Selecting a Monetization Model for a Large Web Project
Today, sooner or later, any large web project will look to acquire monetization tools, and is generally considered one of the vital steps a startup takes on its journey of turning itself into a revenue generating business. There are numerous popular monetization strategies out there to have proven their worth in famous projects.
When thinking about your own monetization strategy, it is crucial not only to choose the most suitable web monetization models, but also to effectively incorporate them as part of your ongoing project at the right moment. At SECL Group, through our practice we have developed many monetization tools, both for our web development clients and for our own startups, many of which we will detail in this article.
You may have heard about monetization models for websites in the press, as dramatic changes took place in the fall of 2022 at the microblogging and social networking service Twitter. In the very first days, if not hours, after the takeover was confirmed, Elon Musk began his transformation of Twitter’s monetization strategy, sounding out ideas publicly as he looked for new ways in which to extract more revenue from its user base. Rest assured we’ll be back to discuss the goings on at Twitter later on in this article.
We will also talk about website monetization strategies, consider the main types of monetization models, and provide examples of each. We will also further touch on the relationship that monetization has with other aspects of web development. Ultimately, we hope that in reading this article, you will gain valuable insight into choosing the right software monetization strategy for your own website. Let’s get down to business.
What is a Software Monetization Strategy in Web Development
Even if you do not plan to make a profit from your website, you should remember that quality web development, and the subsequent maintenance and updating of your Internet product all requires funding. Therefore, all founders and managers of web resources will sooner or later reach a need to implement some form of monetization, be it the process of a website, or web application receiving income from all possible sources.
Web resources carry out monetization by converting traffic into income, and website monetization strategies are general long-term approaches to generating returns — all about positioning a website or a web application, identifying a user audience, determining the value of what is offered to customers, and issuing a certain fee or set of fees.
Many startup founders reasonably believe that they first need to generate traffic, form a stable user audience, gain popularity, and only then introduce monetization, and many companies operate for years without it, using investors’ money to gain maximum market share. The length of the no-revenue period and the conditions under which users will be asked to pay for something are important elements of a monetization strategy.
As soon as the conversation turns towards monetization, the word advertising immediately springs to mind. A critical tool of monetization, the examples of Internet giants like Google and Meta have convincingly demonstrated just how much can be earned from advertising. However, this method of monetization is not suitable for everyone, and is really only a stable money spinner for those websites which have more than 1 million users. Fortunately though, there are many other tools for monetization which can be customized to suit the characteristics of most projects. Let’s take a look at these options.
Main Types of Monetization Models
As part of their chosen strategy, companies develop and implement web monetization models. This is where models are formed, pricing principles and sales conditions are decided, and marketing approaches are adopted.
Let’s take a look at the most common monetization models for websites and highlight some interesting use cases:
In essence, a Freemium model sees basic functionality offered to users for free, and then later more advanced features are offered for a fee. This popular method encourages users to jump in and use the free basic version of the product without incurring risks or costs, and hopefully upgrade if they have a good experience and are convinced by the product’s value. The freemium model pays off in companies that work to ensure they provide a positive user experience.
The application of this model requires a balanced approach, and the ability to find the optimal ratio of free and paid. The basic free functionality of the product should still carry a lot of value, otherwise users will not comprehend its usefulness and will not go ahead with purchasing a paid subscription.
On the other hand, the value gained through opting for a paid subscription must be substantially greater than what went before in the free usage package to motivate the customer to pay for additional features on a one-time, monthly, or annual basis.
Freemium is an example of a complex monetization model. As a rule, such a model is implemented for large-scale long-term projects in line with a wider marketing strategy. In other words, in this model, you cannot simply show the client the way. No. You need to be ready to accompany them on every step of the customer journey.
- Provide basic free functionality that is attractive enough for users
- Convince as many website visitors as possible to use the free version
- Provide service and positive customer experience
- Collect feedback, track and analyze user interest in individual product features
- Create an advanced version of the product, for which it will be necessary to pay
- Convince and motivate users to upgrade to a paid version
- With the help of functionality and support, to prove the value of a paid package
- Encourage the client to renew their paid subscription for as long as possible
- Try to convince those who decided to unsubscribe from a paid subscription to return.
Clearly then, Freemium requires the application of a whole range of marketing tools. However, the potential of this model makes it eminently possible to recoup any efforts made a hundredfold.
Many IT companies around the world use Jira, from Atlassian. The basic functionality is free for up to 10 users: you start your project/s, then begin working in your team with a client. If the project grows, then at some point you will inevitably run into the limitations of the free version of the service. So you purchase a license, even on the understanding that you will have to pay more and more with each user because you know that moving project/s, their customers and employees to another service is no longer that straightforward a task.
