The app subscription model: strategies for recurring profits

The landscape of app monetization has evolved significantly with the introduction of the app subscription model in 2011. Apps like Tinder, Netflix, and Spotify led the way for even more apps across diverse categories like fitness, photography, and even gaming to adopt subscription models. Today, only 5% of apps monetize with the subscription model, but they bring in billions of dollars.

But how does this model work, and what benefits can it have for your app? In this article, we'll delve into the app subscription model, its various pricing approaches, and real-world examples of successful implementations. From understanding the fundamentals to exploring strategies for maximizing recurring profits, let's unlock the potential of the app subscription model together.

6 app subscription statistics you need to know 

Before we get started, let’s take a look at some app subscription statistics to put things into perspective:

• According to some very promising statistics, the combined revenue of the top 100 subscription-based apps was $18.3 billion in 2021 alone.
• The worldwide number of smartphone apps now stands at 8.93 million, with approximately 13% of them being subscription-based. This means there are roughly 1.17 million subscription apps as of September 2023.
• Out of all app downloads that offer trials, 3.7% of users start a trial, and among those who do, 38% end up becoming paid subscribers.
• The average yearly subscription price has reached $37.51 with weekly subscriptions averaging at $5.97 and monthly subscriptions at $8.94.
• The average retention rate for subscription-based mobile apps is currently 35% after a 90-day period. Maintaining a retention rate of 35% or higher after 90 days is considered healthy for subscription-based mobile apps.
• As of April 2023, mobile gaming had the most subscription-based apps, with 30% of gaming apps using this model. Utility and productivity apps came next, with over 13% operating through subscriptions. Health and fitness apps followed, with 11% using subscriptions.

Understanding the app subscription model

How does the app subscription model work?

The app subscription model operates on the principle of offering users access to premium features, content, or services in exchange for a recurring fee. Unlike traditional one-time purchase models (where users pay a fixed price upfront for permanent access to an app) the subscription model provides ongoing value through regular payments. Users typically subscribe on a monthly or annual basis, granting them continuous access to the app's features and updates for as long as they maintain their subscription.

What types of subscription models are there?

Here are the most common pricing approaches for subscription-based apps: Flat-rate subscription pricing offers a fixed price for all features and services, simplifying billing. Tiered subscription pricing provides different packages with varied features and prices to suit diverse customer needs. Usage-based subscription pricing ties the cost directly to usage levels. Per-added subscription pricing allows users to customize their experience by adding extra modules for a fee. Per-user subscription pricing charges based on the number of users accessing the app. Here are some examples of apps you might know and their subscription models:

How are app subscriptions managed?

From a technical standpoint, app stores such as the Apple App Store and Google Play Store provide infrastructure for managing subscriptions, including handling billing, payment processing, and subscription management. App developers integrate subscription functionality into their apps using APIs provided by the app stores, enabling seamless subscription experiences for users. Typically app stores like Apple's App Store and Google Play do take a cut from app subscriptions. They usually charge a percentage of the subscription fee, which can vary but is often around 15% to 30%. 

What are the benefits of the app subscription model?

The app subscription model offers numerous benefits for app developers and businesses who want to monetize their apps effectively:

1. Predictable revenue streams: Subscription models provide a reliable source of recurring revenue, allowing app developers to forecast revenue more accurately and plan for future growth and investment.

2. Improved cash flow: Recurring revenue streams can improve cash flow and financial stability for app developers, enabling them to reinvest profits into product development, marketing, and expansion efforts.

3. Enhanced customer relationships: Subscription models foster ongoing relationships with users, creating opportunities for personalized interactions, feedback, and support. By engaging with subscribers regularly, app developers can build loyalty and trust, leading to higher retention rates and customer lifetime value.

‍4. Continuous product development: The steady revenue generated by subscription models enables app developers to invest in continuous product development and innovation. By releasing regular updates, new features, and improvements, developers can keep subscribers engaged and satisfied, driving long-term growth and competitiveness in the market.

