How to Choose the Right Monetization Model for a Mobile Game

So you want to make an iPhone game, but you aren’t quite sure which monetization model to use. Perhaps some research is in order. Open up the App Store and take a look at the “Top Grossing” chart. For starters, it’s almost all games! This is a good sign. Your decision to make a game looks promising. Let’s look a bit closer. Of the entire 150 apps listed today, everyone except for the 65th ranked Minecraft is free. On the surface, this seems like a pretty open and shut case. Fortunately for fans of paid games and people that want to write more than a few sentences on the matter, the choice between launching a free or paid game is more complex.

Let’s assume that your goal is to maximize the revenue that your mobile game earns. You could theoretically have other goals—perhaps your game is a promotional product to draw attention to a product launch. In that case, your goal is to maximize users, in which case you always want to go free. Free games tend to get at least 10 times as many downloads as paid games. Back to our goal of maximizing revenue, if we get 10 times as many users with a free game, then we only need to make one tenth as much revenue per user to earn the same amount of total revenue. While $0.99 was the most common price in the early days of the App Store, there are actually more $2.99 games than $0.99 games on the App Store’s top “Paid” chart today. Therefore, an equivalent grossing free game needs to earn about $0.30 per user.

So how does a “free” game earn $0.30 per user? Traditionally, free games monetized with banner ads at the bottom of the screen or full screen images in between levels. In recent years, developers have found that letting users opt-in to watch video ads in exchange for virtual currency is often more lucrative. An opt-in video ad might net the developer about $0.01 per view.

The biggest money-maker of all, however, remains consumable in-app purchases. While approximately 90 to 95% of a game’s user base never spends money on in-app purchases, the ones that do often spend a lot. While developers are protective of their revenue per user figures, consider that user acquisition costs through Facebook often hover around $5 per install. If only 5% of your users spend money, you need to average $100 per user that spends money in order to break even at this rate. The reason that Facebook ads cost that much is because some developers have indeed designed in-game economies that encourage the whales of their communities to spend a lot. Ultimately, the top earning freemium games are floated by a relatively small percentage of their players.

You may be thinking the argument should be over here. If free games get dramatically more downloads on average and the top performing free games are netting more than $5 per user, what’s the point of a paid game?

The answer is that the the consumable in-app purchase model only works that well for a very limited number of game types. Take another look at the “Top Grossing” chart again. There are 3 genres that encompass most of the games listed here. There are town building games like Clash of Clans, match-3 games like Candy Crush, and collectible card games like Hearthstone. Then there’s also Puzzle and Dragons which fits into both the match-3 and collectible card genre, which sports an average revenue per user in excess of $10. There are a few exceptions. Pokemon Go doesn’t technically fit into one of these genres, but collecting Pokemon is essentially the same motivation as collecting cards in the broader collectible card genre.

If your game doesn’t fit into one of the models, the free model is no longer the obvious choice. Let’s start with the first half of the monetization equation: revenue per user. Other game genres simply have not had as much luck with consumable in-app purchases. If you’re restricted to making money off of ads and non-consumable in-app purchases, you’re going to have a much more difficult time making an acceptable revenue per user.

The other half of the monetization picture is your total number of users. Free games do tend to have more than paid games, but that ratio varies dramatically across genres. If your game isn’t designed around a consumable in-app purchase loop, the revenue per user likely won’t be high enough to use traditional mobile game advertising inside other apps. Fortunately, running mobile ads in other games is not the only means of discovery. If you make a good game, review sites will write about it, forums will chat about it, and the early adopters will find it. Early adopters tend to be a little different than the average player, though. Take a pass around the Touch Arcade forums or any of the major review sites, and you’ll notice a distinct bias against free games. The users here are generally more serious gamers, as evidenced by their participation in an online gaming community, and they usually prefer the paid model, much like they’re used to in the traditional core gaming world in the console market. In-short, your user free game may draw worse reviews and not spread as virally as paid game that avoids ads and in-app purchases (even the non-consumable variety).

That creates a bit of a conundrum. What’s a developer to do?

There’s no one answer for everyone. You have to pick what makes sense for your audience. Do you have a pixel-art retro adventure game? Make it paid. Adventure games don’t lend themselves to consumable in-app purchases in most cases, and that game will resonate more with core gamers that prefer paid games. Do you have a puzzle game with an easy learning curve, but it doesn’t fit the in-app purchase model? The presumably casual audience still makes this a good candidate for a free game that will probably maximize its revenue with ads. Do you have a wild west themed town building game where you attack rival mining towns for their gold? Make it free. Town building is one of the 3 major consumable in-app purchase genres. An in-depth platform game with a high skill requirement and high-end art lends itself to the paid model. A quick play platform game aimed at a broader audience will likely do better as a free game.

If the monetization model organically fits the game, you’ll be good to go.