Subscription-Based Apps: Pros, Cons, and How to Make the Big Bucks
Paid subscription is just one of many app revenue models, but subscription-based apps have become increasingly more popular and prevalent in recent years.
In this revenue model, when users subscribe, they’ll pay you a monthly fee for access to your app. In exchange, subscription apps must work to retain their customers by continuing to offer new and incentivizing features.
Today we’re exploring why subscription based apps have become the new revenue model favorite, and what makes this type of app so successful (as well as challenging).
Benefits of Subscription App Models: Why Devs Love ‘Em
Apple Adores Them and Offers Big Bonus
Seeing the trend and popularity of subscription apps, last year Apple introduced a change in the App Store that emphasizes app subscription business models over others by offering developers an 85/15 revenue split (rather than the standard 70/30 split) for subscriptions lasting over a year.
Basically, Apple wants to reward you for keeping a customer for a longer period of time.
This extra cut of the App Store pie is a pretty huge deal for app developers, leading those who were on the fence about subscription-based apps to give this revenue model a closer look.
Subscription-Based Apps See Great Revenue
The additional App Store revenue isn’t the only financial benefit of the app subscription structure. Subscription-based apps tend to see higher revenue per user than apps with other business models.
One VisionMobile study showed that subscription-based apps earned 2-3 times more per user than apps that relied on advertising or a pay-to-download model, while also earning nearly 50% more than apps relying on in-app purchases for revenue.
Subscription Apps Result in More Reliable Income
Subscription-based apps offer a very nice, steady source of reliable income, especially compared to other app revenue models.
When you know your revenue per user, and can trust that your cash flow will grow with each additional new user you acquire, you can sleep a bit better at night.
This trust in your revenue flow allows apps to be more confident in their marketing efforts and in planning major feature upgrades that can be developed without constant fear of things collapsing.
Mobile apps relying on subscriptions also have the added bonus of even more predictable, reliable income by offering discounts for longer subscription periods.
Many apps will offer discounts for users who commit to 6 or 12 month subscriptions. It’s a win-win for everyone; users love saving money and will often opt for the lower price plan with the extended commitment, and app developers can make reliable revenue projections. The benefit of knowing that at least a portion of your user base will be paying you for the next 6 or 12 months usually far outweighs any money lost through the discounted rate.
Being able to offer discounted subscriptions also offers apps some unique retention options. If a user churns or unsubscribes from your app, you may be able to rope users back in by providing their future monthly subscriptions at a discount.
I’ve myself have had this offer given to me when unsubscribing from a few monthly services and the discount often convinces me to stay put!
Subscription Based Apps Results in More Engaged Audience
The subscription app model also provides a higher likelihood of an engaged audience.
Maintaining app engagement is a huge challenge for many apps, but it tends to be easier for subscription apps since users are more actively invested in making sure they get as much out of your app as they can.
When people pay to subscribe to your app, they’ll use the app more often because they want to make sure they get their money’s worth! Since users are paying for your subscription each and every month, they feel obligated to use your app, resulting in a more engaged audience.
Of course it’s your job to foster that engagement and make sure that users have interesting, rewarding experiences each time they choose to engage with your app. If users don’t feel they are getting enough value from your app, they’ll unsubscribe as soon as they can.
Challenges of the App Subscription Model
While there are many benefits to the app subscription model, it’s not all sunshine and rainbows – there are certain challenges that go with this revenue stream as well.
You Need to Continuously be Providing New Features and Content
Since users are paying you a monthly, recurring fee, they’ll expect more than they would for a one-off app payment. When you’re asking your users to pay you each month for access to your app, you’re really obligated to continuously provide new content and/or features for your user.
It’s essential that you make it clear to your users that you’re in this for the long haul! Consistent updates and bug fixes are no brainers, and while you don’t need to release a new build every week, your app needs to be stable and you’ll need to continue to adopt new, impressive features to excite your paying customers.
It’s also smart to make sure you’re getting in touch with your users regularly to remind them of all the great new stuff you’ve launched.
Personalization can help a ton with keeping users happy and satisfied with your app’s value – keep tabs on what kinds of content or which features an individual user frequents the most, then make sure to send a push notification and email when you launch updates that will connect with their specific interests.
