How Do Free Apps Make Money? 7 Proven & Popular App Monetization Methods

how do free apps make money

This article is for Entrepreneurs who wants to learn – how to make money with apps to earn passive income by publishing free apps in mobile app market.

As free apps have always outnumbered the paid ones (in terms of profits and download numbers), most people often ask a common question that – how do free apps make money.

Before we answer that question, the first thing you need to know is that the app boom hasn’t ended (and it won’t), according to Techcrunch.

Even though the percent of paid app revenues has decreased to 37.8 % from 75.9%, the mobile app market is still worth billions of dollars.

In fact, here’s an interesting graph that shows difference between number of paid apps downloads vs. free apps downloads:

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The experts also predict that, between 2016-2020, global app revenue will double!

So if you think that free apps are not profitable as much as the paid ones, then you couldn’t be more wrong. The fact is, 98% of worldwide revenue comes from the free apps, according to Google Play.

Techcrunch also says that more than 90 percent of apps on the market now are free. And, the revenues generated from apps that charge for download (paid apps) are expected to go down in upcoming years.

Now if you want to learn how do free apps make money, or how to make money making apps, then you’ve come to the right place.

We’ve already worked with many Entrepreneurs in 6 years of our journey and helped them convert their ideas into money making apps.

In fact, our clients admire the expertise we’ve on photo and video app development. And because of that, we’ve been able to build apps that not only generated good amount of revenue for our clients, but also got ranked in the list of top photos videos apps category.

If you would like to learn more about these top photos videos apps developed by us, then click on this link.

So, if you’ve decided to make an app and wondering how to make money out of it, then in this article, you will learn about the most popular and proved mobile app monetization strategies to make money with apps.

App Monetization Options

According to Statistica, in 2015 these were the most popular app monetization methods used by top app publishers.

screenshot-www-statista-com-2017-01-16-17-36-59-1024x894

Ok, so you can clearly see that there’s a lot of different ways to make money with apps, but which are the top options here?

To find out, let’s analyze the top and most popular revenue models of free apps.

1 – Advertising

Advertising is probably the most common and easiest to implement, and it is done via a third-party ad network.

7 out of 10 free apps providers used advertising as their revenue model in 2016.

Using ads to monetize an app and make money is quite simple. An app owner just needs to display commercials inside their mobile app and get paid from the third-party ad networks.

You can get paid every time an ad is displayed (per impression), per click on the ad, and when a user installs the advertised app.

There are mainly 4 types of ads that are displayed by the app providers for monetization.

Interstitial ads:

interstitial

This type of ads are full-screen pop-ups that are displayed at specific time frames. Users can close this ad by close button at the upper left or right corner.

For example, a ad can be displayed when a user finishes editing a photo and saves it in the gallery.

This method is used by popular apps such as Gaana that make money from its native mobile app.

Banner ads:

banner

They are basically displayed in different sizes and at the top or bottom parts of the app screen. They are often small and less obstructive which helps users to freely use the app.

In-app video ads:

video

These ads are displayed automatically and generally used as a reward video in exchange of some in-app reward. For example, by watching the ad video, the user can get the app currency which can be useful for either unlocking levels in the game or getting additional features.

Native ads:

native

Native ads are integrated to appear as a natural element in the app. Most of the times, it is manifested to promote a product or a mobile app.

This method is getting more and more popular these days, because the users are less irritated and intrusive with such ads.

However, one point that you need to know about native ads is that their revenue can be pretty low compared to other methods. And despite the mobile app developers think of native ads as the best strategy, it is the most hated by users.

2 – Subscriptions

Subscriptions can be quite useful monetization strategy. App publishers can choose to offer free content in their apps for a limited amount of time and then charge users for a subscription fee that will allow them to access full content without any restrictions.

The popular and common technique used by majority of free app publishers is to offer a free trial period and then charge the subscription fee to those who wish to continue to access the app content.

This type of monetization strategy is often used for cloud services, audio and video streaming, and online news services.

To ease the integration of this revenue model, Apple is paying extra attention and making significant changes in how app subscription models work. In the present model, Apple will maintain its current 70/30 revenue split for the first year of subscription. After one year, the new 85/15 revenue share will automatically be implemented.

This new format was made to encourage the app publishers to sell their apps for a recurring fee instead of a one-time cost. But despite this, only 5% of the most successful apps are using subscription revenue model, according to Sweet Pricing.

3 – Selling Merchandise

Another innovative approach is to sell merchandise in your free app.

Many ecommerce businesses build free apps to sell physical goods such as toys, shirts, shoes, etc. these physical products can be sold directly within the app or via email marketing.

To encourage app publishers to use this monetization strategy, Amazon has started a service called Merch by Amazon that allows publishers to create their artwork, upload it to their platform and promote their products.

