Apps are often free to download, but many offer in-app purchases, which are extra features, more access, or bonus material that users can buy. These paid offerings can help you grow your mobile app business. In the last quarter of 2024, global in-app purchase (IAP) revenue on iOS and Google Play reached $39.4 billion—an increase of about 13.5% year over year.

Below, we’ll explain what in-app purchases are, how they work, and what they mean for your product, users, and revenue.

What’s in this article?

• What is an in-app purchase?
  
• How do in-app purchases work for mobile apps?
  
• What are the main types of in-app purchases?
  
• What are common examples of in-app purchases by industry?
  
• What are some benefits and challenges of in-app purchases?
  
• How much do in-app purchase fees cost on Apple and Google Play?
  
• How Stripe Payments can help
  

What is an in-app purchase?

An in-app purchase lets users buy something directly inside a mobile app. IAPs might offer extra features (e.g., ad removal, advanced tools), digital content (e.g., new filters, levels), subscriptions (e.g., monthly access to premium content), or virtual currency (e.g., gems, credits).

The IAP model allows free apps to bring in a broad user base, and if a percentage of those users make purchases, this creates recurring revenue. IAPs also benefit users because they can try the app, decide whether it’s worthwhile, and pay if and when it makes sense for them.

How do in-app purchases work for mobile apps?

IAPs layer a purchase flow directly inside the app. When a user taps “buy” in the app, the device’s app store (Apple’s App Store or Google Play) validates the payment and enables the purchase.

Here’s how that flow typically works:

1. A user taps a buy button in the app (e.g., “Unlock Pro,” “Buy 500 coins”).

2. The app store handles the transaction via a native prompt from Apple or Google, which asks the customer for biometric or password confirmation.

3. Payment goes through the app store’s billing system, and the user is charged via their Apple or Google account.

4. The app is notified, and the IAP content is provided.

5. The store takes a cut, and the remaining revenue goes to the developer.

Store-managed IAPs are only for digital goods or services delivered within the app. Any physical products or real-world services, such as groceries, rides, and merchandise, aren’t IAPs and won’t go through the store’s billing system.

What are the main types of in-app purchases?

The app stores define four main IAP types, each with its own use case and behavior:

• Consumables: These disappear after use and can be bought repeatedly. They’re common in games (e.g., coins, extra lives).

• Nonconsumables: These never expire and are often tied to a user account. They include ad removal services and pro-level features.

• Automatically renewing subscriptions: These bill a user automatically at regular intervals until they’re canceled. They include ongoing services such as fitness or news apps.

• Nonrenewing subscriptions: These offer access for a set length of time, with a fixed end date. They include online courses and season tickets.

What are common examples of in-app purchases by industry?

Different industries offer different kinds of in-app purchases, ranging from content types to functionalities or opportunities for direct interaction.

Here are some common types by industry:

• Gaming: This is the biggest IAP category. Free games make money through virtual currency, power-ups, extra lives, level unlocks, and skins or other cosmetic upgrades.

• Social and live streaming: Users buy IAPs to connect with creators, who often earn a cut. Common purchases include virtual gifts, stickers, badges, and reactions.

• Dating apps: Paid elements of free dating apps might include unlimited swipes and profile visibility boosts.

• Media: IAPs can provide access to ad-free or premium content or appear in the form of paywalls after free articles run out.

• Productivity, education, and wellness: IAPs in self-improvement apps might support pro features, access to new courses, or subscription tiers.

What are some benefits and challenges of in-app purchases?

In-app purchases generate revenue inside mobile apps, but they come with trade-offs. Here’s what to consider when you’re deciding whether (and how) to build IAPs into your product.

Benefits of IAPs

• Strong revenue potential: The IAP model has huge potential to scale. It’s possible to keep the base app free for everyone but monetize users who want more.

• Straightforward user experience: People try the app, see the value, and buy when it makes sense to. This is a low-stakes, low-friction funnel.

• Higher engagement and retention: Once a user pays even a little, they’re more likely to stick around. IAPs let you continually add value and enhance users’ relationships with your app.

• Built-in trust and convenience: App store payments are fast and familiar. This increases conversion, especially on mobile.

• Data on what users value: IAP behavior is a feedback loop. It tells you what features drive action, how much users will pay, and where to invest.

Challenges of IAPs

• Platform fees: Apple and Google take a 15%–30% cut, which is higher than that of standard payment processing and might be too much for smaller teams.

• Low conversion rates: Only about 1%–2% of users convert from free to paid when they install an app. Monetization strategies must focus on volume or high-value repeat purchases.

• Delicate product balance: If you push too hard on monetization, you can erode trust. If you give too much away, people might be less inclined to buy. Finding the right thresholds and designing for both free and paid users is ongoing work.

• Platform dependence: App store rules can (and do) change according to Apple’s and Google’s changing policies. Developers trade control for access.

How much do in-app purchase fees cost on Apple and Google Play?

App store fees are one of the most scrutinized parts of the IAP model. Both Apple and Google charge a percentage of each in-app purchase made through their platforms.

Apple App Store fees

The standard app store fee is 30% of the purchase price, although developers that earn under $1 million per year qualify for a reduced rate of 15%. The fee on subscriptions starts at 30% and drops to 15% after the first year of continuous billing.

Apple charges a commission only on digital content and features sold inside the app. Physical goods or real-world services must use other payment methods such as Apple Pay and standard credit card entry. In some regions and app categories, such as reader apps, Apple allows links to web-based purchases.

Google Play Store fees

The standard Google Play fee is 15%–30%, depending on revenue and product type. The first $1 million of annual earnings is automatically billed at 15% for all developers. Subscription fees are 15%, while fees for physical goods and services are exempt from Google’s fee structure.

For users in select regions such as India and South Korea, developers can offer non-Google payment methods with a fee reduction (e.g., 4% lower than standard).

These fees are more flexible for lower-revenue developers. But if you’re selling digital goods through the app store’s payment system, expect to give up 15%–30% of each transaction. That high figure can drive developers to look for alternate flows when policy allows.

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