How Do Free Apps Make Money?

The market for mobile apps was estimated to be worth $208.5 billion in 2022 and is expected to grow to $777.4 billion by 2032. It is an increase of 14%. It is a profitable industry by all measures, so it makes sense that you would want to get involved. Nonetheless, nine out of ten apps may be downloaded for free, raising the question of how profitable free apps are.

The most popular and successful revenue-generating techniques that underpin the popularity of free apps will be covered in this post as I delve into the fascinating realm of app monetization.

I have the privilege of creating popular products like Yaza, Cardless, and numerous more in my role as Product Manager at Uptech. Utilizing my expertise in product creation and my profound comprehension of market dynamics, To assist you in navigating the complexity of app monetization, I have produced this essay.

As you read this piece, you will learn:

1.The many app monetization models and how they differ;

Important app monetization tactics used by profitable apps;
How to find and select the best monetization strategy for your company.

Let’s investigate the revenue-generating strategies of free apps.

Free Apps Vs. Paid Apps Market

Let’s first take a look at what’s happening in the paid and free app marketplaces in order to provide an answer to the topic of how free apps make money without advertisements.

Free Apps

To be clear, the freemium business model underpins the majority of “free” apps available on Google Play and the App Store. Statista reports that 94.5% of apps in the Apple App Store and 97% of apps on Google Play are free. It’s also important to remember that the Apple App Store is the more profitable of the two markets.

Paid Apps

When it comes to premium apps, there is one obvious advantage: when users download them, they immediately make money. Because they have made an investment in the program, paid users also frequently utilize it.

It fosters a certain level of loyalty, and generating a solid income from a devoted user base is highly advantageous.

However, there is a problem. A lot of people prefer to test apps before paying for them. In fact, a Google survey shows that 50% of mobile users have never paid for an app. This explains why app stores have a greater number of free apps than paid ones.

Now consider this: Given the abundance of free options, would you really want to pay money for an app?

You wouldn’t, I venture.
The statistics support this. Roughly 98% of the revenue generated on Google Play comes from free apps. In-app purchases are a common source of revenue for apps. Nearly 80% of gaming applications and roughly half of non-game apps, according to Business of applications, employ this technique.

Approximately half (48.2%) of all revenue from mobile apps comes from in-app purchases. Compare that to 37.8% of users who purchase the app up front, and 14% of users who see adverts.

A staggering $380 billion is being spent by users globally on in-app purchases.

My primary takeaway from this is that one approach to monetize mobile apps is to charge for app downloads.
Offering your app for free doesn’t have to mean you can’t make money; in this post, I’ll go over the best approaches. Continue reading for more.

Freemium Apps Vs. Free Trial Apps Market

Freemium and free trial applications make up separate segments of the free app industry. A free trial software often gives users full access to the functionality but only for a set amount of time, whereas freemium apps charge for basic features.

Until customers begin paying for access to premium features or continue using the service after the trial period, neither type of software makes money. Free trial apps have a higher conversion rate of 30% to 50%, while freemium apps have a range of 1% to 30%, with most staying closer to the lower end.

Expert advice: Early-stage firms currently refining their product-market fit and those with simple-to-use solutions that fulfill fundamental customer demands are most suited for the freemium monetization model.

How Do Fee Apps Make Money: 5 Main App Monetization Strategies

The abundance of options for app monetization is its greatest feature. Different tactics work better with different types of apps.

Rewarded video advertising, for instance, has been shown to be the best option. Users who interact with rewarded video advertising have been shown to have a 4X higher likelihood of making an in-app purchase than users who do not.

In-app purchases are the second most profitable revenue stream under the freemium model. 48% of mobile app earnings come from in-app purchases, while 14% come from ad-based revenue. The effectiveness of paid app downloads is lower; they account for just 38% of the total.

Let’s talk about the various revenue streams for free apps now. And find out how much money they really bring in.

Advertising

Most often, in-app advertisements are how free apps monetize. You frequently encounter several kinds of advertisements when downloading a free program. It might be pop-ups that fill the screen, banner adverts, or even videos. Every contact with an advertisement, be it a view, a click, or the installation of a promoted good or service, brings in money.

With this business strategy, you can charge for the app but still make money. Profitability and user pleasure are balanced.

There are various ways to display and monetize adverts within a mobile application.

CPM: In this arrangement, the app creators receive payment for each time an ad is shown.
CPC: The amount of money made depends on how many clicks the advertisements generate.
CPV – income is determined by how many views an app receives from users.
CPA: The developer receives payment when a user installs the promoted program or makes a transaction using the link.
In-app advertisements come in a variety of formats.

