How do free apps make money? This question is often asked from people trying to get the most out of there app.
Most of the time, people are going to assume that you either have to include ads into your app or let the users purchase some upgrades to maximize the income from your app. This is not always the case. App marketing or online marketing, in general, offer some crazy methods to make money and in this article, I want to show you how free apps can make money.
The number of users of apps has increased enormously in the last few years and with these also the sales which are made with these very strongly. However, there are some apps that generate a lot of revenue and many others that generate little money. The reasons for this are often manifold, but there is a noticeable difference between the high sales and the low sales apps: The successful apps not only have a great app, but also a good strategy. Especially if your app gets organic free downloads from the app store, it can generate a great income for your business over time. Let’s take a look at how free apps make money:
How do free apps make money?
- Free Apps with Ads
- In-App Purchases
- User Base Monetization
- Email Collection
- Affiliate Marketing
As you can see, there is more than just ads that you can use to monetize a free app.
Why you need a strategy
Some developers are counting on developing a good app, uploading it to the store and generating a lot of downloads by good rankings in the app store and revenue. This is where the challenge begins. High download numbers don’t necessarily mean high sales. There are apps that are downloaded in high numbers but do not generate any real revenue. Therefore, at the beginning of the app development, there should be a strategy on how to monetize the app over time. You will also need a good idea on how to get new users for your app, to monetize. I would suggest you take a look at our Android app advertisement offer if your app is ready.
Key data on the app Industry
A large part of sales comes from games
Games make up a large part of the sales with apps. Over 80 percent of sales on Google Play and 75% of sales on the iOS Store are generated through games. Therefore it makes sense to think in this direction when it comes to making money with the app.
You earn more with iOS
The number of downloads has been adjusted in the last months between Android and iOS. Android download numbers are developing much stronger and more dynamically. However, the total revenue of iOS Apps is 2.6 times higher (source App Annie Intelligence, Q2, 2013) than that of Android Apps.
Majority of downloads in China, India and the US
40% of worldwide downloads are made in the USA, India, and China. China, in particular, has advanced to third and fourth place in the App Publisher rankings with the Tencent’s and Baidu stores, just behind Android and Google. It might also make sense to place the apps in the stores there in order to achieve more downloads.
Shares of sales of the various monetization models
Nowadays, a large part of the money is obtained with so-called in-app purchase opportunities (described below in the article). Already in 2013, 71 % of sales came from this sector.
Prerequisites for successful app monetization
Long user times
If you want to finance your program by advertising, then you should make sure that the users use the system for a long time. Especially for games, this is the case, because the user is fixed on the screen during the whole time.
Advertising should not be too intrusive
Advertising should be placed in such a way that the user is not deterred or the usability suffers. Otherwise, your app will be used less over time and users will migrate to the competition.
Analytics/ Reporting will help you monetize more effective
The big advantage of apps is that you can easily track and analyze the results, such as the number of downloads, visitors of the app page in the store without download, number of readers of the description, etc. A successful monetization strategy also includes a good “evaluation” of the data received. In this way, you can improve your monetization strategy step by step.
The different ways in which you can earn money with an app
There are several ways to generate revenue with apps. As mentioned at the beginning of this article, some methods are more popular with users than others. Currently, the trend is towards free apps with In-App purchase options or those that finance themselves through advertising within the app. In the following the different methods of revenue generation:
This type of revenue was, especially at the beginning of the app era, a popular way to generate revenue. Today, this revenue stream accounts for only about 10 percent of total revenue.
Here the user is already asked for a one-time payment or a subscription (monthly/annually) when downloading the system.
Paid apps make sense if they are aimed at a specific target group and if they, therefore, have a specific added value. For example, a system that helps a mechanic find errors faster. The mechanic would then be prepared to pay a one-time fee for this. With magazines, for example, a subscription also makes sense because the user receives new content every day, week or month.
Apps with many interesting functionalities can also be assigned for a higher purchase price. Good promoted Android Games are particularly suitable for this.