But remember that growing projects can afford these costs, something that the provider is counting on. This approach is called a lock-in, and consists of binding the user to the product. The success of this monetization strategy can be judged merely by considering Atlassian’s leading market position, which successfully promotes Jira and Confluence through websites and partner programs.
2. Paid subscription
With paid subscriptions, the right to access a web resource is provided in return for periodic payments, most often on a monthly or annual basis. Sometimes a paid subscription is used alongside free access, where upgrading provides premium content, or more comfortable use, e.g. a service without ads. The advantage of this model is that payments are made evenly and predictably. At the same time, such website monetization strategies are becoming successful for resources that have already achieved a stable user base.
In many ways, the paid subscription model is similar to Freemium, but it has a provision for charging users right from the beginning. This model is suitable for well-known and easy-to-understand products whose value is already well established, where it is likely not necessary to try it out for free.
There are also many technical and organizational details to consider when using this method of monetization. Typically, a subscription is paid for via a monthly payment, when at first a card or an electronic wallet is bound to the service, after which a payment becomes regular. Therefore interaction with payment systems is essential, and services such as Stripe or PayPal are often used. Large projects, as a rule, use several payment gateways for different regions, which allows them to accept payments from any country in the world.
In itself, the integration of payment gateways is not so difficult, because all money transfer systems have well-documented APIs. However, as our experience shows, fully preparing a website for a paid subscription is a complex task requiring a project team, including both marketers and developers. It is no coincidence that clients often turn to us with similar requests.
The number of paying Netflix subscribers is somewhere around 222 million, which allows the service to develop and create unique content. However, using Netflix as an example, we want to highlight two significant patterns:
— A working monetization model always needs to be refined and improved. In the case of Netflix, executives have long been frustrated by significant numbers of users sharing one account across several households. The company estimates that about 100m households view content using other people’s accounts, and the challenge of addressing this has been daunting. One option to be tested will see cheaper «sub-accounts» offered to households identified as having a different address to that of the subscriber.
— One monetization model alone is rarely sufficient for large-scale projects. Therefore, Netflix, like other streaming services, is also considering the introduction of cheaper subscription plans that offer the opportunity to view its content in conjunction with ads.
3. Software Licensing
When it comes to web projects, we can talk about acquiring a software license as the legal right to download, install and use the software in question, which provides a reliable legal mechanism for protecting intellectual property.
Monetization is achieved by applying the inherent risks of illegality of using pirated or unauthorized copies, thus encouraging legitimate users to purchase a license. Often applied to internal corporate software, the model is well-suited for software that can be installed on a server and modified according to client needs.
The licensing approach seems to be becoming less and less popular, as models with smaller monthly payments are proving more beneficial for clients and vendors. Clients are more willing to plump for these models because of their low down payment and ease of getting started, and in turn, vendors achieve a much higher LTV (lifetime value) of customers and associated cash flow predictability.
As with any popular model, derivatives and hybrids have emerged out of Software Licensing. For example, a combined version of this model is common, in which there is a one-time payment for installing software and obtaining a license for it, but then subsequent monthly payments are also applied.
A classic example of monetizing high-tech developments, Microsoft’s online and desktop products are surely some of the world’s best-known.
4. Affiliate Marketing
As a monetization strategy Affiliate Marketing programs are possible where there are long-term cooperations with suppliers of goods and services that are of value to your site visitors. Partner companies interested in selling to your client audience are ready to pay you for the opportunity to promote goods and services. Furthermore, this approach is quite flexible as you can either negotiate a reward for each transaction, or you might receive money for offering the opportunity to reach your audience and perform targeted actions.
Affiliate Marketing could be one of the suitable monetization models for highly specialized websites, as a popular site in a narrow market segment tends to attract the attention of manufacturers or distributors working in specific industries or sectors. However, to implement this monetization model, it is not enough for you to simply find partners whose products you will sell. It is also essential to effectively integrate access to partner resources into your platform. For these purposes, you will need a development team with the appropriate expertise to help you achieve the desired results.
Tripadvisor is an example of a website focused on a targeted, yet large and active audience. This project is about organizing travel and allows you to acquire all of the information you need for the best planning. The content, most of which is generated by users themselves, is free for visitors, and all of its revenues come from partner companies whose services are promoted by the website.
