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How do free apps make money?
That’s the question that both app developers and users often ask.
What happens after a user downloads a free app from an app store? How much money do app developers make? If you are asking the same questions and want to know the answers, this article will explain each point in detail.
This guide covers the following factors on how free apps make money:
- the difference between free and paid apps
- the best monetization strategies to make money with mobile apps
- how much money do free apps make?
- approaches to choosing the best monetization strategies
- technical tools, APIs, integrations to make money from an app
- how world-famous companies make money from apps
Let’s jump right into an overview of all details.
FREE APPS VS PAID APPS BUSINESS MODEL
An average user in 2020 has 40 apps installed on their smartphone. For Millennials, the number rises to 67 apps. Around 49% of users open an app over 11 times each day. Overall, we interact with 30 apps each month.
Between 2018 and 2022, global app downloads will face a 25% increase.
When it comes to free vs. paid app downloads, users are hesitant about paying for an app. In fact, free apps take a whopping 96.4% of all app downloads on Google Play. If you release a free application, it automatically increases the chances that users will notice it.
When we look at app stores, we can clearly see that users are more likely to spend more money on mobile games. According to statistics, out of top-10 apps on Google Play with the highest revenue, the vast majority of them are games that you can download free of charge.
You have a lot of options, even if you decide to release a free application. Read on to learn more about each possible solution.
HOW TO MAKE MONEY FROM AN APP: MONETIZATION STRATEGIES
There are eight top monetization strategies that companies are using to generate money with free apps. If you are looking for an answer to the question ‘how do free apps make money?’, this part will explain the topic in all the details necessary for making the right choice.
Statista states that in 2019, there were three leading monetization strategies among developers:
- subscription model
- freemium model
- advertising model
Let’s take a look at how to make money from an app.
How do free apps make money, like millions of dollars?
This is the answer to your question. In-app ads are very popular among developers of free apps. Depending on the app type, in app ads revenue can be accounted in thousands of dollars.
Currently, there are 5 main types of free app advertising strategies that you can use to make money with your application:
How do free apps make money with ads without interrupting user experience?
Banners ads are the least intrusive type of in-app advertising. They don’t interfere with user experience, as they still can interact with your application without any limitations. At the same time, Click Through Rate of such applications (the number of customers that click of them) is not that high, around 0.06 percent.
Still, the average banner ad format CPM is around $1.
This type of in-app advertising is more intrusive, as it prevents users from using the app’s functionality. Such videos typically last for 10-30 seconds and can be added into apps and mobile games when there can be made natural pauses. That is why such video ads are often placed after a user finishes a game level.
You can use in-app ads as a form of a rewarding program. For example, users can get more lives in a game by watching video ads.
That is how to make money from an app with in-app advertising.
- Native Ad
Ads of this type are a little more difficult to make, as such ads should not interrupt the user experience. They should perfectly fit into the app design and overall concept, allowing to naturally promote a brand or a product.
Usually, such native ads don’t create a distraction for users, ensuring a higher level of conversion.
- Interstitial advertising
Such in-app ads are represented in the form of full-screen pop-ups that interfere with app usage. Ads of this type usually appear when users open or close an application. They have to either skip the add after watching them for a predefined type period or check the offering. Either way, such ads often irritate users as they don’t have a choice to simply ignore such ads without any further actions.
- Incentivized Ad
The vast majority of users (84%) prefer to deal with this type of in-app advertising. Instead of interrupting ads, they can get rewards for taking some actions, like sharing content, leaving a review, filling out a survey, etc.
Incentivized ads work better combined with the system of in-app currencies and purchases.
While in-app ads are one of the most popular types of free apps monetization, it might be a good idea not to irritate users with too many ads. As a result of irritation, users are less likely to click on ads, decreasing the conversion rate and your app ads revenue.
When you look at the previous monetization strategy, you can see that it is just a part of referral marketing.
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As a part of referral marketing effects, you can place some content inside your free app to promote someone’s application, products, services, etc. You get a commission for a number of clicks, app installations, etc.
