Data provided here comes from our team of experts who have been working on business plan for a mobile app. Furthermore, an industry specialist has reviewed and approved the final article.
Is developing a mobile app a profitable venture, and what is the expected income range for app developers?Let's check together.
Revenue metrics of a mobile app
What is the revenue model of a mobile app?
The revenue model of a mobile app is typically based on in-app purchases, advertisements, or subscription fees.
How do mobile apps typically make money, what do they sell?
Mobile apps typically make money through various monetization strategies.
One common approach is through in-app advertising, where they display ads to users, and app developers earn revenue from advertisers based on impressions, clicks, or user engagement with those ads.
Another method is in-app purchases, where users can buy virtual items, premium features, or subscriptions within the app. Freemium apps offer a basic version for free and entice users to upgrade to a paid version with enhanced features or no ads.
Some apps generate revenue by selling user data to advertisers (though this practice raises privacy concerns), while others make money through affiliate marketing by promoting products or services and earning a commission on sales generated through their app.
Lastly, some apps charge a one-time purchase fee to download and use the app.
These diverse monetization strategies allow app developers to generate income while providing a variety of apps and services to users.
What is the pricing model?
The pricing model of a mobile app can significantly impact its success and how it generates revenue. Mobile apps use various pricing strategies to monetize their offerings.
Here are some common pricing models for mobile apps along with explanations and typical price ranges
Free Apps with In-App Advertising (Freemium)
Many mobile apps are offered for free on app stores and generate revenue through in-app advertising. App developers partner with ad networks to display ads within the app's interface.
The revenue is generated based on the number of ad impressions or user interactions with ads.
The price for users is typically free, with occasional ads displayed during app usage.
Free Apps with In-App Purchases (Freemium)
In this model, the app itself is free to download, but users have the option to make in-app purchases to unlock additional features, content, or virtual goods.
For example, mobile games often use this model, where players can purchase in-game currency or power-ups.
In-app purchase prices can range from a few cents to several dollars or more, depending on the item or feature being offered.
Paid Apps
Some mobile apps are offered for a one-time upfront fee.
Users pay a fixed price to download and use the app without any additional costs or ads.
The price of paid apps can vary widely, ranging from $0.99 to $9.99 or more, depending on the app's complexity and value proposition.
Subscription-Based Apps
Certain mobile apps require users to subscribe to access their content or services on an ongoing basis.
Subscriptions can be offered on a monthly, quarterly, or annual basis, with prices ranging from a few dollars to over $30 per month.
Content-based apps like streaming services, news apps, and productivity tools often use this pricing model.
Pay-Per-Use Apps
Some mobile apps charge users for specific actions or usage, such as downloading additional content, accessing premium features, or making transactions.
For example, a photo editing app might offer various filters for purchase, with prices ranging from $0.99 to $2.99 per filter.
Ad-Free Versions
In this model, users can download a free version of the app with ads, but they have the option to purchase an ad-free version at a one-time fee.
The ad-free version's price is usually higher than the initial price of the app and can range from $1.99 to $4.99 or more.
Limited Free Trial with Upgrade
Some apps offer a free trial version with limited functionality or a limited time period.
Users can then choose to upgrade to the full version for a one-time fee or a subscription.
Prices for the full version or subscription can vary based on the app's value proposition.
Donation-Based Model
Some mobile apps rely on voluntary donations from users who appreciate the app's functionality or mission.
Users can make one-time or recurring donations to support the app's development and maintenance.
Who are the customers of a mobile app?
Different customers use mobile apps for different reasons, ranging from entertainment to productivity.
Which segments?