Top 4 best examples of successful subscription-based apps

1. Netflix:

Netflix, the streaming giant, has revolutionized the entertainment industry with its subscription-based model. By offering users access to a vast library of movies and TV shows for a monthly fee, Netflix has amassed millions of subscribers worldwide. And by continuously investing in original content and personalized recommendations, Netflix has managed to retain its subscriber base and drive sustained growth.

2. Headspace:

Headspace, a meditation app, is another excellent example of the app subscription model in action. With its guided meditation sessions and mindfulness exercises, Headspace has garnered a loyal following of users seeking to improve their mental well-being. By offering a monthly or annual subscription model, Headspace has successfully monetized its user base while delivering tangible value. But their success goes beyond offering a subscription that just unlocks their full library of meditations and sounds. They also deliver daily content like meditations and inspiration videos to retain users over time.

3. Adobe Creative Cloud:

Adobe Creative Cloud is a suite of creative software applications used by professionals worldwide. By transitioning from a one-time purchase model to a subscription-based model, Adobe has not only increased its revenue but also improved accessibility for users. With a range of subscription plans catering to different needs, Adobe Creative Cloud has become indispensable for designers, photographers, and videographers alike.

4. Peloton: 

Peloton, a fitness technology company, has disrupted the traditional fitness industry with its subscription-based approach. By combining high-quality exercise equipment with live and on-demand workout classes accessible through a monthly membership, Peloton has cultivated a dedicated community of users passionate about fitness and wellness. With additional features like leaderboards, progress tracking, and interactive challenges, Peloton has transformed home workouts into immersive and engaging experiences. Moreover, by offering a free version of their app with limited content and features, they’re expanding their user base while still providing value to those who may not be ready to commit to a full membership.

Top 10 strategies to maximize recurring profits

Now that we've examined some real-world examples of successful implementations, let's outline key strategies for maximizing recurring profits with the app subscription model:

1. Value proposition:

To entice users to subscribe, it's essential to communicate the value proposition of your app clearly. What unique features or benefits do you offer? How does your app solve a problem or meet a need for your target audience? By articulating a compelling value proposition, you can effectively persuade users to become paying subscribers.

2. Tiered pricing:

Offering tiered pricing plans allows you to cater to different segments of your target audience. By providing options with varying features and price points, you can appeal to both budget-conscious users and those willing to pay for premium offerings. Additionally, tiered pricing enables you to upsell users to higher tiers as they discover the value of your app.

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3. Continuous innovation:

To retain subscribers and prevent churn, it's crucial to continuously innovate and improve your app. This could involve adding new features, enhancing usability, or incorporating user feedback to drive product development. By staying ahead of the curve and delivering ongoing value, you can keep subscribers engaged and willing to renew their subscriptions.

4. Retention strategies:

Implementing retention strategies is essential for maintaining a healthy subscriber base. This could include offering discounts or incentives to long-term subscribers, providing exclusive content or benefits, or implementing referral programs to encourage user growth. By prioritizing retention, you can minimize churn and maximize the lifetime value of each subscriber.

5. Value-added services:

In addition to the core features of your app, consider offering value-added services that enhance the user experience and justify the subscription fee. This could include premium customer support, exclusive content or experiences, early access to new features, or integration with third-party platforms. By providing additional value beyond the basic functionality of your app, you can increase the perceived value of your subscription offering and attract more subscribers.

6. Flexible billing options:

Offering flexible billing options can make your subscription more appealing to users and reduce barriers to entry. Consider allowing users to choose between monthly, quarterly, or annual billing cycles, as well as offering discounts for longer subscription commitments. Additionally, providing convenient payment methods such as credit/debit cards, PayPal, or mobile payment platforms can make it easier for users to sign up and manage their subscriptions.

