4 Ways Free Apps can Make Money Explained
In a world where 90% of mobile apps are offered for free, building one that users would have to pay for in order to download is counterintuitive.
In fact, most of the top grossing apps on Google Play and Apple Store are free.
But we all know that those apps don’t exist on their creators’ enthusiasm. It takes months and often thousands of dollars to design and build a good quality app. So, if you’re going to build a free app, you should clearly understand how it could generate profit before you kickstart the whole process.
Today, we’re going to take you through some of the vital steps to building a good monetization strategy, as well as talk about four most popular ways of recouping your investments. Let’s begin!
What does it take to build a monetization plan?
Just like you map out the development process for your app, you should think through the ways it can make money. No matter how hard it seems, you must choose the monetization strategy as early as possible to be prepared for some difficulties along the way.
Certainly, the plan you make at the very beginning is not going to be a final version, as the application can go through many changes. But it makes things more clear and gives some confidence in the future.
Consider the below factors:
- App type: each model of monetization works differently and has a certain scope of usage.
- Target audience: defining the age and interests of your TA is vital. But it’s also important to understand where in the world users are more likely to buy from apps. For instance, in Asia mobile spenders shell out 40% more per month than anywhere else in the globe.
- Your goals: are you targeting a large user base or want to concentrate on a smaller niche market?
- Market demand: if the app is similar to those already available, you can set price based on the existing price expectations. However, if the idea of your app is new or unique, you need to understand the demand of potential user and how much they are willing to pay for your app.
- The cost of the app: know the cost of creating the mobile app and what you have to do to make profit or fulfill your goals.
- Competition: checking on what your competitors are doing is always the right thing to do. See if there are apps that are cheaper than yours or if your app could be a substitute for lower price point.
Having that done, it’s a green light to get to know the monetization strategies.
4 ways apps can make money with and without ads
Strategy #1: In-app purchases
Used by thousands of apps in both the Google Play Store and the Apple App Store, this model allows users to get something great at no cost and have the option to pay if they want to enhance their experience or engage more deeply.
Free apps with in-app purchases garner 98% of global Google Play revenue.
There are three major types of in-app purchases:
- consumable;
- non-consumable;
- subscriptions.
Consumable in-app purchases are commonly utilized in gaming apps, offering users to purchase gear, extra lives and currency. These types of purchases encourage repeat purchases, that’s why they’re consumable.
Non-consumable purchases are permanent, you only have to pay once. For instance, new game levels or characters.
Lastly, subscription based apps offer their content or functions for free or to some extent. For instance, there are many apps on the market that are completely free but have ads in them. Other apps are free but also encourage premium features, additional content, subscriptions, or digital goods.
Strategy # 2 Paywall/Freemium
Both strategies are pretty similar because they’re based on the idea of getting a subscription to unlock the limitations. However, there’s a slight but very significant difference between the two.
Paywall apps usually gate content while freemiums gate features.
Think of apps like Spotify, Audible, Apple Music. All three have restricted access to the content of the app. To listen to music or audiobooks, you have to get a subscription. But paywall apps often offer a free trial period to let users use the app and learn its concept.
Freemiums, on the other hand, take a different approach. It is a pricing strategy by which apps offer a set of features free of charge but also suggest premium benefits in a paid version of the app.
Unlike paywalls, freemiums don’t set a limited period during which you can use free features. They build the model in a way that would entice people to upgrade.
Pros:
- users get a chance to explore the app, which increases session lengths and lowers app churn;
- both strategies result in a continual flow of revenue since subscriptions are usually auto-renew;
- subscribers are more likely to be loyal and engaged app users;
- while in-app advertising is the most popular strategy, subscriptions are the most profitable.
Cons:
- not for everybody (most suited for streaming, news, lifestyle, and entertainment apps);
- it can be hard to determine where and when to the limit;
- it can be hard to determine which functions should be free. If you provide too much features for free, few users will shell out for the paid version.
Strategy # 3: In-app advertising
Due to its efficiency, in-app advertising is the most popular way of monetizing free apps. The particular kind of advertising used in this case is affiliate marketing.
With in-app ads, you advertise your affiliates’ products (apps, games, etc.) inside the app and depending on the type of the campaign you choose, get paid if your users clicking, watching a video, downloading affiliates’ app, etc.
Picking in-app advertising as your profit model you should consider two things: ad type and smart placement. You want to choose an ad type that users would interact with because that’s what brings you money. And more importantly, you have to find the right time to show ads. You don’t want to be intrusive and interrupt users while they’re completing a task.
Pros:
- there’s a variety of ad types and campaigns to choose from;
- can be effective if moderate and targeted advertising is used (ads are interesting yet limited).
Cons:
- in-app ads only work great for apps with big audiences;
- the app has to hold leading market positions and always keep users hooked continuously;
- doesn’t work for niche or utility apps that are designed to help users perform important tasks quickly.
Strategy #4: Sponsorship
Of all the monetization strategies listed in this post, this one is still a newbie in the mobile app marketing world. Though, sponsorship is a pretty exciting strategy and can be pretty lucrative.
Sponsorship entails partnering with advertisers, who provide your users with rewards for completing specific in-app actions. In this model, brands and agencies pay to be part of an incentive system.
Your app earns money by splitting the revenue or redeeming a fee.
This way, you can incorporate advertising into your app that actually enhances your app’s ability to engage users.
For instance, you have a sports app that helps people track their daily physical activity. You could partner up with companies that sell workout gear and start a challenge, for completing which users could win or get a discount on sponsor’s products.
Pros:
- a new strategy which can be adapted for many verticals;
- space for creativity;
- users react to well-known brands better. Thus engagement rate is likely to be higher;
- ads are more relevant and related to your audience and app’s purpose.
Cons:
- be careful about what actions you incentivize within the app;
- sponsorship has not been as thoroughly tried and tested as the other ones. Thus results and success may vary;
- it may be hard to find a sponsor; needless to say your mobile app should be good enough to be attractive to potential funders.
Concluding notes
In this article, we wanted to give you a general understanding of how much work it takes to make a free app and ways to make it profitable. All of the models mentioned above can be mixed and matched. In fact, the modern app market trends to combined models these days.
So, don’t just do what others have done before, adapt and experiment on each app monetization strategy to make it work for your app. Cause, in the end, only the smart and creative make it rain money.