Referral marketing works as a cost-per-action (CPA model) and includes the following types of rewards that you can get:
- CPM (cost-per-mille, cost-per-impression) – you get a payment based on a number of impressions. Usually, you are charged every 1,000th time an ad is displayed. Such a model comes from a Latin word mille, which means a thousand.
- CPC (cost-per-click) – you are rewarded based on the number of clicks made on ads inside your application.
- CPV (cost-per-view) – you get a reward for each view of a video and ads interaction.
- CPI (cost-per-install) you get a payment each time a is installed via the ads inside your applications.
How do free apps without ads make money?
The answer to the ‘how do apps make money?’ question doesn’t always include the mentioning of in-app ads. There are four more monetization strategies for free apps that you can use to generate revenue:
- In-app purchase and a freemium model
- Subscription model
- Sponsorship model
- Crowdfunding model
- Email marketing
- App merchandise & eCommerce
These models provide an uninterrupted user experience and don’t irritate customers with unnecessary actions needed to be taken.
Let’s find out how to make money from an app without built-in ads.
IN-APP PURCHASE IN THE FREEMIUM MODEL
The Freemium model is a very popular approach to the monetization of free apps these days. You grant access to the basic features of your application for free and can provide some additional functionality or bonuses for a payment.
Please note that app stores manage such transactions and you only get a commission for every option sold.
In-app purchase strategy can be divided into three types of purchases:
- Consumables – one-time items that are mostly used in games. Examples include in-app currency, additional lives, etc.
- Non-consumables – feathers that are used permanently throughout the whole time of the app use. Examples include ad blocking, access to advanced app features. etc.
- Subscription – you can find a more detailed description of this model below. This monetization strategy allows to get access to some additional in-app content or features for some time, e.g. for a month, a quarter, for a year, or lifetime access.
How do free apps make money with this model?
In fact, they can generate millions in revenue with the help of in-app purchases. The most successful examples include The Clash of Clans, which earned a million a day on purchases, and Pokemon Go, which generated 1.5 million every day and only in a year managed to reach the revenue of over billion dollars.
Still, making money off of apps with a freemium model is no easy task. This monetization strategy is the best solution for applications and games with a huge number of users. Moreover, users may only opt to use the free version of your application and never buy any additional content. You should also remember that app stores take 30% out of every sale you make with your app.
This is a very popular monetization strategy among SaaS, cloud services, audio, and video content streaming services. The subscription model entails getting payment for a weekly, monthly, quarterly, or annual use of your solutions.
Examples of solutions working on this model are numerous and include such world-famous solutions as Netflix, Apple Music, and Google Music. This monetization strategy is also applicable to online news portals and the Wall Street Journal and the New York Times successfully utilize it.
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The subscription model is not the easiest approach to how to make money from an app, as you need to provide users with fresh content, regularly add new features, and release updates to incite them to continue using your application.
The use of this business model can bring you a lot of money. The only difficulty is finding a sponsor who will give you money in exchange for the promotion of their solution or product.
This monetization strategy works best is you have a unique app idea or have a big user base. It can be approached in two ways:
- Revenue split generated by the app
- Monthly sponsorship fee paid to you by app’s funder
The answer to the “how do app owners make money?’ started to include this monetization approach lately. Kickstarter, Indiegogo, CrowdFunder, and AppsFunder are the most popular crowdfunding platforms that you can use to make money from free apps.
You should be aware that there are thousands of other applications of such crowdfunding platforms and it is no easy task to get attention to your application. However, you can do it by providing real value with your unique app idea.
This is the oldest among strategies that proved its effectiveness decades ago. To send emails to your users, you need to know their email addresses. You can get them in a few ways:
- Ask for an email address with a pop-up box. You can exchange the email address for free features, in-app currency, and other attractive offers.
- With Facebook SDK, when customers use social login or sign up.
- With third-party tools that are designed for email collection and can be integrated into your application.
Don’t forget about GDPR (General Data Protection Policy) and notify users when you collect emails, why you collect them, and how they will be used.
APP MERCHANDISE & E-COMMERCE
This is another approach that explains how to make money off a free app.
