Free admission is priceless … literally.

But freedom comes at a price. We are more than happy to accept free admission to a museum, amusement park, or tourist attraction under one condition: we exit through the gift shop.

In-app purchases function as the gift shop of mobile marketing with one crucial difference: the gift shop should never lead straight to an exit. In other words, in-app purchases are meant to keep users engaged.

If you’ve run out of lives on Candy Crush, you’ve probably bought more to keep playing. Or maybe you’ve typed in your card information to unlock more dating app connections. Because this time, you might find the one.

The good news is, you’re not alone if you don’t have the patience to wait for those precious candies to crush or to meet the love of your life.

Revenue from in-app purchases is projected to be the #1 source of mobile app revenue in 2018.01

iPhone users spent 23% more on in-app purchases in 2017 than they did the year prior.02

So, how can mobile marketers capitalize on this growth?

What Does In-App Purchase Mean?

In-app purchase means users pay for additional features or functionality while using an application.

Let’s go back to our Candy Crush example. Imagine you’ve been stuck on level 394 for days with no hope in sight. If only there was a way to skip the level!

In-app purchases allow users to buy content, services, or special features (like a game booster that skips a level or the chance to send additional messages to a new dating connection) within an app. They often appear in mobile games, e-commerce services, or mobile retail platforms that offer users the ability to buy things within the app.03

There are four common types of in-app purchases:04

Consumable purchases are used as in-game currency for mobile games. They mainly apply to free games, which cost nothing for users to download but include in-app purchases for extended gameplay or special features. These purchases are ideal for your app users who don’t want to wait for things like game credits to replenish. Just note: these purchases are limited to the device they’re bought on, meaning your users will need to purchase them again if they switch devices.

Non-consumable purchases unlock special features and are typically permanent additions to the application. Your favorite dating app may offer a limited number of swipes and connections on the basic account, but by upgrading to the premium version, you can swipe through all the Prince Charmings you want.

Auto-renewable subscriptions grant access to services or frequently updated content like news media or streaming platforms. This type of in-app purchase automatically renews a consumer’s subscription to the service and charges their account until explicitly canceled by the user. Netflix, Hulu, and Pandora are all examples of these subscriptions.

Non-renewable subscriptions offer limited access to content and must be manually renewed by users. These purchases are similar to consumable purchases, but can be used across devices.

Why In-App Purchases Are Important

importance of in-app purchases

Though only 5% of smartphone users spend money on in-app purchases, the revenue Colombia Phone Numbers List generated by these purchases is 20 times more than the revenue created by pay-to-download apps.

Plus, estimates suggest that global revenue from in-app purchases will surge to $117.2 million by 2020.05

In-app purchases, commonly known as IAPs, are not only advantageous for mobile marketing teams. They benefit users too. In-app purchases should complement the in-app experience and offer users real value. They’re not only a significant source of potential revenue, they can bolster a user’s trust in your brand.

Once you’ve achieved a download through app store optimization or other mobile marketing methods, the struggle to convert them into a paying customer begins.

Freemium Model vs. Premium Model

freemium vs. premium

The most familiar way of monetizing apps is the premium model, where consumers pay a one-time fee to download an application from an app store. These apps, like photography editing software and high-tech games (Minecraft, anyone?), will cost you just to download them.

The premium model best reflects a traditional purchase process, where the app user has to commit to buying the product before they can even try it.06

While this kind of app monetization sees high profits per download, premium apps just don’t measure up to other models. In fact, global revenue for premium applications in 2017 was around $8 billion lower than that of freemium apps.07

The freemium model, on the other hand, has become very popular as a way to make money from apps. In this model, users download the app for free but must pay to access extra features or upgrade to a premium (read: “cooler”) version.08