach to marketing almost never fails, and there’s a reason why the “freemium” model has long been a successful model. Let your customers download and use the app. Give them enough reasons to make your app indispensable (like Evernote or Pocket) and only charge for an upgrade.
Consider Evernote: the free version app already has everything an average user needs. However, a message pops up each time you are close to exceeding the storage limit or if you’d like to use premium features such as the “presentation” mode or the encryption feature. When Evernote does it, the offer seems “logical” and not “pushy”.
It’s called the “choke point” and for successful apps such as Evernote, Natural Motion, or CSR Racing – offers come up just when users need more.
4. UI Elements Will Make It Or Break It
The design of an app isn’t just art; it’s using visuals to profitability. Approach to app design has to have an end goal in mind, and In-App Purchases certainly do fit in. You have to use specific techniques and relentless testing to make sure your UI elements work. Because come to think of it, what is the point of inserting a ‘call to action’ when your users can’t see it.
The ideal way to design a freemium app is to work with a team of expert UI and UX designers but if you want to do it yourself, start with the “blur test” where the most important call to action element should be visible even if you squint your eyes or watch the screen with butter paper. Add badges, social proof, white spice, and a common visual language your users can relate to.
5. Respect Those Who aren’t Ready
Modern day marketing is yet to come to terms with the modern-day consumer mindset. Over the years, consumers (that includes you too) have developed an uncanny ability to shut marketing messages off. We now almost instinctively ignore anything that closely resembles an ad, a play for marketing, or a direct push to sell.
Go with the times and respect those who aren’t ready to do an In-App Purchase yet. Let your offer hang about – in full-view – but don’t push too hard. Real Racing 3 failed precisely due to aggressive In-App selling tactics. At every point in the game, you’ll see that you ‘have’ to pay in-game currency in order to progress. Even after you upgrade, a countdown timer pops up, which can only be skipped by shelling out more currency. This leaves you with no option but to quit. If you let in-app purchases permeate every aspect of your app, it can end up alienating your users.
Keep Optimizing and Innovating
Unlike other monetization models, the freemium strategy can be adapted to any category of app – music, media, games or ecommerce. App developers can sell upgrades, virtual currency, additional time, extra lives, premium content and even an ad-free version of their app through in-app purchases. But if you are selling, cross-selling, or up-selling through your mobile app, you’d do well to make noticeable improvements to your app interface, deploy marketing strategies that work for you, and boost sales ultimately.
If you want to explore the freemium model in detail or explore other monetization models, watch out for the release of our new Ebook. Subscribe to our newsletter and be the first one to be informed.
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