How do free apps make money?
That’s the question that both app developers and users often ask.
What happens after a user downloads a free app from an app store? How much money do app developers make?
Although mobile apps have the potential to bring in billions of dollars in a year, very few reach that level. Many mobile apps fail to make any money at all.
Consider the following example; the top 200 apps on the app store generate about $82,500 a day. With a broader view of the top 800 apps on the play store, this number drops to $3,500 a day!
Additionally, the number varies by category. The best gaming apps make about $22,000 per day, while the best entertainment apps make about $3,090.
So what is the secret? Actually, there is no secret. If you still ask yourself the same questions and want to know the answers, this article will explain each point.
This guide covers the following factors on how free apps make money:
- The difference between free and paid apps
- The best monetization strategies to make money with mobile apps
- How much money do free apps make?
- Tactics of choosing the best monetization strategies
- Technical tools, APIs, and integrations to make money from an app
- Tow world-famous companies make money from apps
Let’s jump right into an overview of all details.
Free Apps vs. Paid Apps Business Model
In 2024, an average user has 80 apps installed on their smartphone. For Millennials, the number rises to 67 apps. Around 21% of users open an app over 50+ times each day. Overall, we interact with 30 apps each month.
When it comes to free vs. paid app downloads, users are hesitant about paying for an app. In fact, free apps take a whopping 97% of all app downloads on Google Play. If you release a free application, it automatically increases users’ chances to notice it.
When we look at app stores, we can see that users are more likely to spend more money on mobile games. According to statistics, out of the top-10 apps on Google Play with the highest revenue, most are games that you can download free of charge.
How do apps make money?
You have a lot of options, even if you decide to release a free application. Read on to learn more about each possible solution.
How to Make Money from an App: Monetization Strategies
There are eight top monetization strategies companies use to generate money with free apps. If you are looking for an answer to the question ‘how do free apps make money?’, this part will explain the topic in all the details necessary for making the right choice.
There are four effective monetization strategies to consider;
- Subscription model
- Freemium model
- Advertising model
- Sponsorship model
- Email Marketing
- App Merchandise & E-commerce
- Crowdfunding model
Let’s take a look at how to make money from an app.
Advertising
How do free apps make millions of dollars?
In-app ads are very popular among developers of free apps. Depending on the app type, in-app ads revenue can be accounted for thousands of dollars.
There are 5 main free app advertising strategies that you can use to make money with your application:
- Banners
How do free apps make money with ads without interrupting the user experience?
Banner ads are the least intrusive type of in-app advertising. They don’t interfere with user experience, as they can still interact with your application without any limitations. At the same time, Click Through Rate of such applications (the number of customers who click them) is not that high, around 0.06%.
Still, the average banner ad format CPM is about $1.
- Videos
This type of in-app advertising is more intrusive as it prevents users from using the app’s functionality. Such videos typically last for 10-30 seconds and can be added to apps and mobile games during natural pauses. Such video ads are often placed after a user finishes a game level.
You can use in-app ads as a form of a rewarding program. For example, users can get more lives in a game by watching video ads.
That is how to make money from an app with in-app advertising.
- Native Ad
Native ad is a popular type of digital marketing strategy that is absolutely user-centric and is created without interrupting user experience with an ad. A similar ad perfectly fits into the app design and overall concept, allowing to promote the brand or product naturally.
Usually, such native ads don’t create a distraction for users, ensuring a higher conversion level.
- Interstitial advertising
Such in-app ads are represented in the form of full-screen pop-ups that interfere with app usage. Ads of this type usually appear when users open or close an application. After watching ads for a predefined period, they have to skip them or check the offering. Either way, those ads often irritate users as they don’t have a choice to ignore them without any further action.
- Incentivized Ad
The vast majority of users (84%) prefer to deal with this type of in-app advertising. Instead of interrupting ads, they can get rewards for taking some actions, like sharing content, leaving a review, filling out a survey, etc.
Incentivized ads work better combined with the system of in-app currencies and purchases.
While in-app ads are one of the most popular types of free apps monetization, it might be a good idea not to irritate users with too many ads. As a result of irritation, users are less likely to click on ads, decreasing the conversion rate and your app ads revenue.
Referral Marketing
As a part of referral marketing effects, you can place some content inside your free app to promote someone’s application, products, services, etc. You get a commission for a number of clicks, app installations, etc.
