How Do Free Apps Make Money: The Most Popular Revenue Models

The article was updated on August 19, 2020.

If you’re building an app, you’re probably doing so for commercial reasons. Yet, if you want to win users’ hearts, you’re likely to make it a free one. As per 2020 stats, the overall number of free apps on Google Play exceeds 96%, as opposed to only 4% of paid apps. The revenue stats are even more revealing. In fact, free downloads account for as much as 98% of global app earnings.

Does it mean that you can’t make money with free apps? Absolutely not. There’s a range of app monetization models that you can leverage to make your app pay off. One rule of thumb is to choose your app monetization strategy before you start developing. Your app functionality and UI will depend on the method you choose to make your app yield profit.

Ready to explore how to make money off free apps? Start with the checklist below.

How do apps make money?

1. “Freemium” apps to make money

Do free apps make money? You bet! You can make your application free to download, but provide additional features at extra charge. Thus your users may get a sense of what you app can offer them at no cost. If your application is interesting enough, people will be ready to pay for extended version.

For example, LinkedIn, the career-building social network, is free to use. Yet, it has a number of features available only on a paid basis. If you need to know who viewed your profile, want to access on-demand learning, and applicant insights, you must buy a premium version.

2. In-app purchases

Being one of the most popular methods to make money on free apps, in-app purchases is the strategy when you give an app away, and then ask some money for extra purchases made within an app. This may be vividly exemplified by game apps, where a user might want to buy additional coins or power ups. How much money can you make from an app in this case? Unfortunately, it is not easy to predict amounts of possible revenues. The best way to get better understanding is to try it out.

If you’re lucky enough, you will repeat the success of Candy Crush Saga. This classic mobile game made $945 million in 2018 via in-app purchases, while being absolutely free to download.

Note that you won’t get all money that your users pay. Currently, AppStore works on a 30/70 split, meaning that Apple gets 30% of total users purchases (and you get 70%).

3. In-app advertising

This is one of the simplest ways of making money with apps. The largest ad networks are iAds for Apple and Admob for Google applications. Basically, there are two revenue-generating options here: CPM (cost per thousand impressions) and CPC (cost per click). However, be ready that firstly you will be able to earn not that much – about a couple of bucks from every 100 downloads.

Top-5 mobile advertising networks

  1. AdMob
  2. Millennial Media
  3. Apple’s iAd
  4. Flurry
  5. InMobi

4. Sponsorship

Landing a sponsor is good way of making money with apps. If your app responds to the needs of a niche group of users, there is a chance that you will find partners who would like to sponsor it in order to present their message to your audience. In this case, you will need to prepare specific sponsored content for the application and mark it as an advertising content.

Fitness apps, for instance, may collaborate with the producers of wearable health-tracking devices, place their content, and showcase their advertisement. Another example is Google Maps. A business that wants to be featured on a Google map pays a fee, and technically, acts as a Google Maps sponsor.

5. CPI (Cost Per Install) networks – pay per install

You might have seen those pop-up messages in games and applications, which prompt you to look at another app or game. These applications are dynamically served depending on the type of application you use, your interests, age, etc. This mechanism of making money with apps is supported by CPI (Cost Per Install) companies, which are equivalents to CPA (cost per acquisition) in the web marketing world.

Top-5 mobile CPI app networks

  1. YeahMobi
  2. ClicksMob
  3. Matomy
  4. Chartboost
  5. Playhaven

How much do they pay per install?

For iOS apps, an average cost per install in February 2016 was $1.78. For Android is was $2.51.

You may find an idea of mobile games CPI rate depending on the country and industry here.

6. Subscription model

One of the most popular means of making money with free apps is the subscription model. Users can download apps free of charge, but the apps start charging regular subscription fees after a week or month of trial usage. This free app monetization model applies to cloud services, mass media, streaming multimedia applications like Spotify, etc. Owners grant users the ability to download their app for free, but if they become a subscriber, then they have to pay quarterly or monthly fee.

Subscription models may differ in terms of the service packages they offer. Apps may offer advanced options, such as access to insights and analytics for their premium users. For app publishers, this model offers a steady stream of revenue but involves a commitment to offering constant updates to make their subscribers interested.

7. Selling fees

This payment model enables app publishers to receive a commission from every sale that takes place using their app. This model applies to platforms and marketplaces connecting customers with providers of services on a regular basis. For example, travel marketplaces like Booking.com charge hotels 10-30% from each of their hotel visits. Apps can also use a flat fee for each sale.

This is a vivid example of how to earn money from apps. On the downside, one party usually isn’t happy with having to pay a percentage of their transactions to the application’s owners, and this model is believed to be tricky to set up.

8. Transaction fees

If you’re wondering how app owners make money out of nowhere, you may be overlooking transactions. If your app is a marketplace enabling parties to send and receive payments, you may charge fees for processing payments. Such fees are usually small, so the more payments you process, the better.

