Are you looking to monetize your app with In-App Purchases (IAPs)?
It is most likely a good idea as In-App Purchases are the native payment model for mobile apps, and they’re hugely popular. The global In-App Purchase revenue stands at around 200 billion dollars per year.
This blog will cover what you need to know about the monetary implications of In-App Purchases:
Let’s get started.
According to Statista, the In-App Purchase (IAP) revenue is projected to reach 192 billion US dollars in 2024. The growth of In-App Purchase revenue is expected to continue, with the total revenues hiking up to 260 billion US dollars in 2029.
In-App Purchases are projected to account for 76.4% of total app spend by 2024.
Total In-App Purchase revenues globally. Source: Statista
In-App Purchases make an average of 0.48 US dollars per user. The average revenue for a paying user is $9.60. The average IAP transaction is $1.08.
The revenues for In-App Purchases vary a lot by business and use case. IAPs can be a major revenue source for businesses.
For example large voting contests in live events or TV shows can garner significant sums of money.
In-App Purchases are most notoriously used in gaming apps – IAPs generate more than half of all mobile game revenue.
According to WifiTalents, 65% of developers using In-App Purchases saw an increase in their revenue.
So are In-App Purchases profitable? In short: yes, they can be highly profitable.
There are many factors that affect the profitability:
Let’s dig into these aspects.
Does Apple make money from In-App Purchases?
Yes. On the Apple App Store, Apple charges a 30% fee for apps and In-App Purchases. This fee isn’t applied to free apps.
Apple charges 30% of the first year of a subscription. This then drops to 15% for the following years.
However, if you make less than 1 million US dollars with your app, you're eligible for the App Store Small business program where commissions are reduced to 15% for In-App Purchases and paid apps.
How much money does Google take from in-app purchases?
Google charges a 30 percent cut for purchases through the Google Play Store.
For subscription products, Google charges 15 percent after users have been subscribed for a full year, similarly to Apple.
For customers who make less than 1 million US dollars, Google has a similar program to Apple where you can apply for your fees to get reduced to 15% for your first 1 million USD in sales.
Google and Apple handle the required taxes according to local tax laws.
For customers in the UK and EU Member States, the app stores are responsible for charging, collecting, and remitting the VAT on sales according to the EU VAT legislation.
The users will see the tax that will be charged on the checkout screen before completing their purchase. The way the stores calculate and handle tax depends on the type of content.
Purchases are made from the developer of the app.
Overall in most locations, the app developer is responsible for charging taxes according to their local VAT.
As an app developer, you will set tax categories (guides by Apple and Google) for your In-App Purchases when setting them up.
Here are the formulas for calculating the gross and net In-App Purchase revenues for your app:
Gross revenue: Total users (in a given timeframe) x Conversion-% to paying customers x Average Purchase per Customer ($) = Gross revenue
Net revenue: Gross revenue * (100% - App Store cut-%) * (100% - Local Value-Added Tax %)
Let's take an example for clarity: let's say there's a voting contest app with a user base of 100 000 in a year. Their conversion-% to paying customer is 3% and the average purchase size per paying customer is $9.00.
This makes the gross revenue $27 000 a year (100 000 * 0.03 * $9).
The company is part of the "small business" programs in both of the app stores, so the stores take only a 15% cut, and the Finnish VAT of 25.5% is applied.
The net revenue is $17 097.75 ($27 000 * (1-0.15) * (1-0.255)).
Estimating the profitability of your app is quite straightforward as long as you take all the necessary things into account.
We don’t necessarily recommend to calculate the profitability of In-App Purchases in a silo, but rather estimate the profitability of your app as a whole with all its monetization methods and costs taken into consideration.
For estimating costs, income, profit and ROI, we have developed a Google spreadsheet that you can freely use – just make a copy of it for yourself first.
Estimating incomes, costs and profits with the Sheet:
You can learn more about what goes into estimating the costs of your app in this blog post. Explore different app monetization models here.
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Try our App Makers Quiz to get personalized guides to your app making process, or simply start building your app right away.
And when it comes to In-App Purchases and other monetization methods, we can help.