How Do Free Apps Make Money [9 Monetization Methods]
Mobile apps have become an undetachable part of our lives. The majority of the time, we prefer to download free apps and start using them. However, the people behind them are still earning through these free apps.
So, are you wondering how free apps make money? Then you are at the right place. We have researched and found some of the best mobile app monetization strategies. Here, we will explain these strategies in detail.
How Do Free Apps Make Money: 9 Popular Mobile App Monetization Strategies
Free apps make money through various monetization strategies including advertising, in-app purchases, affiliate marketing, sponsorships, subscription, freemium model, etc. Let’s look at all the monetization strategies in detail.
We have been watching advertisements on TVs since our childhood. The same version of the advertisements is evolved and implemented in the latest apps.
The majority of apps that we use on our smartphones are earning a lot of money through advertising.
You may have a question, how do these apps earn money through advertising?
The apps earn money whenever someone clicks on the ad or installs the advertised app.
Moreover, the global app installs advertising expenditures were 59.8 billion in 2019 and is expected to reach 118 billion in 2022
There are many forms of advertising available in the market. However, we will be discussing 5 popular ways you can run commercials for third-parties in your app.
Native advertising is a kind of advertising that adopts the forms and functionalities of a specific platform. In our case, the mobile app. Here, you can promote a brand or product via different mediums like video, text, or image.
As this strategy doesn’t affect the interface and the overall-in app experience and helps to increase trust, it is gaining a lot of attention.
Even though native ads are useful for increasing click-through rate and conversion, the revenue generation from native ads is low.
As the name suggests, Interstitial ads are highly interactive, full-screen pop-up ads displayed at a particular interval from time-to-time.
For instance, pop-up ads are displayed between activities or the game levels. If these ads don’t appear like this, then Google might place some restrictions.
Here, Interstitial ads can be displayed as text, image, or video. So the user has two options: to close the ad or watch the advertisement.
These ads are represented at the top or bottom of the screen and consist of some text & graphics. Banner ads are tiny and don’t irritate much; users can access the app smoothly. These ads automatically get refreshed after a specific time.
Lastly, banners have low click-through rates and rely on brand recognition.
In-Stream Video Ads
In-stream video ads are usually 15-30 seconds long; however, 15 seconds is viewed as effective. These video ads are displayed automatically before, during, or when closing the app. These ads are mainly designed to enhance the user experience.
For example, most of the latest in-stream video ads consist of a “Skip This Ad” button. Hence, the power is in the user’s hands whether to watch the entire video or skip it after a few seconds.
Another sub-set of in-stream video ads is the rewarded video ad, where users can view a specific ad in an app or game to obtain a specific reward.
Incentivized (Rewarded) Ads
We all love rewards and hate ads. Using several tools, you can offer users rewards for a particular in-app action such as fill-out survey, content sharing, video watching, etc.
Also, the users prefer to watch ads in exchange for points, lives, or virtual goods in an app.
The main benefit of incentivized ads is higher retention rates because users are rewarded for watching these ads.
Another essential benefit of these ads is that you can integrate and monetize your app without affecting the flow of the app.
Lastly, the opt-in nature of incentivized ads along with a massive inventory allows you to reach out to the masses and finally generate better ROI.
2. In-App Purchases
In-App purchases is a well-known app monetization strategy through which app owners can provide additional services inside an app.
This includes virtual currency, a key to unlock new features, and more.
Here, app owners have the benefit of generating revenue without giving the app for free.
In-app purchase is one of the most popular ways apps are making money in the world. The revenue through in-app purchases is increasing every year.
The revenue through the in-app purchases is anticipated to reach US $200.60 billion by the end of 2022.
In-app monetization strategy falls into three primary categories:
An item that users can buy each time they want within the app and can’t download it again without money. If a user removes or uninstalls the app, then they may lose the item. Examples of this include game currency, etc.
In this strategy, you charge a one-time fee to provide complete app access to the user for the entire lifetime. Here, users have an option to transfer them to other devices linked with the ID.
Examples include removing ads, the full game unlocks, upgrading to a premium version, bonus game levels, etc.
3. Affiliate Marketing
Affiliate marketing is a very popular app monetization method where the app owner promotes third-party products or services effectively to maximize revenue opportunities.