As a travel web portal, Tripadvisor is also interesting in that it once suggested that different categories of users require different monetization models. This is how its paid subscription service Tripadvisor Plus was born, aimed at travelers who prefer longer and more complex trips.
5. Transaction Fees
Companies that use this method of monetization work in varying industries, but it pairs especially well with the business models of payment systems, electronic auctions and marketplaces, as well as search and booking systems for airline tickets and temporary accommodation.
The main conditions for success here are the completeness and reliability of any information provided, transparency of procedures, speed and convenience of transactions, and overall reliability of service providers. Since transaction fees are frequently referred to as commissions, this model is also often called Commission based.
The successful operation of the model requires an integrated approach, as well as interaction and integration with third-party information systems. For example, eBay, in addition to having complete and reliable information about products and ratings of bidders, also provides solutions for payment, delivery, and insurance of purchased goods. For settlements between auction participants, the PayPal payment service, owned by eBay Inc., is very often used.
In a Sponsorship model, a corporation or a number of corporations may find the content created by your web portal team so interesting that they want to support it, perhaps because you promote and popularize a certain activity or city they wish to associate themselves with. Your web resource may also be contributing to the development of whole industries or regions, and therefore can find ample support from interested organizations. In general, this approach is quite close to Advertising models and is suitable for websites with a well-known brand and/or high traffic.
Example: Web Summit, and other prestigious and popular events
To see just how well this monetization strategy works, just look at the list of Web Summit partners and sponsors. Amazon Web Services (AWS), Google Cloud, and Shell — such global brands often sponsor large online and offline events at the Summit, supporting modern trends and developing high-tech markets. There is reason to believe that if your events and web projects promote goals that are important to many people, then most likely there will be sponsors who want to support this.
7. Data monetization
When it comes to these types of monetization models, it is essential to identify companies who would be interested in data about the interaction between your web resource and its users, their behaviors and preferences.
That said, the implementation of such a monetization strategy requires a prudent and responsible approach. Governmental and corporate regulations to protect the personal data and privacy of users are getting tougher. In addition, inaccuracy or non-compliance in such matters can lead to a loss of consumer and investor confidence, and these are some of your most valuable assets.
Websites and their monetization tools should be initially developed taking into account the General Data Protection Regulation (GDPR) and similar regulations that exist in different countries. These subtleties are difficult to figure out on your own, so it makes sense to work closely with a web development company that is well-versed in this topic.
First of all, your web monetization model should be transparent and understandable to your website visitors. Each of them should be able to opt-out of providing their data and clearly understand what data you will collect and how exactly it will be used. Ensuring that all user information is kept confidential is your responsibility by default.
At the same time, professionals will also be able to make valuable use of non-private data, like ordinary technical data. Often, developers are able to discover the attitude of users to various IT products or individual features, and marketers are often interested in the perceptions users have of different types of advertisement, as well as the motives and interests of consumers. Visitor geography, types of login devices, traffic metrics, and similar such data can be sold without any inconvenience or risk.
Specialized databases have appeared in popular areas of interest. For example, the TecDoc Catalog by TecAlliance contains the largest amount of information about cars and spare parts.. Many car service stations and other companies in the automotive sector willingly pay for the specific data they require.
Social networks and search engines receive priceless data about users through its very functioning. If we are talking about the benefits derived from working with such data, then it is not always only about selling access to it.
When large projects simultaneously apply several monetization models, they mutually reinforce each other. For example, the use of personal data and information about user activity contributes to the effectiveness of advertising activities, and it is well known that Facebook and Instagram ad targeting in particular relies heavily on the data it is able to generate from user activity.
8. Advertising monetization models
The potential of this monetization strategy is very high, and currently, it is the most popular monetization tool on the Internet. This is evidenced by the examples we touched on in the previous point about the global social networks Facebook and Instagram, whose revenue generation is formed mainly through advertising.
One condition for success here is generating and holding a large number of visitors and, accordingly, sufficiently insightful data about them and their behaviors, which will inevitably arouse the interest of advertisers in channeling through your website or portal. Audience quality, engagement, duration of user browsing sessions, browsing depth, and page views are also significant metrics.
However, these monetization models also have pitfalls. People are sensitive to intrusive and excessive advertising, and distraction by banners or being prevented from viewing content due to constant pop-up windows can cause negative reactions and responses. You can even end up losing users.
Therefore, the large-scale application of advertising monetization models requires professional approaches. It is even possible that you will have to use the advice of external experts or involve specialized companies as there are many things to consider. You will have to carefully study the structure and basic behavioral patterns of your user audience. In order not to disappoint visitors, advertising must be relevant, and so, to ensure this, you will need to accurately imagine the needs and interests of users. Furthermore, advertising placement techniques should not interfere with content viewing or reduce the usability of your web resource.
