How do Free Apps Make Money? 8 Best Monetization Models (2023)

Remember those ads that appear when you are watching videos on Youtube or banners that pop-up when visiting an online store? These are examples of how businesses monetize their websites — the same works for, not only paid but free mobile apps. Free apps are dominating the app market, with 96% in Google Play and 90.3% on App Store driving $71.3 billion in revenue. But those applications are free, so how do apps make money?

If you have or plan to develop a free mobile app and want to learn more about app monetization strategies, this article is right for you. Below, we explain how to make money from an app, and how to choose one that will work for your app.

Let's begin.

How Much Money Do Free Apps Make?

Today, the average owner of a mobile device uses 7-8 applications daily. At the same time, only 5-10% of mobile app users are ready to buy a paid app, and around 98% of profit and downloads come from free mobile apps. The vast majority of mobile app users prefer to use free apps, and this number is continually rising. In the first half of 2019, the number of free app downloads in Google Play increased by 16,4% and raised $41,9 billion in revenue.

Being more popular among users than paid apps, free apps have the potential to generate a significant profit. But how to choose the monetization model for your particular app? Let's look at tips and find out.

How to choose the best free app monetization strategy

To select the most profitable and effective strategy for mobile app monetization, you need to consider:

Business goals. Every mobile app has its business goal, i.e., the way it solves a user's problem. App business goals impact the monetization model since users interact with them in different ways for different reasons. For instance, in-app purchases would not perform as well as a subscription for a mobile music app or, a subscription mobile is not the best option for educational apps with a lot of custom content. Thus, you can get the most profit if you apply the in-app purchases model, combined with ads.

Target audience. Knowing and understanding your target users, especially paying users, known as the money spending core, will give you a clear picture of the best monetization model. To achieve this, create a portrait of your app users, think about the functionality they might need, and try to forecast how much time they would spend in the app.

Competitors. As we said, each app solves a particular problem for the user. Thus, to select a suitable way to make money from free apps, take a closer look at competitors and other apps in your niche. There's a chance that the monetization strategy, used by other apps from your industry, will suit your business as well.

Wondering how free apps make money? Let's see what strategies you can apply to earn money from your free app.

CROWDFUNDING FOR YOUR APP DEVELOPMENT

HOW MUCH DOES IT COST TO MAKE A MOBILE APP?

How do free apps make money: The most popular monetization strategies

Depending on your business industry and app type, you can apply one monetization model or several at once. The list of app monetization models includes:

• Advertising and affiliate marketing
• In-app purchases
• Paid subscriptions
• Freemium
• Sponsorship
• Crowdfunding
• Transaction revenue

Now, let's look at them in more detail.

Advertising and affiliate marketing

Seven out of ten free apps generate income from running ads and promoting other businesses. If you want to apply this most common way of free app monetization, you can charge:

• Cost-per-mile (CPM) or cost per impression. You receive the payment for every 1,000 views of the ad
• Cost-per-click (CPC). You receive payment when the app users click on display ads
• Cost-per-view (CPV). You charge advertisers for the number of ad views or the number of interactions
• Cost-per-install (CPI). You are paid each time your app users install the app you promote

HOW TO MONETIZE AN APP

As you can see, there are different types of in-app ad fees as well as methods of showing ads to app users. There are five ways you can display ads to your app users:

• Banner Ads or Display Ads. The banner ad appears at the top or bottom of the mobile device screen so the app users can freely use your app. However, the engagement rate of such ads is quite low (0.1%).
• Video Ads. Such ads appear during natural pauses of app usage and last 10-30 seconds. This ad category also includes rewarded video ads when the app user is rewarded for watching a full ad video.
• Native Ads. Native ads, including sponsored content or videos, are integrated into the app layout and do not distract app users. Thus, users consider native ads less irritating compared to other types of ads.
• Interstitial Ads. This type of ad looks like full-screen pop-ups displayed when the user opens or closes the app. Thus, the user can either close the ad or click on it to learn more about the promotion.

