How Do Free Apps Make Money? A Comprehensive Guide
Every month, thousands of new apps are submitted to Apple’s App Store. In September 2016 alone, more than 100,000 apps were added. When games and non-gaming apps are considered together, there were more than 3 million downloadable apps available as of mid-2017. The numbers continue to rise as more and more developers dive headfirst into the app industry.
Currently, free apps account for more than 90% of what’s on offer via the App Store. In spite of this, app developers are earning quite a bit of cash. According to Fueled, more than 25% of App Store developers are bringing in more than $5,000 per month–and some of them are earning substantially more than $5k monthly. Numbers for Android developers are similar.
For nascent developers and those who are new to the app scene, this raises an obvious question: how exactly do free apps earn money?
It’s easy enough to understand how a paid app generates revenue. An app might cost $1.99 or $3.99 per download, and every download contributes to monthly earnings. This is a fairly straightforward way of monetizing your app. However, free apps manage to earn quite a bit of money. And, in some cases, they far outstrip paid apps in terms of earning potential. How is this possible?
If you’re looking to develop your own free app and earn a passive monthly income but aren’t sure how to turn your app into a revenue stream, you’ve come to the right place. We’ve put together the ultimate guide to how to make money from a free app. We’ll cover a wide range of potential money making strategies for free apps, including in-app purchases, sponsorships, in-app advertising, and more.
Ready to turn your free app into a a full-time passive income stream? Read on to learn more about how you can make that happen.
In-app purchases might be the most obvious means of monetizing your free app. If you’ve ever downloaded a free game for your smartphone that offers various purchases while playing, you’ve seen this strategy in action. It’s not just limited to games, though. Consider free apps like iTunes that allow you to purchase individual songs or albums: these kinds of in-app purchases can generate large amounts of revenue for developers.
This approach to monetization can take three different forms. First, users can be offered a one-time purchase that’s expendable. In other words, once this purchase is utilized, it’s gone. A user who wants more of the same will need to make another purchase. An example of this is a virtual currency: purchases essentially count 1-for-1, and the user will need to purchase more of the virtual currency once they’ve spent it.
As opposed to this consumable model of in-app purchase, some apps offer purchases that are never used up. These items are paid for once, and they can be utilized over and over. Common examples of this kind of in-app offering are new levels or abilities in mobile games.
Lastly, some apps offer a kind of mixture of these two options in the form of a subscription. We’ll discuss the subscription monetization model in greater detail below.
While in-app purchases can be a legitimate part of a monetization strategy, it’s worth noting that only about 5% of free app users end up making in-app purchases. You’ll therefore need an incredibly large user base in order to see much in the way of return.
If you’re like us–and the vast majority of other people, for that matter–you’re not a big fan of mobile ads. Really, who would ever claim to enjoy having an ad pop up while they’re trying to read an article, run a web search, or use an app? For the most part, though, we’ve all grown somewhat accustomed to the presence of ads on our mobile devices. In-app ads are a popular means of monetizing a free app, and it’s worth considering them as part of your overall revenue picture.
How do you get started with in-app ads? What are your options? Unsurprisingly considering the number of Google display network ads that you see when browsing the internet, Google currently drives 95% of paid ad clicks on mobile devices. This number includes both in-app clicks and mobile browser clicks. As a result, it makes sense to consider Google as an option for ad placement in your app. The Google AdMob platform is fairly easy to set up, and syncs with Google Analytics. This can be incredibly helpful, as it gives you valuable insight into your users and their mobile habits.
Facebook offers an app advertising option as well, and it can be worth looking into if you’re particularly concerned with accurate ad targeting based on user data. Another option is InMobi, which gives users the ability to offer feedback on their ad experience. This can improve what you’re displaying to users over time, which can be helpful for developers whose apps are utilized by users for an ongoing period of time.
So, is in-app advertising the golden ticket to app monetization? Not exactly. On the one hand, global in-app advertising revenue reached $52.1 billion in 2016 alone. That’s some serious cash. The big picture isn’t quite so simple, though. In fact, recent research has demonstrated that in-app purchases considerably dwarf the revenue generated by ads for developers. So, while there’s a lot of money flowing into the mobile advertising industry, not much of it is actually making its way into the hands of app developers. While in-app ads can certainly be an alternative revenue stream, they’re rarely profitable enough to provide a significant source of income from your app.
Sponsorship might seem like an odd route to take when it comes to making money from a free app. Who would want to sponsor your app, after all? Aren’t sponsorship deals for huge multinational companies, rather than startup app developers?