All told, it is reasonable to assume that the implementation of a monetization strategy through advertising will require not only substantial effort but also high initial costs. That said, there is also every reason to believe that making these investments of time and money will deliver a stable source of income for your website. Careful targeting and a combination of different ad formats will help you with this.
Unfortunately, project founders often overestimate the potential of this monetization model. Many startups are sure that if they make a cool web product, it will automatically generate a lot of visitors and successful advertising sales. In reality, this is not exactly the case. A noticeable demand for advertising arises only if the audience of the website is very narrow or structured, perhaps by subject, industry or geographic region, or conversely if the audience is so large, in the tens of millions of people, that the startup can offer an absolute guarantee of large advertising reach.
The fact is, it’s hard for any new startup to compete with Google or Facebook, which not only have huge audiences but also own large volumes of personal data, as well as the most advanced targeting tools.Therefore, it follow that if an advertiser want to show ads to, say, a million people, then they will most likely go to Google or Facebook. Simply because in this case there is much more chance that the advertisement will be targeted not just to a million people, but to that specific million of users who have been identified as the advertiser’s target audience. Therefore, startup stakeholders should understand that web monetization through advertising requires lengthy, diligent work.
Advertising monetization models require a careful approach. You will need a development team that can create the necessary advertising tools or integrate ready-made advertising solutions into your product. Usually, these are whole modules with ample opportunity, especially in terms of analytics and targeting, to which advertisers will pay attention first of all. As a rule, it takes at least several months of active development by a whole team to prepare a website for advertising sales.
The success of advertising for these Internet giants has not only been based on the size of their audiences. To make money in this field, these corporations have become prime drivers and trendsetters of online advertising in their own right. Via tools like Google Ads, Facebook Ads Manager, tools for recommendations, training, and analytics, these firms have built the necessary critical infrastructure they are now able to offer advertisers.
9. Electronic commerce
Referring to the acquisition by users of goods or services via your web resource, electronic commerce, or e-commerce, makes it possible for users to purchase items, both real and virtual. The critical thing is to understand your users well-enough to be able to offer something of value to them.
The viability of such a monetization strategy is demonstrated, in particular, by providers of online and network games. Sometimes the item of purchase offers players an additional advantage in-game or, for example, comes in the form of an in-game E-currency invented by game authors.
Sometimes, you can monetize the successful creations of your project team. Fans of a web resource, game portal, or network may want a branded t-shirt or mug with their favorite character on it, and by implementing this as one of the types of monetization models, you continue to develop your relationship and interactions with users, encouraging them to spend more time on your resource or inside the application. When done well, these steps will help you create additional attractions for website fans and further revenue generation opportunities.
Tips for using these monetization models for websites are similar to those which can be provided for other options for finding financing for Internet projects. The main thing is not to abuse the trust of users and not to disappoint them. In addition, it is important to transparently inform clients about the availability of the purchase option, not to impose paid services and goods, and to refrain from discriminating against visitors who have not yet purchased anything.
Alibaba is the largest global wholesale trading platform, and is a notable example of effective e-commerce monetization as it became profitable just three years after launch.
10. Pay-as-you-go model
Let’s talk about SaaS monetization models. The principle of this software monetization strategy is as follows: users pay only for access to the software or other services that they actually use, the client has no additional obligations to the provider, and they can use the software at any time. The model is flexible and very responsive to the specifics of corporate users. After all, companies that can access your software through a web portal will likely have varying projects and budgets, where some would be financially capable of fully utilizing paid SaaS, and some would not.
This method of monetization fits well with marketing strategies aimed at increasing numbers of customers and can pay off in the long run. Some of the startups that were forced to use your software sparingly will probably be able to become large users of your services over time. Therefore, if you are a new player in a highly competitive market and want to get a good share of it as soon as possible, then this is the model for your project. It can be especially recommended if your expenses are mostly floating and dependent on the actions of customers and the volume of their consumption of your services.
Example: Amazon Web Services
Pay-as-you-go is declared as a pricing principle of AWS, and this contributes greatly to the expansion of the web platform’s customer base. By the way, did you know that it was its flexible monetization model that became the main reason that Amazon was called, as some experts have aptly put it, a hosting killer? Due to the introduction of their Pay-as-you-go model, many smaller websites that previously could not fully utilize the number of resources paid for hosting services offered began to migrate to AWS.