We've prepared a lot of business plans for mobile apps. Here are the common customer segments.
| Customer Segment | Description | Preferences | How to Find Them |
|---|---|---|---|
| Young Professionals | Recent graduates and early career professionals looking for productivity and networking tools on the go. | Seamless user experience, integration with professional tools, social sharing features. | Target job search platforms, professional networking events, and online communities. |
| Parents | Busy parents seeking tools for managing family schedules, tasks, and communication. | Family-centric features, shared calendars, to-do lists, and messaging. | Parenting forums, schools, local family events. |
| Gamers | Enthusiastic gamers interested in mobile gaming and related community interactions. | Engaging gaming content, multiplayer options, in-game purchases. | Gaming forums, online gaming communities, gaming conventions. |
| Fitness Enthusiasts | Individuals focused on health and fitness, seeking workout plans and tracking tools. | Workout routines, health tracking, integration with fitness wearables. | Gyms, fitness classes, health and wellness expos. |
How much they spend?
In our analysis of the current market, users typically spend between $0 to $20 per month on in-app purchases within a mobile app. The actual expenditure varies significantly based on the app's nature, whether it's a game, productivity tool, or any other category, and what premium features or functionalities are being offered.
Data indicates that the average active duration of a user with a mobile app ranges from 1 to 6 months, as the competitive landscape often leads to users jumping between different apps. Some users might stick with an app for a short period, while loyal users may continue to use the app for an extended period or until they achieve their specific objective with the app.
Consequently, the estimated lifetime value of an average app user would be from $0 (1x0) to $120 (6x20). This estimation takes into account both users who only engage with free features, contributing no direct revenue, and those who make regular in-app purchases.
Given these factors, it's reasonable to assert that the average revenue per user for a mobile app hovers around $60. This figure is highly contingent on the app category, user acquisition strategy, and retention efforts.
(Disclaimer: the numbers provided above are generalized averages and may not accurately represent your specific business scenario. Various factors such as app niche, competition, market trends, and user behavior should also be critically considered in your personalized assessment.)
Which type(s) of customer(s) to target?
It's something to have in mind when you're writing the business plan for your mobile app development project.
The most profitable customers for a mobile app are often the "High-Value Users."
They tend to spend more money within the app because they find significant value in its offerings. They are typically well-engaged, returning frequently and making regular in-app purchases.
To target and attract them, start by identifying common traits among your existing high-value users, such as demographics, interests, or usage patterns. Then, tailor your marketing efforts to reach similar audiences through channels like social media, targeted advertising, and email campaigns.
To retain these valuable users, continue providing them with a top-notch user experience by offering fresh content, timely updates, and personalized recommendations. Additionally, reward their loyalty with exclusive perks, discounts, or loyalty programs, fostering a strong connection between the app and these high-value users, which will keep them coming back for more.
What is the average revenue of a mobile app?
The average monthly revenue for a mobile app can vary significantly, typically ranging from $1,000 to $300,000, depending on several factors like the app's nature, functionality, user base, and monetization strategy. Let's delve into specifics.
You can also estimate potential revenue for your own app under different scenarios, using our financial plan for mobile apps.
Case 1: A basic utility app with minimal features
Average monthly revenue: $1,000
This category represents a simple app, perhaps offering basic functions or serving a niche market. Often free to users, these apps rely on in-app advertisements for revenue.
Such an app might see around 10,000 monthly active users. Given that revenue is generated primarily through ad impressions or clicks, the earning potential remains limited. Assuming the app earns roughly $0.10 per user per month from ad revenue, you'd expect a monthly revenue of approximately $1,000.
Case 2: A popular productivity app with in-app purchases
Average monthly revenue: $50,000
These apps are more sophisticated, offering value that enhances productivity, such as task management tools, advanced photo editing, or language learning. They're popular in urban areas and professional communities.
Monetization strategies often include free initial download followed by in-app purchases or subscription tiers. These apps might attract around 500,000 active users each month. With additional features or premium tiers priced at about $1.99, if even 2.5% of the user base opts for purchase, it results in significant earnings.
Considering these factors, this type of app could generate an average monthly revenue of $50,000.
Case 3: A top-tier gaming or social media app
Average monthly revenue: $300,000
Here, we're discussing elite, highly popular apps. These are the games that go viral or social platforms that hit the mainstream, attracting millions of active users.
These apps often combine multiple revenue streams: advertising, in-app purchases, subscription fees, and sometimes even data-driven marketing partnerships. They continuously evolve, offering new content, features, or in-game advantages purchased by users.
