Monetization strategy is the process of converting your users into revenue. In other words, it’s a plan to generate profit for your product.
As your goals, your market, your customers, and your product will likely change over time, it’s important for your strategy to be flexible and continuously evolve.
In this article we’re going to explore why having a monetization strategy is important when trying to extend your business runway and attract investors, how meeting your customer’s needs can organically lead to monetization, and the significance of UX in the monetization process.
Every day that goes by before figuring out your monetization strategy, your runway gets shorter. A ‘business runway’ refers to the amount of time a company can keep operating before it runs out of money. A business runway is important for budgeting appropriately, strategizing your business growth, supporting fundraising initiatives, and forecasting.
The total amount of cash you need might vary by industry, economic conditions, or fundraising stage. However, having a clear understanding of your business runway will help you develop a sustainable roadmap for your company.
You can extend your business runway in a few different ways:
Cutting unnecessary expenses can help your business improve cash flow and become more profitable.
How to do so? You can negotiate reductions with your vendors, explore outsourcing initiatives, and review whether you need part-time or full-time positions. You can also switch to a co-working space if rent is too high and try to reduce utilities. Also, don’t hire in anticipation of growth and don’t spend money unless you absolutely must.
There are ways to drive more sales without raising costs.
You can revisit your product or service to see if you can extract additional revenue, try different pricing strategies, and charge for new features. You can also go after an adjacent market or partner with a company offering complementary products or services. Another good idea could be looking for a way to acquire customers from your competitors.
You can extend your runway with external funding, for example in the form of investments.
This solution can take a long time. Assuming you can raise additional capital through funding, you need to be prepared to demonstrate that you understand your market, that you have a clear plan to profit from, that you have a track record of meeting milestones, and that you created a working monetization strategy.
Every great business had started out as a simple idea. However, without the right funding, it might have never seen the light of day. Whether it’s at the beginning of the development process, during, or after launch, your business is undeniably going to need to raise some capital — especially if you factor in future expansion and long-term maintenance.
However, attracting investors isn’t easy. Investors want to fund a business with clear goals and knowledge of their market. In addition, to make an informed decision, they want to know more about your users, who your target audience and competitors are, the problems you’re trying to solve, what features you offer, what the feedback from testers and users is, if the business traction is going well, and what your monetization strategies are.
A clear monetization strategy presented to the investors will make them finance your business more successfully. So, it’s essential that you study the various strategies out there to be ready to answer any questions about them.
In our article The best 5 monetization strategies for content heavy apps and platforms, we explore the freemium model, the referral selling, advertising, subscriptions, and print on demand.
Sometimes, monetization opportunities present themselves just as when meeting customer needs. This was the case for Polarsteps, one of the most popular travel planning and tracking apps out there, which made print on demand with Peecho a runway extension to their business.
Polarsteps’ early philosophy was growth, not monetization. According to Polarsteps Co-Founder & Creative Director Niek Bokkers, monetization is a choice: “For us, the choice between growth and immediately chasing profit was an easy one. We knew that we wanted to build a growing company with a high level of monthly active users. And we did that. Then, with monetization, it was simply a question of when.”
With their growth and metrics speaking for themselves, Polarsteps successfully secured investors despite their lack of profitability. It was at a much later stage and because of user feedback that the company started exploring monetization through the implementation of a highly demanded feature: Travel Books. “The Travel Books were requested by our users,” Niek says. “We got so many requests, that we finally decided to implement them.”
Are you curious to read more about Polarsteps’s business story and growth strategies? Check our article Polarsteps’ success story: an interview with Creative Director Niek Bokkers.
Converting the user without disrupting the user experience (UX) is crucial for an effective monetization strategy.
User experience is how a user interacts with and experiences a product, system, or service. Good UX is very important as it encourages users to engage and come back to you. On the contrary, a negative user experience can diminish the use of your platform and any desired positive impacts. For this reason, it’s crucial to keep UX in mind when going through your options for monetization.
However, finding the right balance between user experience and monetization can be tricky. Since engaged audiences are built on strong content and positive user experience, it’s important not to disrupt UX with monetization strategies like too many annoying ads or paid features. This makes print on demand one of the best strategies you can apply to your business.
The monetization model you choose is just as important as the business you’re building. So, UX and revenue generation must be aligned. Make sure you keep testing, experimenting, listening to your customers, and looking at your data.
Nowadays, there’s a growing number of businesses that value user experience first, and revenue second. The reason for this is simple: without a good product and happy users, you won't generate any revenue.
Every day that goes by before figuring out your monetization strategy, your runway gets shorter. There are a few different methods that you can implement to reduce your runway burn. However, sometimes, monetization is the only way for your business to grow. Not only a clear monetization strategy is fundamental in converting your users into revenue, but most of the times it’s necessary in order to attract investors. On the other hand, meeting your customer needs with the implementation of their requests can also result in new monetization opportunities for you and your business. Lastly, when looking for a monetization strategy, don’t forget to take into consideration the importance of user experience in order to build a strong base of loyal, valuable users who will generate profit for your business.