Do you have a great app idea but can’t decide whether you want to create a paid or free app? Or maybe you’ve been wondering, how do free apps make money?
Well, wonder no more. In this post, we’ll answer the question many entrepreneurs often ask themselves — How do free apps make money?
Not only that, but we’ll also cover the differences between paid and free apps, the various app monetization strategies, and the app development tools and services you can use to generate revenue from free apps.
What is a free app?
As the name suggests, a free application is a type of software that can be downloaded and allowed to run on smartphones and other mobile devices for free. It is the opposite of a paid application, which requires you to spend money on downloads.
Free apps can be downloaded at any time, opened once, and used without limit. These apps are better at user retention than user acquisition.
The Differences Between Free Apps and Paid Apps
In the 1st quarter of 2021, there were around 3.48 million mobile apps on the Google Play Store. The Apple App Store came in second with 2.22 million mobile apps for the iOS platform.
Surprisingly, many of today’s top-grossing apps are those that are downloaded and used for free.
On average, a single person uses 4 to 9 mobile apps daily. Moreover, app users who are willing to pay for app downloads are no more than 10%. And this is for high-quality apps with specific features.
In-app purchases and Paid apps
Interestingly, many mobile app users would rather interact with an app and then use the in-app purchases feature later on. In comparison, there are only a small number of users who are willing to pay for an app right from the start.
Many app users are more interested in checking an app’s quality and worth in its free version. And thus, an app owner needs to let the users decide whether to spend money or not to access an app’s premium features.
Free Apps Vs. Paid Apps
The free apps market outnumbers the paid ones when it comes to the number of downloads and profit. With this in mind, here are some of the main differences between free and paid apps.
Free apps are better at attracting targeted users, and increasing visibility and downloads. Also, they are less expensive since they are less complex than paid ones.
Free apps offer many different possibilities for monetization down the line. Plus, they help build your name and your brand’s image in the online world.
Since a paid app has fewer downloads, the app owner automatically loses potential customers who don’t want to spend money to download an app.
The cost of developing and designing a paid app can have a high price tag, depending on what your app is supposed to do and the functionalities that go with it.
There’s also that high user expectation that comes with paid apps. An app owner has to ensure that the app performs flawlessly and must be equipped with a full set of features.
Even if a paid app has many good reviews on the app stores, a large number of users are less likely to buy a mobile app if they can’t try it out first.
How much do apps make from ads?
On average, 16% of Android and 25% of iOS apps make around $5,000 per month. Ironically, only 20% of mobile applications in the app market are of high quality which generates considerable revenue, while 80% represent a large number of useless apps.
The advertising model is the most widely used app monetization method along with the in-app purchases model. The exact amount of generated revenue will depend on the application itself and its revenue generation strategy.
To give you an idea of how much do free apps make money from ads here’s a brief overview of selected in-app adverts and the income they generate:
- A video ad earns a fruitful $5 to $10
- An interstitial ad can generate a moderate revenue of $1 to $3
- A banner ad has the lowest income of $0.10
Paid and Freemium Apps in the Mobile Apps Market
These days, we use smartphones and smart mobile devices for just about anything. With the help of such apps, we can communicate across long distances, find a route to unfamiliar destinations, or even order pizza.
The number of apps with rich functionality is growing year after year. However, this resulted in harsh mobile app market competition among mobile app developers.
The mobile app market is huge with a worldwide mobile app revenue of $318 billion in 2020, in which the top-grossing apps are free to download.
According to the Gartner Research Group, app users who interact more through in-app purchases instead of paid app downloads are around 24%. Once users find value in an application, they tend to conduct more in-app purchases to access the premium features.
In February 2021, gaming apps generated more revenue on the Android platform. One of the top-grossing apps is Coin Master, which generated approximately $100 million in the global mobile app revenue.
Conclusively, mobile app development for your business is the best action to pursue today. Your next step is to choose the best app monetization strategies that will work well for you.
Popular App Monetization Strategies
In essence, free apps make money from the top app monetization strategies, namely:
- In-app Advertising
- Referral Marketing
- Freemium Model & In-app Purchases
- Subscription Model
- Email Marketing
- Ecommerce & App Merchandise
- Transaction Fees
- Physical Purchases
Both Google Play and Apple App Store take around 30% of an app’s earnings, specifically from in-app purchases. They don’t pay for downloads even if millions of users complete this action.
Therefore, if you want to make money from the free version of your app, you’ll need to consider setting up revenue streams.
How do free apps make money from ads?
To understand how free apps earn money, you need to understand that they do have several revenue streams that help app owners earn money.
On the app market, the portion of free apps on Google Play and Apple’s app stores are 97% and 94% respectively. Still, these free mobile apps generate a revenue of around $71.3 billion.