Building a business platform with ongoing transactions is an excellent way of leveraging this model. Freelancing marketplaces like Behance, Fiverr, and Freelancer use transaction fees as one of the means to generating a steady stream of revenue.

9. Crowdfunding

Crowdfunding will apply if you plan on continuously offering your audience truly unique and valuable content, given that the audience will be willing to continue paying for it. By posting your app on crowdfunding platforms, you can evaluate how users respond to it.

Non-gaming applications are an excellent match, if you plan on using this strategy. If you look at the most funded app section on Kickstarter, you will see apps like an ad-free social network, educational applications for kids and adults, and an app enabling horse owners to remotely monitor their horse’s wellbeing. 

This app monetization strategy will enable you to build a customer community while the work on an application is still in progress. On the downside, crowdfunding is time-consuming, and chances are, you won’t eventually raise enough money.

10. Monetizing data

Collecting and selling users’ data may help you capitalize on free apps. Third parties will then use this data for advertising or analytics. Companies may use behavioral, browsing or demographic user data to better target their marketing efforts or advertising campaigns.

Some of the market giants such as Facebook and Google are reaping benefits from users’ data that they collect and use for various purposes. You can also use this data to better target your own advertising efforts or to offer new services based on customers’ needs. On the downside, you will have to establish and keep up high data security standards. Also, in case of data leakage and misuse, you will bear direct responsibility.

11. Referral marketing

Promoting partner companies in your app might also help you make a quick buck. Within this model, you generate income for user interactions with your product referrals or services. All in all, referral marketing models differ depending on how they pay for their referrals. The most widespread models are

  • Cost per action: your income comes from promoting products, displaying ads or offering in-app purchases of third party offerings.
  • Cost per click: receive payment every time a user clicks on an app.
  • Cost per view: get a user to play a referral video, and get paid.
  • Cost per install: you make money each time a user installs a referral app in your app.

There are numerous referral platforms, like Flurry or AdMob, that help find affiliates for your app. Perhaps, the most illustrative example of earning money for referrals is Amazon.

12. Selling merchandise

Another means of free mobile app monetization presupposes selling physical products and merchandise though your app. For example, Rovio, owner of the mobile game Angry Birds, is successfully generating revenue through selling the game’s merchandise: t-shirts, toys, backpacks, etc.

Surely, this model is only applicable to apps with attractive and distinct brand personalities. It’s advantage is its ease of integration with other app monetization models.

How much money can you make from an app?

It all depends on the amount of time and efforts you are investing into it. Making money with apps is not easy when you don’t spend much time on research. You need to research your users, your market and your competitors in order to make sure that your ads won’t become the reason why your users are leaving you.

  • Know your users: make a research about demographics and preferences of your users, so that you can offer relevant advertising, basing on their needs and wishes.
  • Know your market and you competitors: although it is tough to understand how much money do apps make on your market, you can easily find out which monetization techniques your competitors use. Observe how their users react and advance your own monetization strategies.

Remember that whichever money-making option you choose, you need to understand that only a small ratio of your users will help you get revenues from your application. That’s why you need to build up a large and active user base. For this purpose, it’s also good to be armed with analytical tools that will help you indicate lifetime customer value, free-to-paid conversion rates, etc.

Choosing how your app will raise money

As said above, how you make money from an app should be the first thing on your mind before you start the development. To set you on the right track, here are some important things you should think about in advance.

Your app type

Are you building a gaming app? A marketplace? A streaming multimedia service? Or maybe an education app helping users reach their learning objectives? Knowing your app category and what problems it will help users solve is essential to choosing the right free app monetization model.

How your competitors yield profit

Do your homework and research how your competitors are drawing revenue. Chances are, you will quickly come up with monetization ideas for your app. They may be missing on some important opportunities or using the ones you could easily tap into.

Your users’ needs, and demographics

Envision a portrait of your user: their age, gender, average income, needs, and preferences? Will they see real value in your app? How often will they be using it, and for how long?

These considerations will help you pick an optimal app monetization type and write your specifications to include features that will help you benefit commercially, even if you give users free access to your app.

Final thoughts

The statistics for application downloads indicate that the hype for free app development isn’t going to subside in the near future. The app monetization strategies also tend to evolve as the number of applications grows. Another trend impacting the growing diversification of app monetization methods are the technological advancements that help enrich smartphone functionality with new features.

While only recently, app owners mostly used in-app advertising for generating profits, the subscription and freemium models are confidently assuming leadership positions.

The good news is you can build an app that integrates several monetization strategies. For example, the freelancing platform Upwork makes money from selling and transaction fees, sponsored features, in-app advertising, and subscriptions.

Thinking about building an app? At Eastern Peak we can guide you through the intricacies of the product ideation stage and help you choose a viable monetization plan. Contact us now for a free consultation!

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