Donation refers to the idea of users of your portal or resource making voluntary monetary contributions to benefit a cause that you are developing. Such people may be like-minded people or those who believe that your site advocates views that are important to society, or perhaps the motive for funding is an admiration for the uniqueness of the content and the desire for the site team to continue work on it.
These are voluntary donations, the amount and timing of which cannot be predicted. These funds a priori do not provide a profit for the web project but can provide an opportunity to save and continue it. Such web monetization models have proven valuable for projects that have won the affection of its users, and become part of their lifestyle.
This method of monetization allows complete funding for only the most famous global projects like Wikipedia. For other categories of project, we do not advise relying on donation as the main source of funds, but we suggest considering it only as an auxiliary source of income.
As for Wikipedia itself, we chose it as a stark example of such an approach to monetization for a reason. Donation is the very basis of not only its funding but it is also its operating model, the vision of this unique educational web resource. It is not for nothing that the Wikimedia Foundation (WMF), which manages Wikipedia, emphasizes that money is not the only way to support it. The creation and development of Wikipedia has only become possible thanks to the voluntary effort of a large number of people.
12. Blockchain based monetization
New technologies are also driving new ways to monetize, and blockchain is no exception. There are two main ways to monetize in this area. Firstly, if your project is large enough, you can carry out an ICO, i.e. an initial coin offering or initial currency offering. You can create a new cryptocurrency and offer it to investors in the form of «tokens» («coins»). In exchange, you will receive fiat money or existing popular cryptocurrencies, and you can then use the funds you receive to implement your project. If you manage to implement the project in full, then the issued tokens will be used for payments and investments.
Each monetization option has pros and cons, but undoubtedly the potential of the model is enormous. If the founders of a project have a great reputation and are trusted by potential investors, it is possible to raise funds that are enough to finance any project, and investor expectations for decent returns will arouse interest in the next releases of the cryptocurrency.
However, there are also plenty of potential risks to be aware of. First of all, there is a lack of relevant legislation. In some countries, for example, ICOs are prohibited, but in others, they are merely limited until certainty is introduced in government regulation. In addition, if a project cannot be completed within the stated time frame, then the funds received will have to be returned to investors.
An instructive example is the ICO Telegram Group Inc, who raised capital to finance the creation of the Telegram Open Network (TON) blockchain platform. It was assumed that the Gram cryptocurrency would circulate on this platform, but the ambiguity of the legal status of the tokens manifested itself in a situation whereby the ICO had to be repeatedly suspended due to prohibitions from the U.S. Securities and Exchange Commission and the U.S. courts. Technically, the project was also not implemented within the previously announced deadlines, so in the end, the outcome was the announcement of the closure of the TON project and the launch of a procedure for returning money to investors.
Thus, it can be stated that whilst ICO is a promising way of monetization, it does not always translate into success. The failures of some well-known projects and the high-profile bankruptcies of companies operating with crypto assets increase the risks for this model. So, for now, this monetization method can only be recommended for projects related to the blockchain. Such projects should be primarily targeted at a fairly young and active audience already familiar with the specifics of blockchain technologies and cryptocurrencies.
The second way of monetizing within the blockchain-based model is less risky, and consists of the creation and sale of non-fungible tokens (NFTs). Unlike crypto coins, non-fungible tokens are a type of unique item. If you know the users of your website well, you can always offer something that is of unique value to them in the form of NFTs. Creating NFTs and placing them on marketplaces is becoming more accessible, and in the end, you could create your own marketplace. This model is also suitable for the monetization of user-generated content hosted on your web platform, which may include your reward.
To implement these monetization solutions, you will need a development team that is well-versed in blockchain technologies, which have many of their own specifics. We cannot yet recommend the widespread use of this method of monetization, since there are too many risks associated with it and there are still too few successful market cases. But if you are determined to do it, then you should contact us for advice, as we are well placed to help you choose and set up the right monetization tools
Ethereum is one of the leading currencies by market cap. From the monetization carried out by issuing the ETH currency, it seems that all participants benefited, and the market value of coins purchased by investors at the time of the ICO has increased thousands of times. The project, in turn, along with the money received, received significant impetus for development and created not only a popular cryptocurrency but also a platform for decentralized applications (DApps) based on smart contracts.
Hypotheses and Unit Economics in Monetization Strategy
Having considered the main models of monetization and monetization strategy examples alongside them, let’s now discover which techniques can be used to determine potential sources of income for websites.