Probably the most common and the easiest to implement of all app monetization models are in-app advertisements. In-app ads or displayed ads are the first things that come to mind in terms of free app revenues.
Different types of displayed ads
- Native ads
- Banner ads
- Video ads
- Interstitial ads
- Incentivized ads
As the name implies, native ads are naturally integrated into the mobile app. However, many mobile apps users find this type of in-app ad a bit intrusive. That said, they are still a popular app monetization strategy among app providers and app owners.
Banner ads are less intrusive compared to native ads. We often see these ads at the top or bottom of the screen. While they don’t affect user experience, they depend on brand recognition and typically have low click-through rates.
Video ads automatically play during natural pauses within videos, which often last between 10 to 30 seconds. Another category under video ads is reward ads, which we often see in gaming apps. Many mobile apps for gaming offer rewards ads to users in exchange for points or some sort of perks.
Interstitial ads are full-screen advertisements that show up as you open and close the free mobile apps. Free apps users have two options to close interstitial ads. Users can either tap on the promoted app content or close it.
Incentivized ads provide users with rewards for completing tasks within the free app. For instance, free app users can participate in polls or share promoted content in exchange for rewards. Incentivized ads can improve app loyalty and increase user engagement in the long run.
Is in-app advertising the best app monetization strategy?
While in-app advertising is a widely-used app monetization strategy, it’s not necessarily the best one around. Currently, many free app users are starting to find ads to be a bit irritating, which can affect user experience.
Moreover, the portion of free app users who click on the ads is less than 20%. Consequently, advertising often works well only if a free app has a large number of users.
How do free apps make money without ads?
While ads seem to be the best when it comes to revenue generation, there are several other options in the app market.
For instance, you can offer additional features to your app users such as a one-time or subscription-based purchase.
Since many app users are willing to pay for rewards for the sake of a better gaming experience, you can earn $1 to $5 through microtransactions. To understand how free apps make money using this monetization method, simply multiply the in-app purchase cost by the number of iOS and Android app users.
Dating apps, like Tinder, are another example of where app developers create premium features that app users are willing to unlock at a cost. Some dating apps even offer different bonuses, such as stickers or icons, that come along with seasonal packages.
Here are free app monetization models you can use to make money from an app idea:
1. Referral Marketing
Referral marketing is a type of affiliate marketing. It is a free mobile apps monetization strategy that involves placing informational content, which is often associated with a specific product or service for app users to see.
As the app owner, you’ll earn a profit based on the CPA or cost-per-action revenue share. The CPA revenue share is based on the number of clicks your referral link gets.
With this free app monetization model, you can promote another app, in-app ads, or other products and services.
Under referral marketing are 4 app monetization methods, which are:
- CPC and
Cost-per-install means you earn money based on the number of users who install another app through your ad.
The cost-per-view is a method of bidding for video campaigns. It is where users pay to watch a video.
The cost-per-click method allows you to earn a profit based on the number of clicks an ad on your mobile app gets.
The cost-per-impression method allows you to make money based on the number of views your ad has.
2.In-app Purchases within the Freemium Model
The in-app purchases model is an excellent way to monetize freemium apps without the ads. The freemium model allows you to sell new app content, premium features, physical, and digital products.
An app store manages the in-app transactions while the app owner earns a commission from a purchase.
The in-app purchases app monetization model is broken down into 3 categories:
- Non-consumables and
These are items such as points or digital currencies that are used only once. Consumables are often used in many mobile games.
Ad-blocking and other permanent features are examples of non-consumables.
Subscriptions allow users to gain access to new features or content for a certain period.
The in-app purchases model can have app users glued to the screen and increase user engagement rates. Included in this monetization model is the integration of native app payment gateways since the charge for every purchase in the app stores is 3%.
The subscription model is also one of the most popular monetization strategies in the app market today. It will set up revenue streams based on how you want a subscription to be renewed.
Renewal of subscription can be set to weekly, monthly, or annually. And based on the type of subscription plan, users can access new features or content offered by the free mobile app.
Digital news portals, audio & video-streaming apps, and cloud storage applications are the ones that use this type of monetization strategy the most. However, the subscription model only works for 5% of mobile applications with high user engagement.
This monetization method involves integration with Paypal, Stripe, or other third-party payment gateways. Moreover, Android and iOS app stores don’t charge any commission.
How the subscription model works
- After successfully downloading the free app, users are given a trial period, which typically lasts a month.
- At the end of the trial period, users are given the option to pay if they want to continue using the app.
Typically, there are 2 types of subscriptions, which are the non-renewing and automatically renewing subscriptions.
Non-renewing subscriptions allow users to avoid unexpected bills. But they must manually purchase a new subscription after the end of every subscription period. Generally, subscription plans come in 3 different periods such as 1 month, 3 months, and 6 months.