To make things easier, Amazon even takes care of the payments and delivery of items.

4 – In-App Purchases

In-app purchases are directly made from within the app and are usually quite simple process. They’re typically used to access special contents or features such as powerups, restrictive levels, or additional features.

In simple words, in-app purchases provide an ability to sell a variety of virtual items directly from the app.

According to Forbes, apps with in-app purchases generate the highest revenue for their publishers. This monetization strategy is also expected to dominate in the years to come.

Generally this model is used by game publishers, mostly because of the digital money. In fact, half of the games provide more than one game currency such as gems, coins, and gold.

Overall, this is an interesting model for converting non-paying app users into paying users without being too intrusive. Although, you’ve to keep users hooked to your app so that they keep paying.

5 – Sponsorship

Sponsorship is one of the less commonly used monetization method, but it can be still an interesting strategy.

In simple words, Sponsorship in your application can be a powerful monetization strategy if the app publisher builds the right niche app for targeted audience and launch it on behalf of another company.

Similar to websites, app publishers need to consider sponsors whose target audience is same as the one being addressed by the app. Before building the app, creating a list of organizations and brands who could benefit from partnership is a good starting point.

A good example of this strategy is Home Depot sponsorship on the Weather Channel App. the animated app background behind the temperature measurement is the advertisement placed by the sponsor to target homeowners interested in weatherproofing their houses.

6 – Referral Marketing

Referral marketing involves promoting a third-party product or service as a way to optimize revenue opportunities.

App publishers can promote or sell affiliates’ products or services based on the number of clicks or installs. For this, you can use pop-up ads to promote someone else’s app or advertise products.

There are different types of referral marketing models that publishers use in their free apps.

Cost per acquisition or Cost per action (CPA):

There are number of affiliate networks from which you can find the one that suits your free app. In this model, you can either promote other apps, advertise products with pop-ups, or promote apps through an in-app store.

Cost per click (CPC):

This type of revenue model is based on number of clicks on an ad displayed. You can join the popular networks such as Adfonic or Google’s AdMob for this model. They both provide text and display advertisements.

Cost per view (CPV):

This model involves charging based on the number of ad interactions or video views. Smartphone game development company BrightHouse successfully increased their app revenue by 130% through cost per view networks.

They used video as well as interstitial ads in their smartphone game to create natural breaks in between game sessions.

Cost per install (CPI):

Cost per install is relatively new marketing mechanism and is mobile equivalent to CPA (cost per acquisition) in the web marketing world.

Cost per install is exactly what it sounds like – you get paid for each install of the advertised app in your free app.

There are number of platforms providing software to install into your app. The best example of this model is Chartboost and Playhaven. Both are third-party networks that have software that you install into your app.

The fee of this network ranges from $0.80-$3.00, and online affiliate networks have a range of campaigns for global traffic generation while promoting other apps, making it a lucrative market to play.

7 – Collecting and Selling Data

As you know, apps collect a lot of users’ data, in terms of user behavior or other app usages. All these user behavioral data are desired by many researchers in different fields.

This means, the app publishers can sell their users’ behavior data to these researchers and make a handsome amount of money. The data generally contains users’ email addresses, social media accounts, and their personal preferences.

There are two ways to benefit from this model. You can either track what users do and sell data to outside companies and researchers, or you can use the raw data for your own purposes.

From a marketing point of view, companies want to pay for displaying ads to the most relevant audience. So if you can gather enough relevant data, then you can have a way to make profit out of it.

Future of Free Apps

As you can see from the above mentioned statistics, the growth in the mobile app market isn’t stopping anytime soon. Despite increasing competition in the industry, publishers are also applying new monetization methods and creating more useful free apps for users.

None of the above mentioned monetization options could be described as inefficient. In fact, app publishers have gained skill in using these models in particular cases.

For example, the subscription model works only for a certain niches, but is the most profitable of all if deployed correctly.

On the other hand, the freemium model is much criticized for being potentially unethical, but shows amazing results when used thoughtfully.

Besides this, hybrid monetization models, such as in-app purchases and in-app ads, are clearly gaining popularity in the business world. Most publishers say that in-app advertising is set to be a key driver of over growth in upcoming years.

Only time can tell the real truth how mobile app market will develop. But for now, current market trends show that the market will continue to generate higher revenue in the foreseeable future.

Bottom Line…

With so many available monetization models to make money with apps, it is important to note that each method has its benefits and drawbacks. However, trying out these tactics and analyzing what competitors are doing is a good starting point.

So when starting your mobile app development, you should take app structure and target audience into consideration before choosing the monetization strategy. And if you need any help, we’re always happy to help. Just fill out the below form and get your free consultation.

 
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