As a rule, the development of website monetization models begins with the creation of hypotheses, that is, assumptions that should be analyzed, calculated, and tested experimentally. Based on your knowledge of patterns of visitor behavior, segmentation of the user audience, analysis of competitors, and market trends, it is possible to put forward a hypothesis regarding a potential source of income and the conditions for creating appropriate cash flow.
Monetization hypotheses need to be tested. The classic way to do this is when a founder chooses monetization tools, then implements them on the site and analyzes them. But the desire to avoid wasting time and money on checking and verifying hypotheses has spurred the emergence of other testing methods. Websites have started doing surveys or pre-registration landing pages for some paid features to quickly test monetization ideas. However, when looking at the results of such surveys, one must be aware that they may not be representative enough, so it might be worth further experimentation, even with ideas that users doubt.
These days, it feels like it’s easy to see examples of monetization hypotheses being tested when we hear discussion about it in the mass media, or on social media. Earlier, we promised to return to Elon Musk’s Twitter. Before this change of ownership and upper management, the monetization model of this social network was based on advertising. But as it turned out, even in the case of such a world-famous brand, the advertising monetization model alone was not enough to provide the necessary revenues. Realizing the need to expand their monetization toolkit, the new management began to look for new sources of income.
In the fall of 2022, information appeared about the possible introduction of fees for access to user-generated content, including videos in a feature to be called Paywalled Video. Concurrently, The Washington Post, reporting on this news, mentions receiving a letter from Twitter’s Product Trust team warning about the possibility of introducing such a feature. The email also mentions “risks related to copyrighted content, creator/user trust issues, and legal compliance”.
In parallel, including on the website of Twitter itself, a discussion was unfolding about the intention to introduce a monthly payment from users for the so-called blue check mark, which communicates the trusted verification status of the user in question and offers them priority in search results. Several possible payment sizes have been discussed at once: $8 per month and $20 per month. Therefore, it can be argued that we have all witnessed the public testing of Twitter’s monetization hypothesis played out on its own platform. There is no doubt that the final decision to change the monetization model will be made taking into account the opinions and feedback of the target audience.
It is necessary to test hypotheses, even paradoxical ones, and sometimes it is possible to find a non-standard approach to monetization that works when the market changes. For example, about 10 years ago, all online media was free and generated revenues on advertising, but now many of them can only be read with a paid subscription. This means that someone first went against the rest of the market, and in the end, won. So even if competitors use certain tools all the time, it’s still not a 100% guarantee that they will be the best option for you too. Unexpected moves can also be successful.
Unit economics, which is common in web projects, helps us to calculate hypotheses and analyze the results of using web monetization models. A unit is a basic unit that generates income, and for Internet projects, it is advisable to consider the user as a unit. Through this mechanism you can find out how much your web project spends on involving and serving one user, as well as how much it earns on it later. This approach is especially good for models with regular or at least predictable income, e.g. paid subscriptions and freemium models, because there is less discrepancy between forecasted and actual data.
Let’s focus on the paid subscription model for a moment. Monetization begins when sales begin in your web projects, and after that your sales funnel becomes a relevant tool for studying the behavior of the client and potential gains and losses in interaction with them. In a somewhat simplified form, it is possible to imagine that the client passes the following stages as they go:
- Obtaining information and familiarization with your website
- Registration and decision to start using
- Free trial period
This flow may differ slightly depending on the monetization method in question, and we also caution that each stage has its own conversion and loss rates. There will always be a number of users who decide against proceeding further and will not reach the moment of paying a subscription. This information is extremely important to your analysis.
Which unit economics metrics will help you in your monetization calculations? First of all, there is the Customer Acquisition Cost (CAC), the cost of attracting a user who has purchased a paid subscription. To calculate, the total cost of attracting users, even those who have left at different levels of the sales funnel, is divided by the number of subscribers.
The average revenue per user (ARPU) is also important, which shows the amount of money that comes per month from one client. But the real indicator of your website’s attractiveness is its Lifetime score. This is the average number of months a user has been using your website.
After calculating the above indicators, you can calculate the Lifetime value (LTV) and thus find out how much the client will pay for the entire time of using the paid service of the website.
The desired outcome for you is when Lifetime value (LTV) exceeds Customer Acquisition Cost (CAC). It is from this point of view that the success rate of website monetization models should be evaluated. Also, in the process of analysis, you will learn about the smallest possible Lifetime of a user on the website, which will allow you to cover the Customer Acquisition Cost. It’s a valuable signal on the effectiveness of the internal interconnections of all aspects of your web project, as you can see your users evaluate the website comprehensively and make decisions as to whether or not they are ready to pay. They will only do so if they are satisfied with the technical characteristics, design, usability, and quality of your content.
