What Are In-App Purchases? Definition, Examples, and How They Work

A customer downloads an app, it’s free, looks promising, and works well. However, a point arises where the app suggests making a small payment to access new features or special content. Now, that’s a request for an in-app purchase. 

This model is familiar to most people now, whether it’s used for gaming, shopping, fitness, task management, or any other app. The IAP market has become huge. In 2024 alone, people spent over $166.6 billion on in-app purchases, and this number is expected to jump to nearly $582.6 billion by 2028. 

This article breaks down how in-app purchases function, the options available, and how developers can use them effectively, especially with tools like Shiprocket Checkout.

What are In-App Purchases?

Any transaction carried out within a mobile application is referred to as an in-app purchase. You can download the app for free and use its basic features, then pay for the additional ones later.

Apps that offer in-app purchases frequently use the “freemium” business model. There will be an additional charge when the free trial expires or you require more sophisticated tools, upgrades, and add-ons. These acquisitions help developers increase their revenue while maintaining low barriers to entry for an excessive number of new users.

How does IAPs Work?

First, payment functionality is integrated into the app. The IOS users can do this through the Apple App Store, and Android users can do it via the Google Play Store. After completing this step, you can begin purchasing advanced features or upgrades within the app.

Every app must abide by the platform’s payment policies. After processing the payment, the store keeps a commission, typically between 15 and 30 percent, and gives the developer the remaining amount.

Repeat purchases are facilitated by the fact that transactions are frequently connected to the user’s ID on the platform. The app stores also handle parental controls, security checks, and refunds directly.

Different Models of In-App Purchases

Listed below are the IAP models that apps usually use:

1. Non-Consumable Purchases 

These are one-time purchases that users keep permanently. For example, a meditation app may offer guided programs that users can access for as long as they want. These purchases are typically more expensive than temporary alternatives because they are perpetual.

2. Purchases of Consumables

These items are the ones that get used up and need to be replenished. A dating app, for example, could sell “connects” that deplete as users message others. Once the users have exhausted these, they must buy more. Since these encourage repeat buys, they often cost less than permanent purchases.

Canva, for instance, charges one credit for each premium graphic. Users have to purchase another one if they wish to reuse it.

3. Subscriptions That Auto-Renew

These are regular payments that provide continuous access to premium features on a weekly, monthly, or annual basis. Numerous apps use this model, offering a free version with limited functions and a paid upgrade for full access.

Some apps let users try before paying. After a free trial, the subscription starts automatically unless cancelled.

4. Non-Renewing Subscriptions

These work like prepaid memberships. Users pay for access for a set time (e.g., one month), but unlike auto-renewing plans, they don’t continue automatically. Once the period ends, users must manually renew their subscription.

Some apps charge upfront but still offer extra paid features inside. Others are subscription-only, with payments handled at download (not technically “in-app” purchases). While paid apps make money, ads and in-app purchases tend to earn more.

Platforms and Gateways Used for Making In-App Payments

Most mobile apps are distributed through either the Apple App Store or Google Play Store, and both offer native systems for handling payments.

• Google Play Billing System handles transactions for Android apps.
• Apple’s In-App Purchase API covers purchases made in iOS apps.

These systems offer strong security and a consistent user experience, but they also come with fixed rules and charges.

In some cases, apps may integrate third-party options, primarily outside the stores, for items such as merchandise, ticket bookings, or services. This is where tools like Shiprocket Checkout step in, making the process smooth for both developers and users.

In-App Purchase Examples

1. Candy Crush (Consumable Purchases)

To advance more quickly, players can purchase extra lives (5 lives for $1.99) or boosters (like the Lollipop Hammer for $0.99). Players often repurchase these items because they vanish after use. 

Candy Crush boosters are an example of a small purchase that feels affordable yet generates a consistent income from repeat customers. High user volume makes them profitable, even if a single sale seems insignificant. Candy Crush, for instance, earned over $1 billion in the last three years, primarily from in-app purchases.

2. Duolingo (Non-Consumable Upgrades & Subscription)

The free version restricts practice sessions and displays advertisements. At $12.99 per month, Duolingo Super offers offline lessons, unlimited practice, and ad removal to its users. Some language tests or certifications are also available as one-time purchases.

3. Auto-Renewing Subscriptions for Spotify and Netflix

• Better sound quality, offline listening, and no adverts are features of Spotify Premium ($10.99/month).
• Netflix ($7.99–$22.99/month): Subscription services like Netflix bring in a consistent revenue stream. Different settings for video quality and concurrent streams are available. Some films (like those from Lionsgate) have extra rental fees on top of the subscription.