Onboarding / Free Trial Period is Vital and May Require Tweaking
Users need to be properly onboarded to understand the true value of your app (and why they should continue paying for access to your app each month). Attention really needs to be given to making sure users can get up and running without too many roadblocks.
Subscription apps also often struggle with figuring out how to best handle the user trial period. Most users will need some kind of temporary access to your premium content in order to be convinced of subscription on a per month basis.
All apps do this differently – for some, the first week or even month is free. Spotify offers their premium service for 99 cents for the first month. Hulu offers two weeks of their streaming service for new sign ups. Figuring out the precise amount of time users need to get won over by your service can be tough.
With other apps, certain features can be used for free indefinitely, but the higher value benefits being for the paying customers.
“No-one can tell you how much you should offer for free or for how long, and even A/B testing has its limits…The important thing is that new users have to understand the value your app holds, and they can only do that by trying it out, sometimes for a long time, if they use it infrequently.”
Subscription Apps Need Great Support
Solid support is ideal for all apps, but it’s certainly more important for some than others.
With single purchase apps, users are more likely to buy the app and never get in touch again. However, subscription buyers will expect to get their money’s worth, and they’ll want a decent level of service for their dollar.
Support teams can be pricey, but since subscription apps result in more engaging, active users, support will be essential. The good news is that the recurring revenue from the subscription-committed users can help fund your support team. And having a great support team means that your users are more likely to stick around and not churn.
If Transitioning to a Subscription Model, You May Get Some Backlash
Launching your app with a subscription-based revenue model is one thing, but transitioning from a one-time fee to a monthly charge can result in some serious backlash from existing users.
To once again quote Adrian Hon of the Zombies, Run fitness app, Hon recalls how outraged some users were when they changed to a subscription model and notes:
“A shitstorm erupted, mostly on our subreddit, in which we were accused of being ‘greedy devs’. Attempts to politely engage were consistently rebuffed. It was incredibly stressful and disheartening.”
What’s crazy is that Zombies, Run actually took great care of their existing players, who received all content and features developed up to that point in time for free, plus a discounted subscription option for future content.
Still, some people really hate change, and some individuals raged hard.
I was a Zombies, Run user when this transition went down, and I have to say, it was a bit confusing, and I stopped using the app for a while because I didn’t quite understand what I had access to and what I didn’t.
When making a transition from a single fee to a subscription app model, make sure to be clear with customers and treat them well. After all, it’s your existing user base who will help get new fans on board, so don’t be stingy with them!
Which Types of App Succeed at the Subscription Model?
While nearly any apps can attempt a subscription model, they tend to be better suited towards certain types of apps:
- Content apps. Recurring subscriptions in exchange for new content is a tried and true business method that’s already been successful offline for years – magazines and newspapers being the most obvious examples. This works well for digital content as well, whether it be news articles, music, or video content.
- Service Apps. The category of “service apps” is a pretty huge umbrella covering a wide variety of apps, from digital storage to social scheduling. Productivity apps like Todoist, Evernote, and LastPass are more examples of service apps. However, subscription-based apps can’t simply release a great service and then update the app occasionally – you’ll need to commit to regular product updates that will truly wow users.
Where the Subscription App Model Won’t Work As Well
- Single Purpose Apps. Apps designed for specific, small solutions probably won’t have enough value to justify asking for recurring monthly payments. For example, alarm clock apps or dictionary apps.
- Gaming Apps. I have yet to see many gaming apps successfully pull off a subscription-based model. While some more massive console or PC games require subscriptions, they also regularly release huge upgrades and additional content. Most gaming apps prefer instead to rely on in-game micro transactions for revenue.
- Shopping Apps. If users are utilizing your app as a gateway to purchasing products, you can’t really ask them to pay a monthly fee as well (unless that fee provides some additional discounts, free shipping, or other major bonuses).
Ultimately, subscription-based apps offer a very powerful and reliable revenue stream that’s attractive for many app developers. However, you’ll need to make sure you can provide plenty of new features and/or fresh content over time, along with great support, to really make this model work for you.