After developing and testing hypotheses, performing preliminary calculations, and creating and implementing monetization tools, a new stage will begin. You need to set up analytics, create goals, and define evaluation criteria. Together, this will help you understand how effectively it all works and where exactly your website or web application is losing potential customers in the sales funnel. If you are truly passionate about your project, you should feel something similar to the kind of excitement you’d experience when watching sport.
At SECL Group, when introducing monetization in the web projects that we have developed, such a productive creative state always arose among founders and our analysts and product managers who helped with this. Brainstorms, insights, passion, and joint eager anticipation of the results of hypothesis testing — this is the atmosphere in which successful monetization models are made.
How to Choose the Right Mobile Monetization Model
As with anything, the hardest part of planning your website monetization is getting started. Let’s try to suggest how to do it better. Usually, to choose the first monetization option, entrepreneurs use one of several approaches, including:
- Copying monetization tools from direct competitors. This is the safest option. In addition, you can take into account the mistakes of any competitors who started earlier than you.
- Follow the trends of your industry — copy models from projects working in your area.
- Copying the approaches of well-known web projects. Let’s just say that this is a risky path. Not everything that made Google successful will necessarily work for your startup.
- Experimenting. The ability to quickly analyze the first results and immediately correct your action is especially useful. As we have already said, most often any experiment begins with asking questions of users: for what and how much they are willing to pay? You can make landing pages with pre-registrations for a paid function. In any case, look for confirmation that the tool you have invented will work.
Trying out various types of monetization models for your site is advisable, first of all, to ensure compliance with the basics of successful monetization. The general condition is that the online resource should be useful and user-friendly, and the core of the site — its content — should be interesting, accurate, attractively designed and provide real value. Naturally, the absence of prohibited or potentially conflicting content is a condition to be avoided.
A kind of checklist, the likes of which we propose below, will help you evaluate the suitability of a web resource for monetization, regardless of which monetization strategy you have developed and implemented. Try to make sure that your website has the following features:
- An excellent product where its value is clear to users
- Unique content
- Good website design, including easy navigation and user interaction
- A stable, high-quality, and solvent audience
- High and growing traffic
The cornerstone of monetization is having a popular, high-traffic web product, because your flow of visitors can always be turned into a client base. Web development company specialists, including analysts, marketers, product managers, and other experts, can always suggest how to do it right. You need to constantly calculate and monitor conversion rates. To prepare monetization activities, it is worth using the principles of unit economics as mentioned above, and it is necessary to pre-evaluate by comparing the cost of implementing monetization on the website against forecasted income. The same should be done with real indicators.
It is critical to correctly price the offers to users and explain those prices clearly. The cost of a paid account, the price of advertising, the percentage of a transaction fee — all of this is extremely important.
Tactics can differ: either we can analyze competitors and make our prices slightly lower than theirs, or we calculate our cost and make a small margin on top. The second method is riskier, as it is not always possible to correctly predict costs. It is better to use this approach after already having experience and actual results. In addition, if a startup has already been functioning for some time, then it is easier to use the LTV indicator, i.e. how much income a client will bring on average for the entire time of use against costs of attracting and maintaining them.
How can your monetization prospects be damaged? First of all, we advise you to refrain from using any means of unfair traffic inflation, such as spam, and in general transparency in the collection, processing and use of visitor data is also a must. Furthermore, all aspects of site activity are essential for optimizing any future monetization, so ensure that you have high-quality content and are diligent about how users interact with it. Pay particular attention to usability, minimizing crashes, ensuring ease of navigation, and keeping on top of page loading times. It will all pay dividends.
In general, regardless of whether you have already launched one of the monetization models for websites or are just preparing for it, we advise you to treat your website visitors as customers from the very beginning. This involves having respect for the comfort and safety of the target audience. Do not overload them by obliging them to download unnecessary files or force them to go to uninteresting web resources. Do not abuse pop-up windows and banners that can interfere with viewing content.
To choose one of the web monetization models, you must identify and take into account the features of your resource. Let’s consider some monetization strategy examples.
If your website has reached the level of several thousand daily visitors, it is advisable for you to bet on advertising income through Google Adsense, CPA and teaser networks. If the user audience is not only large, but also stable, then this opens the way to selling advertising space on your resource, independently determining the price of an impression or a click.
At the same time, this approach is accessible, but not universal. For a start-up SaaS (Software as a service) website, for example, core business and advertising revenue may not be enough. And this means that in this case, it is necessary to simultaneously promote several monetization options at once which will complement each other.