With a diverse user base, let's say 10 million active users, even small individual payments can add up quickly. If the app promotes a $0.99 in-app purchase or subscription — a new level, ad removal, or premium content — and just 3% of users buy in every month, the figures escalate rapidly.
Under these circumstances, top-tier apps stand to rake in monthly revenues of around $300,000 or more.
It's important to note that these figures are subject to change based on the app's operational dynamics, market trends, and user preferences. Actual revenues could be significantly higher or lower based on these variables.
The profitability metrics of a mobile app
What are the expenses of a mobile app?
Developing and operating a mobile app involves expenses such as app development, maintenance, hosting, marketing, and customer support.
| Category | Examples of Expenses | Average Monthly Cost (Range in $) | Tips to Reduce Expenses |
|---|---|---|---|
| Development | App development team salaries, freelancers, contractors | $5,000 - $30,000+ | Consider outsourcing, hire remote developers, use cross-platform development tools |
| Hosting and Cloud Services | Server hosting, cloud storage, CDN services | $100 - $1,000+ | Optimize server resources, use scalable cloud solutions |
| App Store Fees | App store registration fees, subscription fees | $25 - $100+ | Maximize in-app purchases to offset store fees |
| Marketing and Advertising | User acquisition, ad campaigns, social media marketing | $1,000 - $10,000+ | Targeted marketing, analyze ROI, utilize organic growth strategies |
| Customer Support | Support team salaries, helpdesk software | $500 - $2,000+ | Implement self-help resources, automate support processes |
| Analytics and Monitoring | Analytics tools, crash reporting, user behavior tracking | $100 - $500+ | Choose cost-effective analytics solutions, focus on actionable data |
| Maintenance and Updates | Bug fixes, app updates, security patches | $500 - $2,000+ | Regularly maintain and optimize the app to prevent major issues |
| Legal and Compliance | Legal consultations, compliance checks | $100 - $500+ | Stay compliant with data protection laws and app store guidelines |
| App Development Tools | Software licenses, development frameworks | $100 - $500+ | Explore open-source alternatives, use free development tools |
| Testing and Quality Assurance | Testing devices, testing tools, QA team salaries | $500 - $2,000+ | Implement efficient testing processes, consider crowdsourced testing |
When is a a mobile app profitable?
The breakevenpoint
A mobile app becomes profitable when its total revenue exceeds its total fixed and variable costs.
In simpler terms, it starts making a profit when the money it earns from in-app purchases, advertisements, subscriptions, or even one-time purchase price becomes greater than the expenses it incurs for development, hosting, staff salaries, marketing, and other operating costs.
This means that the mobile app has reached a point where it covers all its expenses and starts generating income, we call this the breakeven point.
Consider an example of a mobile app where the monthly fixed costs typically amount to approximately $10,000.
A rough estimate for the breakeven point of a mobile app, would then be around $10,000 (since it's the total fixed cost to cover). If the app, for instance, uses a subscription model charging $2.99/month, it would require approximately 3,345 active subscribers per month to break even.
You have to know that this indicator can vary widely depending on factors such as the platform, marketing strategy, monetization model, operational costs, and competition. An app with extensive features and high development costs would obviously have a higher breakeven point than a simpler app that requires less capital.
Curious about the profitability of your mobile app? Try out our user-friendly financial plan crafted for app developers. Simply input your own assumptions, and it will help you calculate the amount you need to earn in order to run a profitable app business.
Biggest threats to profitability
The biggest threats to profitability for a mobile app can include fierce competition, changing user preferences, and rising user acquisition costs.
With thousands of apps vying for users' attention, it can be challenging to stand out and attract a loyal user base.
Users' preferences and needs can evolve rapidly, making it crucial for app developers to adapt and update their offerings accordingly, which can incur additional development and marketing expenses.
To maintain profitability, mobile app developers must navigate these challenges by continuously innovating, staying attuned to user feedback, and efficiently managing their marketing budgets to ensure a sustainable revenue stream.
These threats are often included in the SWOT analysis for a mobile app.
What are the margins of a mobile app?