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7. Free trials and freemium models:

Free trials and freemium models are effective strategies for acquiring new users and converting them into paying subscribers. By offering a limited-time free trial or a basic version of your app with restricted features, users can experience the value of your product before committing to a subscription. This allows you to showcase the benefits of your app and demonstrate its worth, increasing the likelihood of conversion to a paid subscription.

8. Data-driven pricing optimization:

Utilize data analytics and A/B testing to optimize your pricing strategy and maximize revenue. Experiment with different price points, subscription tiers, and promotional offers to identify the most effective pricing structure for your target audience. Analyze user behavior, engagement metrics, and conversion rates to refine your pricing strategy over time and ensure it aligns with the perceived value of your app.

9. Customer engagement and feedback loops:

Foster a strong relationship with your subscribers by engaging with them regularly and soliciting feedback on their experience with your app. Use in-app surveys, polls, and feedback forms to gather insights into user preferences, pain points, and suggestions for improvement. Actively listen to customer feedback and prioritize feature requests or enhancements that align with your users' needs and preferences. By demonstrating a commitment to customer satisfaction and continuous improvement, you can strengthen loyalty and retention among your subscriber base.

10. Cross-selling and upselling opportunities:

Capitalize on cross-selling and upselling opportunities to increase the lifetime value of your subscribers and drive incremental revenue. Identify complementary products or services that align with your app's core offering and promote them to your subscriber base through targeted marketing campaigns or in-app recommendations. For example, a fitness app could offer nutritional supplements or workout gear, while a productivity app could promote premium productivity tools or educational resources. By strategically leveraging cross-selling and upselling tactics, you can expand your revenue streams and deepen customer engagement.

How to implement an effective app subscription model

1. Market research: 

Conducting thorough market research is crucial for understanding the preferences and behaviors of your target audience. This involves identifying your target demographic, studying their needs and pain points, and assessing their willingness to pay for subscription-based services. By gaining insights into user preferences, you can tailor your subscription offerings to meet their needs effectively and optimize pricing strategies to maximize revenue. 

2. Product development: 

Developing compelling content or features is essential for attracting and retaining subscribers. Invest in creating high-quality, exclusive content or features that provide tangible value to users and differentiate your app from competitors. Whether it's premium content, advanced functionality, or personalized experiences, ensure that your subscription offering justifies the recurring cost and delivers a superior experience that keeps users engaged and satisfied.

3. Marketing and promotion: 

Effective marketing and promotion are key to driving subscription growth and acquisition. Develop targeted marketing campaigns to raise awareness of your subscription offering and highlight its unique value proposition. Offer incentives such as discounts, free trials, or exclusive perks to incentivize users to subscribe. Leverage various marketing channels, including social media, email marketing, and app store optimization, to reach and engage potential subscribers effectively.

4. Monitoring and optimization: 

   Monitoring key metrics such as subscriber growth, churn rate, and lifetime value is essential for evaluating the performance of your subscription model. Regularly gather user feedback through surveys, reviews, and analytics to identify areas for improvement and address any issues or concerns promptly. Stay abreast of market trends and competitor developments to adapt your subscription model accordingly and ensure it remains competitive and relevant in the evolving landscape.

Read more: App monetization benchmarks: a full guide

Building connections, experiences, and communities 

In the fast-paced world of app development, the rise of the subscription model has been nothing short of revolutionary. It's not just about downloading anymore; it's about subscribing to experiences that enrich our lives daily. As we've explored, from the addictive dramas of Netflix to the zen moments of Headspace, the app subscription model has transformed how we engage with technology. 

But it's not just about dollars and downloads; it's about connection. Subscription models build communities, fueling our passions and connecting us with like-minded individuals worldwide. They offer more than just features; they offer belonging.

As we've seen, the key to success lies in understanding our users, crafting irresistible experiences, and constantly evolving to meet their needs. By embracing innovation, harnessing the power of data, and fostering meaningful relationships with our subscribers, we can unlock the full potential of the app subscription model.

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