External payment systems often make less sense when it comes to reaching large masses.
Because often there is already an alternative that you can download for free. It is also a simple human habit to prefer the free to the paid. Therefore programs that should achieve a large range should be provided free of charge. For this, there are other monetization models.
Free apps with advertising
The goal of the free app deployment is to achieve a high reach and large download numbers in a short time. From time to time, users are shown advertisements within the app. For example as smaller banners during the complete usage, as so-called “Interstitials” – full-screen ads at certain times (e.g. during the beginning or the end of a game), etc. When a user clicks on the advertisement, the advertiser pays a small amount to the app operator.
The emergence of so-called “ad networks” such as Google AdMob, Microsoft Advertising or Apple iAd has made the integration of advertising into the system relatively simple.
It is important not to place advertising too aggressively, as this can lead to users migrating.
According to a Gartner report, in 2018 more than 90 percent of the apps in the various stores will be available free of charge.
In recent years, this route has established itself as the king among the monetization routes. Mobile Game developers are particularly successful with this model. Apps with this model are large to be found in the top ten of the best-selling systems.
After the free or paid download, the user can buy other things in the system, such as new armor, new levels, more functionalities, etc. The user can also buy other things in the app.
Here, too, it is important not to make the additional purchase options too expensive. Let the user get a feeling around what he can get from the purchase and offer it in packages according to what he can use in your app. If a user has to buy more then he is able to use at the moment, it will create a negative feedback loop which can stop him from spending more in your app over time.
In this model, the user receives the system free of charge. Either after a trial period of 30 days, for example, the user is asked to switch to the premium version.
Another popular method in this model is to provide the app free of charge at the beginning and an option to get more functionality with a one-time payment or a monthly/annual fee. An example of this is the XING app, in the free version you can use the basic functions. If the user is willing to pay a monthly fee, he gets more search options, contact options for other users, etc.
User generation (user base)
The system provider tries to attract as many users as possible to the app. Often a feature-rich system is provided free of charge or for a small final amount (e.g. Whatsapp). The aim is to resell the user information to a third party who is interested in this so-called user base. A good example of this is the purchase of Whatsapp through Facebook. Facebook now has the ability to explore and execute further monetization strategies for the millions of Whatsapp users. A long-term strategy for this kind of strategy would be app store optimization. Take a look at our full app store optimization guide if you want to learn more!
The sad fact is that many people think twice about whether they want to pay a mere $4.99 for a high-class app. For a T-shirt, on the other hand, there is no hesitation in paying a multiple. Until a collective appreciation for outstanding software develops, it can be a very attractive idea to gild your brand with merchandise.
Patronage & Donations
In the podcast scene, it is already common practice to ask your loyal audience for financial support on a voluntary basis. From regular payments as with a subscription model to one-time donations in freely definable amounts, much is possible on corresponding platforms such as Patreon.
Every now and then you can see this model in apps. Most often, unfortunately, the app creator tries such a model, but after a while, it gets discontinued, because the desired success has not been achieved.
What’s clear is that this monetization model only works for apps with a fanatical following, who care a lot that it doesn’t disappear.
The app does not necessarily have to pursue humanistic goals, save the world or accomplish other great deeds. This model can also work well for providers of content or services for very exotic, top target groups. If I finally discover a really great app for my passion as an enthusiastic deep-sea fisherman after many years of waiting, then I’d love to invest a little bit of money every now and then in its continued existence. Wouldn’t you do it as well?
The basic prerequisite for this is a really, really strong brand. As with the previous Patronage & Donate model, only those who have already flattered themselves deep in the hearts of their audience may think about putting their brand on key rings, mugs, and T-shirts.
Such a popular brand is only granted to a few, but those who have made it can potentially earn more money this way than through their app sales.
There are still great reservations when it comes to subscription models. The reason is probably a collective, deep-seated trauma from the days of the ringtone mafia, as we called it back here in Germany.
What a shame, because subscription models are an elegant and fair solution for many applications.
