What Are In-App Purchases?

How Do In-App Purchases Work?

It is every app developer’s responsibility to consider whether their users should have the option of making an in-app purchase.

App users can usually make in-app purchases inside a free app – whether it’s a one-time purchase or a recurring purchase. Ensuring the user has the opportunity to enjoy the app for free at first means that they have a chance to engage with the app before they make any decision to pay for more premium features. 

Making a single purchase might be more common in certain apps and verticals – such as match-3 games – where users want to buy extra lives or items. Continuous or rolling purchases, such as subscriptions, may be more common for verticals such as dating apps or music streaming apps.

What Is the Ideal In-App Purchase Strategy?

In-app purchases are an essential part of app monetization strategies; they allow users to enjoy apps with more features while keeping control over their spending.  Strong in-app purchase performance ensures that publishers can enjoy higher revenues.

From a user acquisition point of view, the better the IAP performance, the higher the ROAS. Many free apps rely on IAPs to increase their ROAS metrics, since advertisers are able to get a higher return on the users they acquire. Paid apps, on the other hand, don’t tend to rely on IAPs for boosting ROAS and revenue. High retention and engagement – other user acquisition KPIs – are more likely to lead to a strong IAP performance, since the more users engage with an app, the more likely they are to spend money in it.

When an app offers IAPs, developers can also learn more about user behavior. These insights will help them improve their app and boost their all-important ROAS:

•  Spending habits: When and why do users tend to spend money?
•  Demographics: Which users are most likely to make an IAP?

Naturally, app monetization managers must monitor in-app purchases alongside other revenue streams, such as in-app advertising, to track an app’s financial performance and user experience, and ultimately understand the extent to which IAPs contribute to overall revenue. 

By tracking revenue streams closely, monetization managers can tweak their app’s monetization strategy and look for ways to optimize revenue stream performance and overall revenue when one stream isn’t performing as well. 

In-App Purchase vs Advertising: Which Should You Use? 

Revenue diversity is key in mobile advertising, and there isn’t a one–size-fits-all solution. Some mobile games, for example, are still largely IAP-based; some only rely on a small percentage (10–15 percent) of ad revenue. 

Striking the right balance between revenue streams is key. If a game is exclusively ad-revenue based, it can be harder to grow and scale, and bids are often lower. When integrating IAPs into their app economy, however, these apps can enjoy higher bids. On the flipside, some user acquisition managers find that there is a correlation between higher ad revenue and higher ROAS and continuously try to find solutions to retain users with rewarded ads. 

In a dynamic market, where in-app purchases are less frequent, publishers and developers need to adapt their monetization strategy to include more revenue streams – including more ad revenue streams. Apps emerging from the crowd tend to be those that challenge their best practices and try new things. 

How Do You Boost Your IAP Revenue?

It goes without saying that to boost your revenue from in-app purchases, an app must be successful at driving users to engage with the app and make more purchases. This means that creating a personalized and smooth in-app experience is vital to boost IAP revenue.

Measures could include:

• Optimizing the placements of IAP offers (right place, right time)
• Ensuring premium content is so good it draws users in to pay for it

Conclusion

IAPs are essential for app developers – especially, for freemium apps. Your in-app purchase strategy will largely depend on the type of content or service you offer – whether it’s extra lives in a casual game, a rolling subscription in a music-streaming app, or a premium account in a photo-editing app. 

One of the most important things to know is that there is a strong correlation between engagement and purchases. When users are engaged with your app, they are more committed and therefore more likely to make a purchase – especially, if the right offer is made to them at the right time. That’s why developers need to create a personalized and smooth in-app experience to help boost IAP revenue and engagement. 

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