Gross margins and net margins are financial metrics used to gauge the profitability of a mobile app business.
The gross margin is the difference between the revenue earned from app purchases, subscriptions, and in-app purchases, and the direct costs associated with developing those services.
Essentially, it's the profit remaining after deducting the costs directly tied to creating and maintaining the mobile app, such as software development, app store fees, and cloud hosting services.
Net margin, conversely, encompasses all the expenses the business faces, including indirect costs like administrative expenses, marketing, office space, and taxes.
Net margin offers a comprehensive view of the app's profitability, considering both direct and indirect costs.
Gross margins
Mobile apps generally have an average gross margin ranging from 70% to 80%.
This implies that if your app generates $20,000 per month, your gross profit will be approximately 75% x $20,000 = $15,000.
Let's elucidate this with an example.
Suppose an app with 1,000 users, each spending $20 on in-app purchases, resulting in total revenue of $20,000.
However, the app incurs costs like development, maintenance, and app store fees.
Assuming these expenses amount to $5,000, the app's gross profit would be $20,000 - $5,000 = $15,000.
In this instance, the gross margin for the app would be $15,000 / $20,000 = 75%.
Net margins
Mobile apps usually have an average net margin ranging from 30% to 55%.
Simply put, if your app earns $20,000 per month, your net profit might be around $6,000, which is 30% of the total revenue.
We'll continue with the same example for consistency.
If our app has 1,000 users, with each spending $20 on in-app purchases, the total revenue would be $20,000.
The direct costs, as previously stated, would be about $5,000.
Besides, the app business faces various indirect costs like marketing, administrative expenses, research and development, and possibly office space. Suppose these additional expenses total $4,000.
After deducting both direct and indirect costs, the app's net profit would be $20,000 - $5,000 - $4,000 = $11,000.
In this scenario, the net margin for the app would be $11,000 divided by $20,000, equating to 55%.
As an entrepreneur, recognizing that the net margin (in contrast to gross margin) offers you a clearer insight into how much money your app business is genuinely earning since it accounts for all operational costs and expenses.
At the end, how much can you make as a mobile app owner?
Now you understand that the net margin is the indicator to look at to know whether your mobile app is profitable. Basically, it tells you how much money is left after you have paid for all the expenses, including development, marketing, and staff salaries, if applicable.
How much you will make will, of course, depend on how well you execute your business strategy and the app's overall performance.
Struggling app owner
Makes $500 per month
If you launch an app without proper market research, poor user interface, minimal marketing efforts, and no plan for regular updates or customer feedback, it's unlikely that your total revenue will exceed $2,500.
Moreover, if you don't manage your operating and marketing expenses effectively, your net margin (profitability) might not surpass 20%.
In simpler terms, this means that your monthly earnings would be limited to a maximum of $500 (20% of $2,500).
So, as an app owner, this is the worst-case scenario for your income.
Average app owner
Makes $6,000 per month
Suppose you create a well-designed app that caters to market needs, backed with a decent marketing strategy. You invest in customer feedback, implement regular updates, and perhaps monetize through ads and in-app purchases.
Your total revenue could be significantly higher, possibly reaching $30,000.
With smart management of your expenses, including marketing and server costs, your net margin could comfortably sit at around 30%.
Under these conditions, your monthly earnings would be approximately $6,000 (30% of $20,000).
Successful app owner
Makes $50,000 per month
You put in the effort to understand your target audience deeply and build a compelling app that not only meets their needs but exceeds their expectations. Your app provides unique value, leading to organic word-of-mouth marketing in addition to your well-planned promotional strategy.
You're not afraid to invest in top-tier talent, and you continuously innovate, keeping your app relevant and competitive. This dedication could elevate your total revenue to $200,000 or even higher.
Through meticulous expense management and perhaps lucrative partnership deals, you could achieve a net margin of around 40%.
In this ideal scenario, the monthly earnings for a top-performing app owner would be around $50,000 (40% of $125,000).
Realizing this level of success is challenging but attainable with a carefully crafted business plan for your app, ongoing analysis of market trends, and a persistent focus on customer satisfaction.