Continuously improving an app costs time and money. A one-time purchase can often not support or justify a continuous development over years. If a user cares that an app that is important to him continues to exist, he can give the publisher an otherwise simply not given long-term plannability by taking out a subscription and in return look forward to many great updates. Win-Win!
Moreover, worries about so-called subscription traps are completely unjustified, because Google and above all Apple attach importance to a simple and transparent administration of their subscriptions for the user. With just a few clicks, every subscription is stopped, without hours of swearing to the soundtrack of terrible music on hold.
Subscriptions can be taken out directly from the app, as with the one-time In-App purchases. Often it is a good idea for free apps publishers to offer a free test phase, Apple and Google provide the appropriate options at the same time. This helps to alleviate additional worries.
Only in the area of entertainment media are subscription models already socially accepted without restriction. Be it for Netflix, Maxdome, Spotify or Apple Music: paying monthly for your entertainment is nothing unusual anymore.
It remains to be seen how the topic will develop in the future beyond entertainment content, and whether more publishers will dare to experiment with a subscription model. We would be delighted!
Which way of monetization is the best for your free app?
After we have shown you how to earn money with apps, we would like to give you a few tips on the way, which we always recommend to our customers.
Think about taxes and duties
Unfortunately, there are some vendors who are running a project “on their own account” for the first time and are surprised that the gross is not equal to the net. A special case is that used services have to be purchased from other countries. Remember also that other VAT rates might exist there. Note also the mentioned taxes, which have to be paid to the App Stores etc..
Choose the right monetization model for your app
Not every monetization strategy fits every mobile app. Before you have your app developed, you should think about which model fits your app, your target group, and your goals. At this point you can also do simple market research: Just tell 10 people roughly about your idea and ask them what they would be willing to pay for it. Even development departments of big companies do this.
Don’t ask for money for basic options
A common mistake is to charge the user money for features he can actually use in the basic version. If the user does not get a real added value, he feels cheated. This can hurt your app’s performance especially if the feature feels like it should be a basic option that everyone gets, like possible upgrades in Android games. You should always think about your user first and only after you deliver something valuable, like a stable version of a game that is fun to play without creating a barrier around usage, you should start monetizing extras.
So-called whales are not going to play your game just because they can spend a lot of money in it. They want to compete in a fun game and should be enticed to spend as much as possible after they are already involved in the game.
Set yourself apart from the competition with extra features
In order to develop a successful app, the unique selling proposition is an important element. You can use additional paid features to differentiate yourself from competing apps. On the other hand, you can also see what the competition demands money for and offer exactly that for free!
A mobile app is not a website
You can also have a responsive website developed instead of an app. But if you own a website and want to develop an app, you have to consider the peculiarities of mobile applications and not just offer an optimized website. With mobile apps, the effects of banner advertising, performance problems, user behavior, development costs, etc., are completely different than with websites. Therefore, your monetization strategy must be specially adapted to your app.
We very much hope that you now have an idea of how mobile apps can become profitable. If you need more information for your app project, just have a look at our blog! We have published many articles about perfect user retention and acquisition, optimized mobile marketing and monetization strategies and app design, which provide valuable tips for you.
If one were to follow today’s trend, then one would have to develop a game based on iOS and monetize it in the in-app purchase model.
However, one should respond to the specific wishes of the target group. Ask yourself the following questions and derive a suitable strategy for generating sales:
What is my app about?
What are the main features of my app?
What are the main advantages for the user of my app? (Here you can always distinguish between functionality and real benefit)
Which apps that are similar to mine already exist? (Also gives a hint if you should provide the app for free)
What prices are charged for apps like mine?
How many downloads will reach similar systems?
In which category (e.g. games, navigation, social etc.) does the app belong?
What added value do I generate for my customers?
Will users use the system on a daily basis?
If you have the answers to these questions, then you will have a more precise idea of the revenue generation methods you can use.
How do you monetize your app?
What experience have you had? What works?
Use the comment function below. We are looking forward to an exchange.