Referral marketing works as a cost-per-action (CPA model) and includes the following types of rewards that you can get:
- CPM (cost-per-mille, cost-per-impression) – you get a payment based on the number of impressions. Usually, you are charged every 1,000th time an ad is displayed. Such a model comes from the Latin word mille, which means a thousand.
- CPC (cost-per-click) – you are rewarded based on the number of clicks on your application ads.
- CPV (cost-per-view) – you get a reward for each view of a video and ads interaction.
- CPI (cost-per-install) you get a payment each time the app is installed via the ads inside your applications.
Freemium Model
The Freemium model is a very popular approach to monetizing free apps. You grant access to the basic features of your application for free and can provide some additional functionality or bonuses for a payment.
Please note that app stores manage such transactions, and you only get a commission for every option sold.
The in-app purchase strategy can be divided into three types of purchases:
- Consumables – one-time items primarily used in games. Examples include in-app currency, additional lives, etc.
- Non-consumables – feathers that are used permanently throughout the whole time of the app use. Examples include ad blocking, access to advanced app features, etc.
- Subscription – you can find a more detailed description of this model below. This monetization strategy gives access to some additional in-app content or features for some time (for a month, a quarter, for a year, or lifetime access).
How do free apps make money with this model?
In fact, they can generate millions in revenue with in-app purchases. The most successful examples include The Clash of Clans, which earned a million a day on purchases, and Pokemon Go, which generated 1.5 million every day and managed to reach over a billion dollars in a year.
Still, making money with a freemium model is no easy task. This monetization strategy is the best solution for applications and games with many users. Moreover, users may only opt to use the free version of your application and never buy any additional content. You should also remember that app stores take 30% out of every sale you make with your app.
Subscription Model
This is a top monetization strategy among SaaS, cloud services, audio, and video content streaming services. The subscription model entails getting payment for a weekly, monthly, quarterly, or annual use of your solutions.
Examples of solutions working on this model are numerous and include such world-famous solutions as Netflix, Apple Music, and Google Music. This monetization strategy is also applicable to online news portals. The Wall Street Journal and the New York Times successfully utilize it.
The subscription model is not the easiest approach to monetizing an app. You need to provide users with fresh content, regularly add new features, and release updates to incite them to continue using your application.
The use of this business model can bring you a lot of money. The only difficulty is finding a sponsor who will give you money in exchange for promoting their service or product.
This monetization strategy works best if you have a unique app idea or have an extensive user base. It can be approached in two ways:
- Revenue split generated by the app
- Monthly sponsorship fee paid to you by app’s funder
Crowdfunding Model
One of the strategies that have proved its efficiency for monetizing startup apps is crowdfunding. Kickstarter, Indiegogo, CrowdFunder, and AppsFunder are the most popular crowdfunding platforms that you can use to make money from free apps.
You should be aware that there are thousands of other applications on such crowdfunding platforms, and it is no easy task to get attention to your application. However, you can do it by providing real value with your unique app idea.
Email Marketing
This is the oldest among strategies that proved its effectiveness decades ago. To send emails to your users, you need to have a database. You can get them in a few ways:
- Ask for an email address with a pop-up box. You can exchange the email address for free features, in-app currency, and other attractive offers.
- With Facebook SDK, when customers use social login or sign up.
- With third-party tools designed for email collection and can be integrated into your application.
Don’t forget about GDPR (General Data Protection Policy) and notify users when you collect emails, why you collect them, and how they will be used.
App Merchandise & E-commerce
The eCommerce industry is growing at an unprecedented pace. You can become a part of this growth by selling your own branded items within your application. Amazon takes on a lot of work, including merch production, selling, payments, and shipping, and you get a part of the profit.
Angry Birds is a successful example of app monetization that utilized this strategy. Even though there is a potential to generate millions in revenue, your app should become popular first. If you don’t have a dedicated fan base willing to pay for merch, you won’t be able to utilize this business approach.
How do apps make money?
You now know the most profitable and popular monetization strategies with the potential of bringing millions of dollars to you.
How Much do Free Apps Make Money?
The market of mobile apps is a lucrative niche for a business.
Global mobile app market will be valued at $407.31 billion by 2026, growing at a CAGR of 18,4% - 25% of iOS developers, and 16% of Android developers earn over $5,000 per month with their apps. This number should be considered a benchmark in the app industry.
