How do mobile subscriptions and monetization work? What is the process of getting users to pay via subscriptions with trial models or paywalls? Let’s dive into the world of mobile unit economics and see how mobile products are making their profits.
Where is the catch?
A real-life example is always the best when it comes to understanding the basics of how something works. Mobile apps with subscriptions are no different. Let’s compare two examples from highly competitive industries like fitness and health and see what the product teams are doing to skyrocket their apps with a subscription model.
As we can see from the comparison, the apps are almost identical. Each of them received around $1m in profits in a month and performed great, but one app had bad reviews and paid $5 per user while getting 200 downloads, the other paid less — $2 per user, and had 500 downloads and great reviews. Still, their revenues are the same. It means that the first app did better in sales.
So where is the catch, you ask? How are two apps being almost identical performed differently?
The only difference is in the screens the user sees after the onboarding process. When it comes to the selling point of subscription, the second app gives you the choice to pay or not to pay — simply press a cross button and you’ll receive the batch of basic features available. The first app doesn’t provide users with such an option. The only way to use the app is to subscribe without even trying it.
Here is where negative reviews come from: it makes some users angry to pay without using the app. It frustrates users way more than using being able to see just some basic features before the actual payment. But, as you can see, even with so many bad reviews the app performs great.
Unique apps won’t need mandatory subscription schemes
One of the criteria to validate new products is to see if the idea of the app is unique. Yes, if your app has found a new niche and there are no competitors, you won’t necessarily need such tricks to get users to subscribe to your product. In our example, both apps are coming from a highly competitive industry, and both apps give access to yoga lessons. And there are thousands of such apps on the market, but still, these apps are highly successful.
So uniqueness is not always the key to success. Sometimes the paywall shown right after the personalized offer is way better.
Paying without using is odd
While such paywalls seem weird at the first glance, they are still working. According to product companies’ experience, 80–90% of the users subscribe to such offers or to free trials that eventually convert them into fully paying users in 3–7 days. And it’s true for products of good and bad quality.
Users are buying subscriptions to the products with zero product experience, without even using the app’s features at all.
Why on Earth are they doing it?
In most cases the main reason is negligence, many users also don’t cancel their subscriptions after the trial period simply because they forget about it. But in some cases, it is all due to dark patterns apps use to convert people into subscribers. Dark patterns are legal to use and you can find them in many successful apps across the world wide web.
Dark patterns explained
According to Apple guidelines, the selling screens that users can see in the app can’t misguide users or sell them any false information. But it’s possible to confuse the audience just a little.
You can show them a price for a month, which can be relatively small, and with a tiny line at the bottom of the screen saying that they’ll be charged for an annual subscription right away. In such a case you’re not giving any false information and the attentive user will see the actual price. You can also show the variety of subscriptions on the screen, but the highlighted plan will be the most valuable for you, not the user. You can also say that users can start using the app for free with a short notice about the user being charged for a subscription in 7 days. And the list of such tiny “dark pattern” tricks goes on and on.
Before iOS 14 was introduced, it was even easier to get users to subscribe for the long term because even if users deleted the app, there was no notice to cancel the subscription from Apple. So users continued to pay even after they stopped using the app. For now, such notice exists and dark patterns became even more valuable for products in the battle for getting their subscribers.
Key conversion metrics
Even if the public is widely interested in your app and you believe the product to be a blast, you still need to validate the economy and idea of your mobile app. Several metrics are valuable for the process.
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Ads CTR (3%+ is normal, 10%+ is awesome);
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AppStore page view to Install (50% is normal, 60%+ is awesome);
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Install to Trial Period (20% is normal, 30%+ is awesome);
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Trial period to Payment (30% is normal, 40%+ is awesome);
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Subscriptions churn (1st cycle 50% is normal, 40% — is awesome);
The first thing to look at is the creative CTRs that help to get users to the app page in the store. If the idea of the ad is catchy, the percentage is higher and vice versa. By analyzing this metric only you can already tell if your app’s idea is promising or not. If the percentage is higher than 10, your app with a subscription is doing well.
The next thing to analyze is a conversion from viewing to installing the app. Both metrics seldom show great numbers, but it’s important to be in the benchmark.
The experience of many apps shows that products with a trial period work better than ones without it. The economics are better simply because users can test the features before paying for them, but it may be hard to achieve if the product itself isn’t so great. Once again, here come the dark patterns to promote the apps.
Conversion from trial to payment shows the actual value and quality of the product. If the product didn’t satisfy the needs of users or there were some bugs, this metric will be less than 10 percent. Without a decent product, you can’t earn much.
The last metric tells us about the subscription churn and how long it took users to delete the app. It can help you evaluate the dynamics, but remember that 50% churn is ok for the first cycle of the app.
Key metrics (Costs) based on the US Geo
There are some more valuable metrics to measure right from the beginning.
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Ads click ($1 is normal,$0.5 — is awesome);
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Install ($2 is normal,$1.5 — is awesome);
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Trial period ($10 is normal,$6 — is awesome);
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Payment ($30 is normal,$20 — is awesome).
If we’re talking about costs without the target optimization (for example, from the Facebook side), it’s ok to pay $1 per click on ads, it will get you $2 per Install later. Such benchmarks can be used for validating the product.
Which subscriptions are better to sell?
Let’s think about which subscriptions bring more profits to the product in the very end. If we think about users forgetting to cancel their subscriptions, then the immediate answer that pops in the mind is an annual subscription. Still, it’s not always the real thing.
Annual subscription plans are profitable for the bad products, because in most cases after the actual payments people won’t use them much, but the money is paid, and the LTV is predictable. In such scenarios, products don’t want to risk and think that it’s not so important whether users prolong their subscription or not. The only important thing is to build the product economy. In such a case the yearly subscription minus Apple commission must give us a number that is higher than the price of the paying user. The typical annual subscription plan is somewhere between $30 and $70 per year. The scenario is highly predictable and gives space for more experiments with ads and products.
For those who believe in their products and their features, a weekly subscription is much more profitable. Typically the user pays around $5-$7 per week, which means that in six weeks the payment will already be higher than in the case of an annual subscription. Higher payments mean higher LTV. There is a downside too — it’s harder to predict the dynamics with weekly subscriptions.
To measure it companies can look at the churn rate. The lower it is the better the product is doing. You still can have 50% churn in the beginning, but in some time, usually around the end of the second month, the rate stabilizes and we can see the number of people willing to pay over and over again. You can use this number to make an optimistic prognosis of LTV, calculate the marketing expenses and find out the time the product will finally start generating revenue.
Finding your niche and monetization model is a key
A great example of an app with a subscription model is the Flo period and cycle tracking app. Many people use it regularly and the churn rate is really low. Because generally the product is used only once a month, it’s rarely deleted, but people tend to open it once a month and pay for the features. In this case, the subscription monetization model fits ideally to make the company highly successful.
If the industry is highly competitive and the metrics of the products are not so great, companies may turn to dark patterns, or sometimes even to super dark ones, but there are negative examples of such stories. If Apple finds out that your product is doing it, the company’s store account may be frozen. Still, such practices are common, because there are almost no industries with no competitors.
The bottom line
Great products that are valuable to the audience are always successful. If you are willing to find the greatness in the app with a subscription model, you can follow these several steps:
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Look at the competitors and their practices;
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Choose the subscription plan for your app clever, conversions metrics are here to help you;
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Validate your product and the idea right from the very beginning;
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Experiment with features and ads, but don’t go too much in the dark — there may be consequences;
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Always keep in mind that users are willing to pay for the useful features that they tried at least for the 7-day trial period.