POSTED BY DAN YOUNG

You had a great brainstorming session with your team. You developed an app idea. In the excitement to get the project started, someone suggests getting marketing involved to render drawings and design the app. In the excitement, no one thought to call finance to explore how the app will generate revenue.

There are hundreds of thousands of apps. Some apps we buy, some we use and most we ignore. Excluding the apps built by students and hobbyists, each app has some type of reason for being, some business model that justified its development.

Every app needs to have a “revenue” model, some way for the app to provide a return on investment in excess of the expense of designing, building and supporting the app. Some models are obvious, such as selling an app. This is a direct revenue model.

The direct revenue model is the most straightforward model. It’s also the toughest models to make money.

“Freemium” apps are a derivative of the paid app. With these types of apps, the user downloads a free version of the app that either has limited function or content. The user is then charged a premium to access the full set of features and content.

Most revenue models in the mobile space are indirect. They include apps that push ads, provide access to goods, services or subscribed content. They also include internal apps that improve customer service, lowering operational costs or provide a marketing service.

The New York Times use the subscription model to monetize revenue from their mobile apps. Users can access a limited amount of free content before having to go through a ”Paywall” to access premium content. Spotify and Pandora are other examples of apps being used in a subscription model.

The key with the subscription model is that there is an intrinsic value in the underlying content worthy of the price for the premium content. The app itself is only a conduit, thus it is an indirect means of acquiring the content.

The Daily, an iPad only news outlet, provides an alternate version of the subscription model. Unlike the previous examples, where the content accessed in the apps can also be found through web sites and other outlets, The Daily only provides subscribed content through the app. They do not syndicate their content or make it available via the web. Thus their take on the subscription model is one of closed access.

The next revenue model is somewhat of a running joke in the mobile industry. The joke goes like this. An entrepreneur walks into a VC and pitches their great idea. The VC says what an interesting idea the entrepreneur has and asks how he’s going to make money with it. The entrepreneur responds: “ads.”

Industry jokes aside, the ad model to monetize mobile apps is legitimate. You can make money with a free app by displaying ads. The problem is volume. To make any good money doing this, you need to have hundreds of thousands, if not millions, of users. If this sounds “doable,” keep this fact in mind. Most apps are never downloaded more than a few hundred times. Only the very best apps break into the six digits with users, thus the reason why ad revenue is somewhat of a joke amongst industry insiders.

Now, if you have a company and you want to market your existing goods or services, an app built solely for the purpose of advertising your company is a far more practical idea. Tens of thousands of companies have produced apps to do just that; to drive more business to their existing operations by marketing to mobile users. We’ll call this the “marketing app” revenue model.

A “call to action” represents the conclusion of any good advertisement or marketing campaign. Sometimes, companies need their customers to act (or show to their customers that they are acting). This leads us to the next revenue model: the service app.

United/Continental Airlines and TravelCenters have created apps that allow their customers to interact with them via their mobile device. One app allows travelers the ability to book flights, check in and otherwise manage their reservations. The TA app allows truck drivers the ability to reserve showers and call for road side assistance.

By themselves, each of these apps do not sell the customer a service. They provide the customers with a tool, a portal, that allows them the ability to purchase goods and services directly from the company.

Moving the conversation away from end user customers to internal users, the next genre of apps are those designed for internal users, to improve operations and customer service.

Many of us have visited an Apple retail store. Within each store, floor representatives are armed with iPod Touches equipped with a barcode scanner and credit card reader. Each iPad runs an internal Apple POS app. Rather than route customers to a designated check-out queue, their purchases are cashed out right where they are. Efficiency is improved and, more importantly the customer experience is improved.

Field service personal are also seeing the benefits of mobile apps. By equipping repair technicians with iPads or tablets, they are able to be more effective on the jobsite. Cost per service rates drop, the number of services per day increase and the company’s top and bottom lines improve.

Internal apps like these can be built in-house, by an outside firm like DXY or can be purchased from an app store which bringing us back to the beginning of the article. There are a number of revenue models that you can follow with your app idea. The bottom line is that you need to know which one fits upfront, then determine the cost versus expected return in granular detail before making the decision to move forward.

Having a sound business use case for your app will go a long way to ensuring that you can indeed monetize your idea.