How Do Free Apps Make Money?

90% of the apps available in the App Store are free. Although the cost to build an app can be significant, there are many reasons why you may want to offer an app (or at least a version of it) at no cost. Free apps have an extremely low barrier to entry — it’s much easier to attract new users with a free app or free tier within a selection of paid options. And there are plenty of ways to make money from a free app. This post explores eight proven methods to generate app revenue with a free app and what you should consider with each. 

8 Ways to Make Money from a Free App

1. Advertising

Advertising is one of the most popular methods of making money with a free app. In-app ads pay out a small amount to the app owner when a user clicks an ad or based on the number of times an ad appears. You can choose from many different types of ads, including video ads, banner ads, and native ads such as sponsored articles. 

Though this monetization strategy is widely used, it’s generally hated by users. And too many ads can even deter people from using the app. If you decide to go this route, you want to be sure that you have a thorough understanding of your users and target the ads specifically to their interests. To make money with this strategy, you must ensure your ads are compelling to your users, especially if the ad network has a pay-per-click model. 

A more effective type of in-app ad is a rewarded ad (a.k.a. incentivized ad). These ads allow users to decide whether and when they want to consume them — users must opt-in to see them. Apps motivate viewing the ad by delivering a reward, such as a digital item or in-app currency.

2. Freemium Model

Another popular app monetization strategy is the freemium/pay-for-premium model. It allows users to access basic features in an app for free. To access additional features, the user must pay for a premium version of the app. To tease the user with the capabilities available in the premium version(s), the app gives the user access to premium features for a short trial period. However, if a user doesn’t find the premium features enticing enough, they can still use the basic, free feature set.

Many highly-successful apps like Spotify, TuneIn, and Evernote use this model. You may want to choose this option if you can create a free version that has a certain level of value on its own while reserving several value-enhancing features for the premium version(s).  When planning how to build your app, think through which features may be best reserved for a premium version. 

3. In-App Purchases

An in-app purchase model provides users with the ability to make purchases while using the app. While the freemium model is sometimes considered a subset of in-app purchases, these purchases typically consist of game currency, premium content, and other items. This is a popular monetization strategy with gaming apps, and there are a variety of options available. What you use will depend on the type of app you’re building and what user purchases make sense. 

4. Email Marketing

Email marketing is another effective strategy for monetizing free mobile apps. The app collects user data, including name and email address. Then, emails are sent with marketing content, offers, and other content to fan the flames of interest. Though it can take some time to build an email list, you can use this strategy very effectively in combination with other monetization strategies.

5. Affiliate Marketing

Also known as partnership marketing, affiliate marketing is when you offer another company’s products or services within your app and receive a sales commission. You can accomplish this through ads or email marketing that promotes partner products. You also have the opportunity to partner with another company by selling leads. While affiliate marketing often gets a bad rap due to the prevalence of sleazy programs out there, it can be a highly effective strategy if you ensure there’s a close match between the affiliate offering and the interests of your users. 

6. Sponsorship

This monetization model can be a good one if you have a targeted app built for specific users that other companies target as customers. With this method, there is often a set fee based on sponsorship levels. One or more organizations “buy in” at a certain funding level, and in return, they receive benefits like advertising on your app or website. This strategy can help app creators expand their user audience, so it can be an excellent opportunity for new or small startups.

7. Crowdfunding

Some startups go the route of crowdfunding to fund an app. However, trying to source capital on sites like Kickstarter, AppsFunder, and others is not a common strategy because it’s challenging. To find success with crowdfunding, you must have an incentive that will strongly appeal to your target users. You’ll need to offer something like early access, free access, bonus content, or a combination of the above. Without an enticing value proposition to motivate people to contribute, it’s unlikely you’ll get traction. Remember that you’ll need to run marketing for your crowdfunding campaign to get the word out.

8. SMS Marketing

With SMS marketing, you can send text messages announcing app updates, promotions, reminders, and more. Using in-app prompts similar to those used to collect email addresses, simply ask users for an opt-in to text messages. You can then send users offers for paid programs and offerings. This method also reinforces user engagement and strengthens your brand by driving users back to your app.

How Free Apps Make Money

With a creative and targeted approach, you can build a monetization strategy for your free app that generates significant revenue. The key is to ensure that you create meaningful, relevant value for your users — value they’ll want to pay for.

In our SolutionLab workshop, we help you think through monetization options for your app. Want to learn more? Get in touch, and we’ll schedule a call.

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