Mobile App Monetization: How to Improve ARPU with Subscription

This is my very first article on Medium. I’d love to introduce myself a bit first: I am Joseph Chen from Taiwan. I am now working in an IoT company in Beijing. Over the past few years, I have been working on mobile applications. The apps include 2C utilities like photo editor and camera, 2B SaaS platform, internal CRM system, and crypto exchange. The target markets are all except mainland China. As a matter of fact, big companies like Google tend to set ARPU (Average Revenue Per User) or LTV (Lifetime Value) as the KPI to measure if a product is a success.

Before going deeper into subscription, I’d love to talk more about app monetization methods in general. They can be divided into “in-app” and “outside-of-app”. Common in-app monetization methods include: Advertising, IAP (In-app Purchase), Subscription, Affiliate Marketing (utilized for community apps that recommend good items, especially within PGC), and Fee/Exchange Rate Difference for Products in the FinTech field. As for “outside-of-app” monetization methods, there are tons of ways. However, generally they are all ways of business partnership. For example, for a beauty app, if a brand wants to collaborate by integrating certain items in-app, then they have to pay. As for the payment plans, it is the BD’s expertise.

The key to the success of subscription depends on users’ willingness to pay. There are many factors involved with their willingness (conversion rate, you can say).

First, it is crucial to understand target users. For example, understanding what operating system users are using, users’ nationality and residence, and age range is vital to success. Based on these data, you can try to improve the conversion rate of payment with a more targeted product strategy. According to the market data on App Annie, the conversion rate of payment on iOS is higher than that on Android. Overall, US users are most willing to pay for subscription. Then China, and Japan. Users aged 24 -35 are more willing to pay for subscription as they are more open to virtual service. And if the service can satisfy them and solve the pain points, they are more than happy to pay.

Second, the incentives for users.

A. Service Provided Must Be Attractive Enough. Why are users willing to pay? You must ask yourself first before the app goes live. The service itself must bring values to users, meaning that it has the product market fit. For example, if a photo editing app has a feature that can fill the light of a photo taken during night, and make it as if it had been taken by a professional camera. And no competitors can do that. This app has its product market fit. To be brief, the service must be kept improving, so that users will think it worthwhile to pay for the service.

B. Free Trial. It doesn’t make any sense to ask somebody to pay for the service without even trying. Therefore, it is highly recommended to apply Free Trial to subscription to let users decide if they want to pay. As a matter of fact, Apple has a design that’s not so user-friendly to consumers. If users buy a 3-day free trial subscription in-app, and forget to cancel it 2 days prior to the expiration date of trial, they will have to pay still. But on the contrary, it is something that benefits app publishers, I guess.

C. Pricing Localization. As the GPD of every country/region varies, people living in different locations can afford different prices. If there’s any local resource to be used, it is highly suggested to confirm the pricing strategy with them. Here, a use case might be considered. What if a user is actually living in the US, but applies for another account that allows him to pay less for certain subscription plan? So first of all, there’s lots of cost for this user to attain this. And also, the user base of this behavior is very small. So I would very much recommend just ignore this use case.

D. Limited Discounts for New Users. Most users that are willing to pay tend to be the regular ones. How to make the users that use the app first time willing to pay? When it comes to psychology, human tend to be rather greedy. So limited discounts can be utilized to increase the conversion rate of subscription payment. Utilizing “Limited” will make users deem it a pity if they don’t purchase.

E. Festival Limited Discounts. The peak of user growth is usually on Christmas, the Q4. It is the best timing for boosting user growth. For example, according to App Annie, a US-and-Europe-oriented photo app, Airbrush, increased its monthly revenue in December 2019 by 30% at least by utilizing festival limited discounts.

F. Remind Users of How Much Is Saved. Suppose users can pay by month or year, but if users pay by year they can save 90% in comparison to the case of paying by month for 12 months continuously. Then this is something users can know! Show some bubble on the yearly plan to seduce users!

G. Just $xx Per Day. Just $xx Per Month. The total amount of fee is always scary. However, if users are told how much they pay every day or month, they might feel little bit relieved, and therefore more willing to pay, when in fact they still pay the same amount of money.

Aside from the 2 aspects mentioned, the pricing strategy is also something very interesting. You can see there are several subscription payment plants in the markets: Weekly, Monthly, Seasonly, Yearly, and One-time Purchase. Common design includes 3 options, 2, or 1 in the subscription page. Usually one would be unreasonably high, so users will be more seduced to pay with another plan. Also, the free-trial plan tends to be more popular among all. However, it is recommended to try different combinations for different products with A/B testing. The answer to the highest ARPU might vary for different products.

The methods mentioned can all help improve the subscription. But everything depends on if the app submit would be approved by App Store or Google Play. That is, compliance is seriously very important. As far as the subscription page is concerned, never try to lie to users. The page must let users know the plan to auto-renew if they do, must inform users that they will be charged if they do not cancel the plan in time during free trial. Also, where Terms of Service and Privacy Policy display must be very clear. And the most prominent price must be the one users are going to pay. I’ve been rejected by App Store tons of times so I understand how they think a little bit. As for Google Play, you can be approved if you just don’t go too far.

By the way, if you use the subscription service from Apple or Google directly, you will be charged by them too. However, you also save lots of costs for customer success. Just mention the service is provided by them, and let users consult Apple or Google if anything relevant should occur. There are big companies like Netflix having their own subscription infrastructure too. And they won’t be charged by a 3-rd party.

While this article focuses on subscription, in reality you must consider all monetization methods applied for paid users and non-paid users, calculating ARPU. As a result, you will try to brainstorm about how to improve it. Besides, if you ask me what apps could be referred for subscription design case study, I would say Tinder, VSCO, PicsArt, FaceTune, and etc. Best of luck for you to make great money!

All Rights Reserved by Joseph Chen. If you need to share this article on other platform, please contact me via Linkedin. Or you can email me: hsuanchung.chen@gmail.com. I personally translate this article in Traditional Chinese as well. See here.