Non-renewing subscriptions work well for seasonal apps in categories such as sports, hunting, gardening, etc.
In this type of subscription, the app charges a fee depending on which subscription period the user is registered to, which may be after a month, 3 months, 6 months, or 1 year.
Auto-renewing subscriptions require users to provide their payment details after the trial period.
4.Sponsorship and Influencer Marketing
The sponsorship model is a free app monetization strategy that works well for apps with a large number of users under a specific target niche.
This free app monetization strategy involves reaching out to other businesses within similar niches. The purpose here is to match your brand with the ads, advertised app, design, or promoted content.
The Weather Channel app is the best example of a free app version that uses this type of monetization model. This free app displayed an animated background for Home Depot, a popular retailer in the field of household goods and construction.
What differentiates influencer marketing from sponsorship is that you are dealing with an individual and not a business. This individual is an opinion leader, which is popular among your target audience.
Moreover, you can have the influencer to promote your app to your target audience, which may also attract new users to your mobile app. Additionally, you can persuade the influencer to become your app’s ambassador, which is a strategy commonly used among popular brands.
5.Selling App Merchandise
These days, online purchases have replaced purchasing physical ones, especially through iOS and Android apps. You can now create and sell your brand’s merchandise through your free mobile app.
Besides, you can use the e-Commerce business model to sell other branded items to your app’s users. And to avoid shipping costs, you can have Amazon and similar platforms manage your logistics.
The Crowdfunding model is a new way to monetize an app idea for free. A custom mobile app development company can use the following platforms to raise funds for marketing and app development needs:
- Kickstarter and
The problem with crowdfunding is that there can be too many applicants. Therefore, it may take a while to get your app crowdfunded.
But if you’re interested, here’s how to launch your crowdfunding campaign:
- Your crowdfunding campaign will need some fundraising goals. As you create such goals, be sure to make it SMART (specific, measurable, attainable, relevant, and time-based).
- You’ll need to craft a story that tells users what your app is all about. The story should also cover why you decided to develop the app and what particular problem it solves. This will, in turn, show your app’s potential.
- Since there is nothing more engaging than video content in terms of storytelling, consider making the most compelling video as much as possible.
- You need to design your crowdfunding campaign page. Be sure to include a detailed description of your project for investors to see.
- Leverage the power of social media to drive potential investors to your crowdfunding campaign.
One of the old-fashioned ways to monetize apps is email marketing. If done right, it is still a great way to make money from your app.
In fact, email marketing can generate a lot of revenue for your business.
However, setting up this type of monetization model requires you to take certain actions. For instance, you’ll need to arrange various channels to gather email addresses.
Also, email marketing requires a detailed strategy and involves using various digital marketing tools.
Collecting transaction fees is another way to make money from apps. With this monetization method, you need to have some sort of feature that allows third-parties to sell online through your app. And in return, you charge a fee for every transaction.
This monetization method works well for eCommerce apps as well as
- Meal ordering apps
- Dog walking app and
- Hotel and flight booking apps
As this task involves experience in coding, we recommend hiring a team of experienced mobile app developers.
Many startups and eCommerce businesses are now using free mobile applications to sell physical goods such as toys, t-shirts, mobile phone cases and more through mobile apps.
Let’s take a popular free mobile game application as an example. Angry Birds added selling the brand’s merchandise to increase their profit.
The Rovio company sells around 1 million Angry Birds merch including toys, t-shirts, backpacks,and stickers every month. Likewise, Amazon offers a way to make money by creating a self-service program to sell branded items from their mobile applications.
How do free social apps make money?
Almost all of us use at least one social media app every day. Many of these social apps are free with no essential features. And so, it comes as no surprise that many of us wonder if free social media apps make money.
On the contrary, free social media applications make money in so many ways. And there’s a general rule that when users are not paying for an app — they are the payment.
Simply put, users sell their time spent on free social media apps, which take a cut from the ads.
Another way these types of free apps make money is by gathering and selling user data to different companies. Unethical as it may seem, analyzing user data helps companies to customize their product that will adapt to suit the needs of every customer.
And most of the time, users can likewise customize the type and amount of information that they are willing to share with the free social media apps they use.
Is making a free app worth it?
Creating free mobile apps, if done right, can be highly profitable for your business. Still, you need to use a lot of time and money for the project to succeed.
Whether it’s worth it or not to develop a free app depends on many different factors. It also depends on how you implement your app idea.
You can’t make money with free app downloads. Likewise, you can’t make a profit if your app has no downloads at all.
What this all means is you need to know your target audience and develop a marketing plan correspondingly.
Study your competitors and then accentuate how your free app is better.
Decide which monetization strategy you should follow. Do you want a paid or a free app version instead?