Here, app owners can promote or sell products/ services and split the revenue according to the total number of installs and clicks.
There are some common types of campaigns utilized in affiliate marketing. They are as follows:
Cost Per Acquisition Networks (CPA)
It is also known as Cost Per Action. Presently, there are numerous affiliate networks in the market; all of this helps you find an affiliate that aligns well with your mobile app. Using CPA, you can promote other apps, advertise products with pop-ups, or promote products present in-app store.
In this model, the affiliate networks or advertisers pay app publishers for particular actions that users take inside the app after engaging with the ads.
It is a well-known ad revenue model initially adopted in desktop web pages. Now the model is adopted in mobile apps.
Here you earn money in accordance with the total number of clicks and interactions on ads displayed in the mobile application.
In general, the revenue is mainly calculated based on the thousand clicks.
To implement this model, you can go with popular networks such as Adfonic or Google’s AdMob to offer text and display adverts.
Cost Per View (CPV)
In this model, you earn money in accordance with the total number of video views or other rich media ad interactions. The higher the video ads views, the more the payout.
This model is highly suitable to check the effectiveness of video advertising in your app.
Cost Per Install (CPI)
It is a marketing method where you earn money every time a user installs the app advertised in your free app.
Here, the cost per install is calculated by dividing the ad spend by the total number of installs. For instance, if you spent $100 on ads for your mobile app and generated 50 fresh installs, then your Cost Per Install would be $0.5.
There are a vast number of platforms offering software to install in your app. The cost of these platforms varies based on the location and the type of the app.
4. Sponsorship Model
The sponsorship model is yet another popular way using which free apps can earn money. It is less popular but gaining attention in the last few years.
In this model, you need to develop a proper app and build an audience.
Here, you have three options:
- You have to contact a sponsor company and update your app’s design to align with its brand.
- Secondly, you can place the logo or icon of a sponsor in the footer or any suitable location in the app.
- Thirdly, you can place a sponsored ad with some rewards in the app. Tinder, the leading dating app in the industry, has generated good revenue through sponsored ads. Learn more on how tinder makes money.
One of the most important things here is to choose a sponsor with a similar target audience.
For example, if you own a dating app, then you can find sponsors in the restaurant industry.
In general, there are two main types of sponsorship model are present in market:
- Split the revenue with the sponsor as per the agreement
- The funder gives a monthly sponsorship fee for app maintenance or use.
One excellent example of this model is the Home Depot sponsorship on the Weather Channel App.
5. Subscription Model
It is a well-known app monetization strategy. Here, the app publishers provide free content to the users for a limited time and later charge them a specific subscription fee to access the complete content.
The most popular way used by the app owners is offering a trial period of the content. And then provide different subscription models like weekly, monthly, or yearly.
The subscription-based model strategy is popular among cloud services, video and audio streaming, and other online services.
Several well-known subscription services in the market are Spotify, Netflix, Amazon Prime, etc.
There are two main modes of subscriptions:
1. Non-renewing subscription: Users buy a subscription plan and use the app for a particular time. After the completion of the subscription, they get a pop-up, whether they want to renew their subscription or buy any other subscription.
2. Automatically renewing subscription: Users purchase a subscription plan, and it gets automatically renewed when the plan gets over.
To make this model successful, Apple is putting in the hard work and doing necessary changes in how subscription-based models work. Currently, Apple offers 70/30 split revenue for the first year to the app publishers. Further, Apple reduces this ratio to 85/15 in the second year.
However, Google Play charges 15% of the subscription fee from the app publishers right from the first year.
6. Collecting and Selling Data
In the current scenario, the apps collect a massive amount of the consumer’s data. This data can be categorized into four types:
- Personal Data: It includes personal identity information, IP address, gender, etc.
- Engagement Data: This data consists of how users interact with the app.
- Behavioral Data: This data includes how the user interacts with the data.
- Attitudinal Data: It consists of measures of consumer satisfaction, purchase criteria, etc.
There are some practical ways app owners use this consumer’s data. The majority of app owners prefer to sell their data to the business. Why? It allows them to earn a wholesome amount of money. They also help to establish a crucial relationship with the business.
Apart from selling, app owners use this data to enhance customer experience and change the company’s marketing strategy.
