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The Subscription Business Model in Mobile Apps
The modern mobile app economy is overwhelmingly driven by subscriptions. Whether it's a fitness tracker, a meditation app, a photo editor, or a language learning tool — the subscription model has become the default monetization strategy for the vast majority of successful mobile applications.
The modern mobile app economy is overwhelmingly driven by subscriptions. Whether it's a fitness tracker, a meditation app, a photo editor, or a language learning tool — the subscription model has become the default monetization strategy for the vast majority of successful mobile applications.
How Subscriptions Work
When a user downloads an app and subscribes (typically at $4.99–$9.99/week or $29.99–$79.99/year), the payment is processed through Apple or Google's billing system. The platform takes a commission (15–30%), and the remaining revenue is deposited into the developer's bank account on a monthly cycle.
Crucially, subscriptions auto-renew. Once a user subscribes, they continue paying until they actively cancel. Industry data consistently shows that a significant percentage of subscribers remain subscribed far longer than they actively use the app. This "subscription tail" is the foundation of the investment thesis.
Revenue Mechanics
| Metric | Definition | Why It Matters |
|---|---|---|
| Gross MRR | Total monthly recurring revenue before platform fees | Top-line metric shown in payment analytics |
| Net MRR | Gross MRR minus Apple/Google commission (15–30%) | Actual cash deposited to the developer's account |
| Churn Rate | Percentage of subscribers who cancel each month | Determines the speed of revenue decay |
| LTV | Lifetime value — total revenue from an average subscriber | Higher LTV = longer payback period coverage |
| Organic vs. Paid Split | Percentage of users from free (ASO, search) vs. paid channels | Organic-heavy apps are more predictable and valuable |
Platform Commissions
Apple charges 30% on in-app purchases by default. Developers earning less than $1 million per year qualify for the App Store Small Business Program, which reduces the commission to 15%. Google Play has a similar tiered structure. This commission significantly affects net revenue calculations and must be factored into any valuation.
Frequently asked questions
Why is the subscription model so important for app investors?
Subscriptions create recurring monthly revenue that is easier to measure, forecast, and value than one-time purchases.
What is the difference between gross MRR and net MRR?
Gross MRR is total recurring revenue before store fees, while net MRR is what remains after Apple or Google commissions.
How do platform commissions affect valuation?
Commissions directly reduce cash flow, so investors should model value using net revenue after fees, not top-line sales.