A business model is just a single aspect of the many things you’ll need to consider. Whether it’s customer support or support for the app development and sale of your idea.
If you want your target audience to easily find your app, you need to make all the right choices. You must choose the right OS and follow essential UI/UX design best practices.
And then, decide if you want to do mobile app development in-house or hire an award-winning mobile app development company.
How to choose the best app monetization model?
Remember, not all monetization models will work for every app. And so, here are a few things to consider when choosing your monetization models.
1.Determine app business goals
Make sure you understand the type of your free mobile application. Determine its business goals as it will affect how you choose your monetization model. Besides, your app users will interact with these monetization methods in different ways for different reasons.
Therefore, you need to figure out what specific problem your app is going to solve and how.
Your next step is to cut down on the right monetization strategies your app is going to use down the line.
For example, if you offer content to app users or offer a specific type of service — you might want to consider a subscription model. But for an eCommerce app, this monetization model won’t work.
2.Monitor your competitors
Remember, the main reason why we create an app is to solve a specific problem for a specific user. And thus, to choose a suitable monetization method you need to take a closer look at the other apps in your niche as well as your competitors.
Keeping an eye out on your competitors allows you to discover the right strategies to make money from your app. Chances are, the type of monetization model that worked for them may also work for your business.
Additionally, you might find flaws that you can overcome and use as an advantage.
3.Know your target audience
Do you know your app users and their needs? Do you know how much they are willing to spend on an app?
Be sure to find the answers to these questions because this is the only way you can provide real value to your target audience.
Knowing your target audience, particularly your paying customers can help you choose the best monetization method for your free mobile application.
Think about the app functionalities and features that users might need. Finally, try to envision how much time users would spend using the app.
How to get your first 1k app users?
This is a question not only software developers ask themselves but owners of apps as well. It is a question that often arises when you begin developing your first app.
We know that every popular app today started with zero users. And so, the question now is, how did they reach their first 1000 users?
Let’s examine some strategies, shall we?
Invite your family and friends
Consider having your family and friends as your initial users. Consider also the possibility that they could promote your free mobile app to their family and friends and so on.
That’s how Yelp and Lyft got the ball rolling. Similarly, Facebook’s (Meta) initial users were Mark Zuckerberg’s friends.
Reach out to potential users online
Find out where or on what platform your potential users spend most of their time on the internet and reach out to them.
The founders of Buffer used guest posting on relevant sites to acquire their first 1k users. Likewise, the founders of Netflix promoted their idea through online communities within their niche to get their early users.
Find your users offline, too
We’ve already discussed knowing your target audience well. But do you know where they are offline?
To give you an idea of how to use this strategy, let’s take Tinder and Uber as examples.
The founders of Tinder used to pitch their app idea by running around different college campuses. Likewise, the founders of Uber used to give referral codes to strangers waiting on the bus, railway, and other public transportation stations.
What does this mean to you? Don’t just rely on finding your potential customers online. Try to find them where they are in real places and approach them.
Make it exclusive
You can use curiosity and intrigue to draw more people into your app. How?
You see, many people today suffer from the “fear of missing out” (FOMO). What does this psychological disorder have to do with promoting an app?
Well, the first users of Instagram were typically famous people with a huge number of Twitter followers. As more and more followers found out that the people they follow on Twitter were also on Instagram, they signed up as well.
Similarly, the invite-only functionality of the Clubhouse app had only fueled the desire of ordinary people wanting to join the platform. They were so eager to know what their favorite celebrities were discussing on Clubhouse.
Speaking of celebrities and gaining more users, when Elon Musk announced he would be co-hosting a session on the platform, Clubhouse became one of the most downloaded apps on the Apple App Store.
In conclusion, these are only a few marketing strategies to gain more app users. If you haven’t noticed already, the one thing they have in common is knowing your target audience well.
How much does it cost to develop free mobile apps?
Because app development cost varies from region to region, not to mention the use of necessary technologies, and the complexity of an app — there is no straightforward answer.
While we can not give an exact estimation of the cost to develop a free app, here are approximate prices in the 3 main categories:
- $24,000 to $60,000 for developing a simple apps
- $36,000 to $85,000 for complex apps
- $59,000 to $137,000 for advanced apps
Let Dom&Tom Build Free Apps That Make Money For Your Business
Free mobile applications have a more considerable market share than paid ones. And there are many monetization strategies you can choose that will work best for your app.
However, app development is not an easy process. And while a majority of free apps are less complex to build, outsourcing your app development project to a team of professionals is still the smartest thing to do.
Working with Dom&Tom is beneficial since you’ll be going through a well-established mobile software development process. On top of that, you’ll get the best support in all development stages — from your app idea to launching your mobile app. Get in touch with us to discuss how we can build you an app that generates revenue for your business.