If the audience of your site is still small but highly specialized, and occupies a certain niche, then this dictates the need to find other opportunities. Try to pay attention to specialized advertising. We can talk about integrated advertising solutions: from banner placement to the publication of sponsored content. An advertiser of goods or services from the same niche will appreciate the high targeting of the audience and the level of «warmth» of the expected leads.
As a rule, large projects simultaneously use several website monetization strategies: some are basic for them, and some are additional. When looking for the optimal combination of monetization models, you should be flexible and pragmatic, and follow the mood and wishes of your audience. A typical example is YouTube monetization. Based for a long time solely on the advertising model, this web portal additionally introduced the Paid subscription model, attempting to target those viewers who preferred to pay for premium subscriptions in order not to see advertisements.
It is best to choose a model based on the type of project and on evaluating competitors who have already invented the wheel. Let’s look at a typical case from our experience at SECL Group. A few years ago we decided to develop our own travel startup and conducted competitor research, coming to the conclusion that the closest competitor was Tripadvisor. After a short analysis, we realized that Tripadvisor has 3 main monetization models: Affiliate Marketing, Advertising, and Transaction Fees. We had previously intended to use one of the versions of SaaS monetization models for our project, but then we decided that all of the monetization models used by the competitor were actually well suited to our startup too. We took them as our basis and are already making money on it. An important detail: we conducted a monetization study prior to the start of the project. This played a positive role, since there was already an understanding of what to focus on.
When developing, and especially when implementing monetization models, there are certain tricks that you also need to know about and implement. Earlier, we referred to the lock-in approach, using Jira as an example, and you should be mindful that these approaches often require a long, drawn-out waiting game. Patience and gradual progress is required, and clients should receive an offer to pay for additional functionality at the right time, after feeling the usefulness of advanced features for themselves here and now. In such situations, marketers and analysts play a special role in gently pushing website visitors towards purchasing services.
It is of course sensible to think about the team you’ll need to work on the development and implementation of your software monetization strategy. First of all, the ideas and involvement of the founders are important. They are the ones who choose the monetization strategy and evaluate the available resources. For example, they may even decide that the project will work without monetization at first as they work towards cementing a large portion of the market, determining the duration and conditions for completing such a stage.
In addition to this though, and in order to best select monetization models for websites that expertly ensures a monetization strategy that will encourage users to pay without feeling negative emotions, the efforts of a whole group of experts are often required. Among such experts might be:
- Product managers — determining how to implement monetization tools into the product
- Marketers — to think over how to create and target offers, calculate prices, set up marketing tools in the product, and track conversion, etc.
- Sales managers are irreplaceable for the B2B sector. For example, for B2B sales of services to enterprises or advertising sales
- Analysts – to work on the logic of the process, and on possible ways of transforming the product for better monetization
- UX / UI Designers — to design clear interfaces and user journeys
- Developers — to implement everything that has been planned, and integrate payment systems
- Testers — testing to ensure that monetization tools work without errors, including receiving payments from different parts of the world.
As a rule, we recommend reaching out to several teams at an early stage, seeing who is best at recommending monetization options, and most importantly to see who will be more convincing in explaining why these tools should work. Of course, with such tasks, you can always contact us here at SECL Group since we have the appropriate expertise to help our clients develop the right monetization tools.
So, we have taken a deep dive into the monetization process. We have listed and briefly described the main monetization models for websites, and showcased key examples of each. You can be assured that the recommendations we have provided in this article are based on the best practices that exist in the field of web development, and the depth of experience of our own development teams.
Of course, this article provides a generalist overview of the topic, and it should be remember that every individual project has its own detail to be considered. To help you even more in the selection of monetization models for your project, we would need to delve deeper into the specifics of your web project and discuss your priorities as its founder.
The main thing we want to convey to you is that the development and implementation of a monetization strategy is a very exciting activity that requires a combination of experience, creativity, managerial skill, and entrepreneurial intuition. We have successfully delivered for many different startups and have often worked out strategies and tools for monetization with founders.. It’s always a challenging but uniquely rewarding task.
We will work with you to generate and explore monetization hypotheses, and test and analyze them thoroughly. What works well in one product may not necessarily benefit you in another, and risks exist all of the time. But they can be mitigated. We approach developing a web software monetization strategy the same way that we approach coding, by using the most suitable technologies and methodologies. If you are thinking seriously about the monetization of your project, are struggling to plot a route forward, or just want to improve it, do not hesitate contact us to get professional advice.