Sponsorship and influencer marketing

This type of app monetization is similar to ads, but the difference is deeper integration to the app. Let us explain. Apart from just running ads, you can place a sponsor's logo or icon on the splash screen, footer, or integrate sponsored content with special offers right to your app. To make this type of monetization model more profitable, find sponsors with the same target audience. For instance, if you have a fitness app, you can find sponsors among fitness centers, personal trainers, or healthy diet websites.

Influencer marketing is a bit different way of sponsoring since you will deal, not with the business, but with an individual opinion leader, well known within your target audience. In this way, such an opinion leader will promote your app to fans and attract new users to your app. You can also ask an influencer to become an ambassador for your app, which is a prevalent strategy among famous brands.

In-App Purchases

With this app monetization model, you can sell different types of items, including:

• Consumable items that the user can use within the app, such as health points or digital currencies.
• Non-consumable items that could be used permanently, such as new games, maps, or as blocking.

In-app purchases increase user engagement rates and have users glued to the screen. This monetization method includes integrating native app store payment gateways since app stores charge 3% from each in-app purchase.

HOW TO MAKE A MOBILE APP

Subscriptions

You can try making money on free apps using paid subscriptions. However, this model works for only 5% of apps with high user engagement, such as productivity or educational, music, or video streaming apps. This type of payment requires integrating third-party payment gateways such as Stripe or PayPal. Thus, app stores do not charge any commission. The app subscription works in the following way:

• After downloading a free app, the user receives a trial period, usually a month, to try your app.
• When the trial period ends, if the user continues using the app, they must buy a subscription.

There are two types of subscriptions:

• Non-renewing subscriptions when the user buys an app subscription for a particular period, as in one, three, or six months. After the end of the subscription period, the user must buy another subscription manually, so there will be no unexpected bills. This type of app monetization works well for seasonal apps such as gardening, sport, or hunting.
• Automatically renewing subscriptions means the app automatically charges user fees every month, six months, or once a year. To ensure that app users will buy a subscription after a trial period, users receive access to the app only after typing in their credit card details.

Freemium

You can make money from a free app using the freemium model, which is similar to the subscription model. The main difference is that the app user can use the free app version with basic features without any time restrictions. But, to receive an advanced feature-rich app version, users must pay monthly or annual fees. Statistics show that only 0.5-2% of app users buy a premium app version. On the other hand, a free version of your app will reach a broad audience and make your app viral.

Crowdfunding

Crowdfunding is particularly popular among startups and has proven to be an effective way of raising money. In North America alone, crowdfunding generated over $17.2 billion during 2018. If you need to attract additional funding for app development or marketing needs, you can use one of more than 400 crowdfunding platforms where any platform user can donate money. The most popular crowdfunding platforms for raising funds to mobile app projects are:

• Kickstarter
• Indiegogo
• CrowdFunder
• AppsFunder

To launch your crowdfunding campaign, you need to complete the following steps:

• Create fundraising goals for your campaign. Consider that your goals should be SMART- specific, measurable, attainable, relevant, and time-based.
• Craft your story to tell others what your app is about, how you decided to develop it, and what problem it solves. In this way, you will show your app's potential.
• Create a compelling video, since video content is the most engaging means of storytelling.
• Design a campaign page where you provide investors with a detailed description of your project.
• Use social media to drive potential investors to your campaign.

Transaction fees

You can charge transaction fees for making money with free apps if your mobile app belongs to the marketplace segment where users transact money. This niche includes not only e-commerce apps but also:

• Flight and hotel booking apps
• Dog walking apps
• Meal ordering apps

And others where there are buyers and sellers. For charging transaction fees, you need to integrate a third-party payment gateway API to your app. This task requires experience in coding, so we recommend hiring mobile app developers.

In a nutshell

Free mobile apps have a more significant market share compared with paid apps. There are many strategies for free mobile app monetization, and each of them has a different user engagement rate and will generate a different amount of income. We recommend selecting the monetization model on the basis of your app niche, its purpose, and your target audience.

To make your free app even more profitable, you can combine different monetization strategies:

• You can run ads and offer users a paid ad-free app version, which is a win-win situation for you and your users.
• You can also combine in-app purchases and subscriptions, or advertising and subscriptions.

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