7. Transaction Fees
Monetizing apps through transaction fees is an effective method. This model is only suitable for apps that consist of a platform where digital transactions happen simultaneously. This includes apps like Amazon, hotel & flight booking apps, etc.
For instance, you have functionality in your app through which third parties can sell products online. Meanwhile, you can charge transaction fees from customers.
You could set a nominal charge for each transaction that happens in your app and earn sufficient money without investing a lot.
8. Selling Merchandise & E-Commerce
Selling merchandise is a well-known app monetization strategy.
Various eCommerce businesses sell physical goods like toys, shirts, shoes, etc., using email marketing or especially through their developed applications.
To support various app publishers for this strategy, Amazon initiated a service known as Merch by Amazon program that enables app publishers to sell branded t-shirts within their apps.
Here, you need to create and upload artwork and promote it through Amazon tools. Ultimately, this monetization strategy would be beneficial for both app owners and app users.
Moreover, to make your task easy, Amazon handles the payment and delivery of items.
One of the best examples of this can be the Angry Birds game. Rovio, the company behind the game, earns revenue of 1 million every month by selling plush toys.
Apart from this, it sells 1 million branded t-shirts, backpacks, and stickers every month.
9. Freemium Model
The Freemium word is made by the combination of free and premium. The app owners can provide the app for free by limiting some extra features for paid customers.
The user can access the basic features without any restrictions. However, if they want to access some more features, they can access them with in-app purchases or subscriptions.
This model is highly suitable to attract a vast number of users to your app and offer a preview of what else your app can do. The main purpose here is to attract & engage users till the time they are willing to invest in additional features.
One famous example of this is Tinder. The app is available for free and offers various in-app purchases and subscription models. To know in detail, check out the Tinder business model.
With each passing year, the freemium subscription model is becoming popular worldwide. According to SensorTower, U.S. revenue of the top 100 subscription apps increased by 21 percent in 2019, which means a growth of $4.6 million from $3.8 million.
This monetization strategy is suitable for any industry. However, it is widely adopted by education, health, dating, and sports applications.
We have looked at some of the most well-known mobile app monetization models used worldwide. Thus, you know answers to questions like how to make money from mobile apps, how to monetize a mobile app, etc.
All of these monetization models we have shared have their own pros and cons. Therefore, you should understand your target audience & competitors and then choose monetization methods effectively.
It would be best if you share your potential audience and future goals with a mobile app development company before selecting proper monetization methods.
In case you have more questions regarding any of the questions as follows:
- How does an app make money?
- How to make money through apps?
- How to make money with Android and iPhone apps?
- How to earn money from mobile apps?
Then feel free to reach out to us. Apart from this, if you are still confused about choosing the right monetization strategies, don’t hesitate to contact us.
One of the experts will contact you and help you choose the most suitable mobile app monetization strategies for your app. Also, we can integrate it into your mobile app at an affordable price.
Frequently Asked Questions
Q 1. How Free Apps Make Money Without Ads?
There are various ways through which free apps can make money without ads. They are as follows:
- Subscription Model
- Freemium Model
- Transaction Fees
- Crowdfunding Model
- Referral Marketing
Q 2. Can You Become a Millionaire by Making an App?
Yes, you can become a millionaire by making an app. Provided your app gains a lot of popularity and is used by millions of people globally. Various entrepreneurs have become millionaires by creating and marketing their apps.
Q 3. How Much Money Do Free Apps Make?
Based on the latest statistics by SensorTower, free apps make an average of $5K per month.
Q 4. How Much Money Do Apps Make per Download?
Apps on the Google Play Store and Apple App Store can’t make money per download. Here are some of the basic app monetization methods using which apps make money:
- In-App Purchases
- Keeping the App Paid
Q 5. Which are the Best Monetization Tools for Mobile Apps?
Here are some of the popular monetization tools using which you can monetize your app:
- Google’s AdMob
- Facebook’s Audience Network
- Amazon’s Ad
- Apple’s Ad
Q 6. How Much Money Does a Free App Make from ads?
The total money that an app makes from ads depends on the monetization strategy you have implemented. In advertising, the revenue per impression from the ads is a minimum of $0.10. While the revenue through the interstitial ad is medium, and revenue through video-ad is the maximum of $5-10.