Almost 24% of apps generate up to $500,000 in revenue per month, and only 1.5% of apps can bring their owners over $500,000 every month.
As we already mentioned answering ‘how do free apps make money?’ question, subscription, freemium, and advertising are the most popular monetization models among the developers of free apps.
Of over 4,83 million apps available on Apple App Store and Play market, the top popular apps are actually free.
- TikTok
- YouTube
- Zoom Cloud Meetings
- Facebook Messenger
- Snapchat
- Gmail
- Disney+
- Amazon Shopping
They have started small working on growing the user base. By implementing complex monetization tactics, those apps manage to bring billions of dollars to owners and shareholders.
How to Choose the Best App Monetization Strategy
App monetization strategy may be divided into the following critical steps:
Step 1 – Research the market and find competitors to better understand what is popular on the market, which solutions do not get users’ attention, and what are the most potential app niches.
Step 2 – Determine your target audience, identify the user demand and determine the strategies to better address them by providing relevant content and valuable features.
Step 3 – Create a unique app idea and do not try to copy popular apps or games.
Step 4 – Decide on the app monetization strategy and the best approaches to making money from apps.
After determining the type of app, you can use the following tools to present your application to users and get their attention:
- A clear and catchy name will be easy to remember and convey the idea behind your article.
- A clear app description will show the app’s real value to users and entice them to download your application.
- Eye-catching app previews like app screenshots, demo videos, and other visuals will let users know what your app looks like, which UX/UI offers, and how it will look on their devices.
There are a lot of technical tools that you can use to implement different monetization strategies inside your app.
| In-App Advertising Tools | |
| Tool | Use |
| Google AdMob | A tool integrated with Google Analytics, to research the target audience, improve ads, and increase the click-through rate. |
| InMobi | A tool aimed to help you create a great user experience within your free application. Users can leave feedback about the app, and you can study the target audience. |
| Facebook Audience Network | Ad placements inside applications with more exact targeting for better revenue. |
| Amazon Mobile Ad Network | In-app display advertising solution to monetize mobile apps across platforms. Amazon Pays rewards per impression (CPM model). |
| Appsfire | Create ads with a native look and feel to ensure the best user experience. |
| Freemium Model | |
| Android In-App Building Tool | The tool has the necessary features to build Android freemium applications. |
| Apple In-App Building Tool | Tool for building freemium iOS applications. |
| AdWorkMedia | A powerful monetization tool offering access to different monetization strategies. |
| In-App Video Ads | |
| Applovin | Supports multiple formats of in-app ads, including video, payable, interstitials, and native ads. |
| Vdopia | Allows to add of the least intrusive in-app video ads with the ability to pause, mute, and close such ads. |
| YuMe | Creating ads inside your app, track how users interact with them and which ads perform better with your audience. |
| Vungle | This tool helps add video ads to an application for Android, Windows, and Apple devices. |
How do Free Apps Make Money: Real Life Examples?
WhatsApp is a unique example, as the app started with a paid model and charged $1 per download. How does WhatsApp make money? Later, it switched to another business model and now allows users to download the app for free. With over 2 billion users nowadays, WhatsApp holds unlimited opportunities for in-app ads.
Another vivid example is the Facebook app that you can use for free. Still, the company gets millions of dollars from its apps by utilizing in-app ads. According to statistics, ads generate 98,5% of revenue for the company, while payments and other feed generate only 1,5% of all revenue. In 2020 alone, advertising brought almost $86 billion to Facebook.
TikTok, the day’s talk, also generates a lot of money, utilizing an entirely different approach. The company sells its in-app coins that can be exchanged for digital products. Users can buy 100 coins for $0.99, and the prices reach $99.99 for 10,000 coins. In 2021 users spent more than $2,3 million on in-app purchases.
Regardless of the monetization strategy you will choose, you can ensure t sustainable growth of your application and revenue only with the help of steady innovations and improvements. No app can make money without users, and you should make sure that your application meets all their expectations. This way, users will stay loyal to your app and brand for a long time.
Summarizing Words
How do free apps make money?
Today, users are more likely to install a free app than a paid application. It makes sense to develop a free app and implement one of the most popular app monetization strategies:
- subscription model
- freemium model
- advertising model
Regardless of the model you choose, make sure that your application provides value to users and helps solve their problems.
With your free application, you can combine a few monetization strategies to make even more money.
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