On the one hand, yes, they are. If you look at some examples of app sponsorship deals, you’ll quickly see that both large companies and huge software development firms are frequently involved. Marriott sponsored the Gayot.com app in order to promote their new rewards-based credit card for travelers; Subway used a sponsorship of the PrePlay app to gain the attention of sports enthusiasts during Super Bowl XLVI. Similarly, Home Depot has partnered with the Weather Channel for some time via their mobile app, offering home improvement ads to users as they check the weekly weather.
If you’re a startup developer, you may not be able to attract this level of corporate sponsorship. That doesn’t completely exclude the possibility of finding a sponsor, though. The key is to drill deep into your industry and niche, and look for a company that might be willing to partner with you. What’s the target persona for your app? What companies appeal to those users? If you can find the right company and present the opportunity to them in an enticing way, you could be score a significant amount of startup cash to help you launch your app.
A related but alternative approach is to reverse engineer this whole process. Rather than approaching a company for sponsorship of your app after the fact, you can approach a company with an app idea and offer to essentially white label it for them. While this isn’t the same thing as retaining ownership over your app in the long-term (and could therefore severely limit your revenue potential over the long haul), it can be a good way to get your feet wet with app development while still earning a paycheck.
As we mentioned above, there are a few different approaches to making money from a free app by utilizing in-app purchases. You can offer users something that’s consumable, which they’ll use once and then have to buy more of (like virtual currency). Or, you can provide users with purchases that are good for the life of the app (such as a new level in a game).
There’s a third approach to in-app purchases which deserves its own category, as it’s something of a combination of the above two approaches. We’re talking, of course, about subscriptions. With a subscription, you’re charging your users on a recurring basis for access to some particular feature or features that aren’t available to non-paying users.
Consider for a moment the sheer number of apps offering subscriptions. Maybe you downloaded Pandora or Spotify with the intention of listening for free, but later decided to upgrade so as to avoid advertisements or gain better control over which tracks you’re listening to.
This scenario is incredibly common, and so-called “freemium apps” have taken over the app landscape in recent years. These apps offer limited features to free users, with the option of upgrading to a paid account in order to access premium features. This approach to earning money from free apps has become so common, in fact, that freemium apps now account for a full 98% of revenue generated worldwide through the Google Play store. Think about that for a minute: only 2% of global revenue is coming from apps that require payment in advance. Clearly, the freemium model is a solid approach for the majority of app developers.
One of the advantages of offering subscriptions is their recurring nature. On the one hand, it allows you to predict with relative accuracy what your cash flow will be the following month (assuming a predictable rate of user attrition from month to month). Additionally, there’s the added benefit of monthly auto-renewal. Think about it for a second: how many monthly subscription services do you currently have? Amazon Prime, Netflix, Spotify…the list goes on. Once you sign up for a recurring service, the likelihood that you’ll cancel the service is fairly low. This can be a boon for developers.
Of course, the subscription model is far from perfect. First off, it’s important to keep in mind that the number of users who will ever pay anything for an app–be in an in-app purchase or a subscription–is very small: just 5%. On top of that, some apps just don’t lend themselves to the subscription format. While an app like Spotify does a great job of onboarding users for a monthly subscription, a mobile game may not be compatible with the same approach. So, while a subscription approach to app monetization can be great in some circumstances, it’s not always the right choice for some developers.
In terms of making money with a free app, each of the above options has its place depending on your particular situation as a developer. Subscriptions work better in some apps than others, for example, and sponsorship might only be realistic in certain industries. Regardless of what type of app you’re developing, though, there’s one approach to earning money with your free app that works across the board: rewarded surveys.
Studies show that rewarded surveys can increase user retention by as much as 300% as compared to traditional ads. Rewarded surveys are just what they sound like: users take a survey and are rewarded as a result. This can take the form of virtual currency, an unlocked game level, or whatever is appropriate for your particular app.
Unlike traditional ads, rewarded surveys direct a larger portion of revenue to app developers. Researches will pay more for survey exposure to a particular type of user than an ad provider will for displaying their ad. With the right approach to rewarded surveys, making money with a free app has never been easier.
TheoremReach: Make Money with your Free App
If you’re looking to earn money with a free app, consider TheoremReach’s rewarded survey solutions. We help app developers maximize their revenue, with some of our research partners paying as much as $20 per completed survey. Visit our website to get started and create a developer account.