The eCommerce industry is growing with unprecedented growth. You can become a part of this growth by selling your own branded items within your application. Amazon takes on a lot of work, including merch production, selling, payments, and shipping, and you get a part of the profit.
Angry Birds is a successful example of how to make money with an app that utilized this monetization strategy. Even though there is a potential to generate millions in revenue, your app should become popular first. If you don’t have a dedicated fan base that is willing to pay for merch, you won’t be able to utilize this business approach.
How do apps make money?
You now know the most profitable and popular monetization strategies with the potential of bringing millions of dollars to you.
HOW MUCH DO FREE APPS MAKE MONEY?
The market of mobile apps is a lucrative niche for a business
As per Statista, worldwide mobile app revenues will account for 581.9 billion in 2020 and the number will grow to 935, 2 billion by 2023.
Over 25% of iOS developers and 16% of Android developers earn over $5,000 per month with their apps. This number should be considered as a benchmark in the app industry.
Almost 24% of apps generate up to $500,000 in revenue per month, and only 1.5% of apps can bring their owners over $500,000 every month.
As we already mentioned answering ‘how do free apps make money?’ question, subscription, freemium, and advertising are the most popular monetization models among the developers of free apps.
According to Sensortower, as of July 2020, the following apps are the most grossing on the market:
- Zoom Cloud Meetings
- Facebook Messenger
- Amazon Shopping
As you can see from the list above, all these apps can be downloaded for free. Still, they generate a lot of money for their creators with the help of successfully implemented monetization strategies.
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HOW TO CHOOSE THE BEST APP MONETIZATION STRATEGY
You can find the best strategy for app monetization by following the below 4 steps:
Step 1 – Research the market and find competitors to better understand what is popular on the market, which solutions do not get users’ attention, and what are the most potential app niches.
Step 2 – Determine your target audience and identify which points this audience has, how you can solve it, which interests them, etc. to provide users with relevant content and useful features.
Step 3 – Create a unique app idea and do not try to copy some famous apps or games.
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Step 4 – Decide on the app monetization strategy and the best approaches to making money from apps.
After you know which type of app you are going to develop and have a unique app concept, you can use the following tools to present your application to users and get their attention:
- Clear and catchy name that will be easy to remember and that will convey the idea behind your article.
- Clear app description that will show the app’s real value to users and entice them to download your application.
- Eye-catching app previews like app screenshots, demo videos, and other visuals to let users know how your app looks like, which UX/UI offers, and how it will look on their devices.
HOW DO FREE APPS MAKE MONEY: REAL LIFE EXAMPLES?
There are a lot of apps on the market that generate millions in revenue.
WhatsApp is a unique example, as the app started with a paid model and charged $1 per download. How does WhatsApp make money? Later, it switched to another business model and now allows users to download the app for free. With over 2 billion users nowadays, WhatsApps hold unlimited opportunities for in-app ads.
Another vivid example is the Facebook app that you can use for free. Still, the company manages to get millions of dollars from its apps by utilizing in-app ads. According to statistics, ads generate 98,5% of revenue for the company, while payments and other feed generate only 1,5% of all revenue. In 2019 alone, advertising brought almost $69.7 billion to Facebook.
TikTok, which is the talk of the day, also generates a lot of money, however, utilizing an entirely different approach. The company sells its in-app coins that can be exchanged for digital products. Users can buy 100 coins for $0.99 and the prices reach $99.99 for 10,000 coins. In October of 2018, users spent more than $3.5 million on in-app purchases.
Regardless of the monetization strategy, you will choose, you can ensure sustainable growth of your application and revenue only with the help of steady innovations and improvements. No app can make money without users, and you should make sure that your application meets all their expectations. This way, users will stay loyal to your app and brand for a long time.
Today, you can get a lot of answers to this question. Users are more likely to install a free app rather than a paid application. It makes sense to develop such a solution and implement one of the most popular app monetization strategies:
How Do You Earn Money From A Free App Store
- subscription model
- freemium model
- advertising model
Regardless of the model you choose, first of all, make sure that your application provides value to users and helps to solve their problems.
You can combine a few monetization strategies to make even more money with your free application.