4. Procreate Pocket (Non-Consumable Add-Ons)

Essential tools are included in the base app ($4.99). Permanent brush sets, such as the Calligraphy Kit or Gouache Paintbox, are available to artists for $1.99 to $9.99 each. Permanent upgrades, such as Procreate brushes, draw in users who prefer a one-time payment.

5. Canva (Subscription & Credits for Consumption)

Basic templates are available in the free plan. Premium graphics, brand kits, and AI tools are unlocked with Canva Pro ($14.99/month). Some premium stock photos are more expensive (1 credit = about $1). 

Pros and Cons of Adding In-App Purchases to Your App

Benefits of Using In-App Purchases

Freebies Get Attention: Free downloads attract more users as people are more willing to try an app at no cost. For example, a fitness app with free workouts gets more installs than a paid-only version.

Steady Income: A consistent stream of income is generated from subscriptions. Recurring payments (monthly or yearly) provide predictable income. Spotify, for instance, earns most of its revenue from premium memberships.

Multiple Options: These in-app purchases provide you with more choices, offering various options tailored to different users. Some people may opt for one-time upgrades, while others prefer subscriptions. For example, a photo-editing app offers filters for $0.99 each or a full toolkit for $9.99 per month.

Investment Advantage: Users who pay tend to stay with the app longer. It’s because they have invested and want to get full value for their money. For instance, mobile games typically experience higher retention rates among players who purchase power-ups.

Potential Drawbacks of IAPs

Extra Cost: App Stores usually take a cut or commission for hosting and allowing their audience to download your app. Google and Apple take 15-30% of every transaction. For example, if your app sells a $10 subscription, you might only receive $7.

Stringent Compliance: You have to follow strict rules, and breaking the platform policies can lead to your app’s removal. Apple, for instance, rejects apps that bypass its payment system.

Losing Customers: Too many prompts together can annoy your app’s users, as constant upsells are likely to push them away. For example, a digital puzzle game that pushes players to “Buy more coins!” after every level risks negative reviews.

Limited Control Over Payments: Most transactions depend on Apple/Google systems, and thus, you may have less or partial control over payments. Supposing that Google Play has billing issues, your sales could drop.

Proven Strategies to Boost IAP Conversions

Adding the option to pay is one thing. Getting customers to buy is another. 

Here’s what helps:

Offer Value Upfront

Before asking for payment, ensure users are engaged. Free features should be enough to get them invested in your app.

Show the Benefits Clearly

Instead of just saying “Upgrade now,” explain what the user gains, be it ad-free use, extra features, or more content.

Use Price Anchoring

Present multiple pricing options, starting with the highest. This makes the mid-tier plan appear to be a better deal.

Keep the Process Simple

A lengthy or complicated checkout screen can disrupt the flow. Integrate a payment system that’s quick, clean, and secure.

Offer Trials or One-Time Deals

Offering users a taste of the paid version or temporarily discounting it can encourage them to convert.

Keep Nudges Subtle

Too many pop-ups or reminders can be frustrating for users. Keep prompts polite and spaced out.

Have Reliable Payment Systems 

Even a few seconds of delay can lead to cancelled payments. Ensure your app’s checkout process works smoothly.

Streamline Mobile Payments with Shiprocket Checkout for Apps

Many developers are now exploring smoother ways to manage payments outside the app stores, especially for products, services, or physical items.

Shiprocket Checkout provides a ready-made solution for accepting payments in mobile apps. It’s ideal for sellers who want more control and need local solutions.

It supports UPI, wallets, cards, and net banking, with a layout that works well on both Android and iOS devices. It helps reduce drop-offs during checkout, supports fast refunds, and gives you insights into payment behaviour, all of which help with IAP growth.

For developers who offer in-app purchases but want to go beyond digital goods, this tool can connect payment flows to delivery, tracking, and customer support, which is especially useful if your app sells items or book services.

Conclusion

In-app purchases provide mobile developers with a smart way to earn while still offering their apps for free. They enable apps to provide more choices, steadily increase their revenue, and adapt to diverse user needs. Whether you’re offering one-time add-ons or building a subscription base, what matters most is maintaining a simple and trustworthy experience.

With tools like Shiprocket Checkout, your app can accept payments more easily, no matter what you’re selling. And that means fewer steps between interest and purchase for both you and your users.