Interstitial ads: full-screen pop-ups that show up while an app is switching between different functionalities. They frequently have text, graphics, or videos that direct you to an outside website or promote interaction.
Banner Ads: These are picture-based advertisements that appear at the sides of your device’s screen and attempt to direct you to a different app or website. They may also include of text, pictures, videos, or a combination of these.
In-Stream Video Ads: These advertisements appear within an app while you’re viewing a video. They can be positioned purposefully to encourage interaction before, during, or after the video.
Native Ads: These advertisements complement the visual design of the app and easily integrate into the content. Although sponsored, they appear to be standard content.
Rewarded Video Ads: Frequently utilized by gaming applications, these ads allow users to interact with the material in order to win prizes such as virtual currency, exclusive content, and more. Compared to banners or pop-ups, they are less obtrusive.

The in-app monetization strategy operates as follows:

app can incorporate ads by using ad networks such as Google AdMob.
After you log in, the ad network takes care of displaying pertinent advertisements in your free app.

Expert advice: If you don’t want to charge users for anything, employ advertising. Be aware that users may become disinterested from excessive or disruptive advertisements.

In-App Purchases

Moreover, in-app purchases are another way your free software might generate revenue. To put it plainly, an in-app purchase is a purchase made while utilizing an app. A few examples would be downloading an e-book or playing a game without having to watch commercials. This type of monetization is frequently used in game apps.

Three categories of in-app purchases exist:

Unlockables: These are purchases, such as adding more content to a game or purchasing e-books, that allow you to permanently unlock particular items or functions.
Expendables: Free games frequently contain them. To help you in the game, such as earning interesting digital stuff or passing stages, you can purchase items like coins or power-ups.
Subscriptions: are recurring payments that are often sent out on a monthly or annual basis.

They grant you access to an app or enable you to utilize features that are not available in the free version.
Among Us is a nice illustration of an app that makes advantage of in-app purchases. A free game is called Among Us. On mobile alone, it has grossed nearly $86 million since its June 2018 launch. Among Us generates revenue by providing services such as ad removal, character skins (outfits), and extras to enhance your characters’ appearance.

Freemium Model

Using the freemium business model is another efficient way to monetize free software. Freemium apps give customers access to basic functions without charging them a charge right away. However, customers must pay a charge in order to access premium services.

It combines both free and paid features in a way. The term “in-app subscription model” is another name for this revenue-generating strategy.

The freemium model encompasses several monetization options.

Through in-app purchases, players of mobile games can purchase in-game stuff.
Productivity apps frequently provide a premium subscription option that eliminates the app’s feature restrictions.

Expert advice: Do your homework first. Look at their demographic information, app usage statistics, and purchasing patterns before searching for sponsors. It will make brands more inclined to investigate your app as a means of expanding their consumer reach.
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8 Steps To Define The Best App Monetization Model For Free Apps

Thus, among the possibilities I’ve previously described, it’s crucial to select the appropriate monetization strategy if you’ve made the decision to “develop a free app.”

Even if it’s a popular tactic, advertising might not be appropriate for your app. There are situations when a less-popular strategy works better and situations where using multiple monetization models is appropriate.

Since every app is different, choosing the best monetization strategy necessitates a methodical approach.

This is a comprehensive guide to assist you in selecting the best monetization strategy for your free software.

1. Consider The Apps’ Business Goal

You should be crystal clear about your business objectives before you start designing an app. Is the goal of obtaining as many downloads as feasible an attempt to raise brand awareness? If so, the premium subscription plan might not be the wisest course of action.

If you have a customer base to market to and you’re using the app to enhance an already-existing business, you should think about using the freemium or subscription model.

The simplest strategy for companies that are just interested in making quick money is the advertising model.

2. Define The Value

It’s likely that other apps already exist that address the same issue. You must decide what values your software provides and whether it does so in a unique way. Adding simply one more app to the market is meaningless. Even at zero cost, it won’t be easy to make money off of.

3. Identify The User Needs And Your Target Audience

Certain monetization techniques may be more effective than others, depending on who your target market is. For instance, in order to obtain freebies in the game, players would patiently click on 30 seconds of rewarded video advertising. It will be awful to try that with a professional productivity tool.

As a result, determining your target audience is crucial. By doing this, you can also identify the wants and problems of the users, which is helpful if you want to guarantee high signup, engagement, and retention rates.

4. Check Your Competitors And Evaluate The Risks

Even if the app sector is quite profitable, you should consider your options before entering the market. This is especially valid if you intend to introduce an app into the saturated gaming sector. Examine your competitors’ advantages and disadvantages to uncover potential business prospects.

Do rival applications provide a positive user experience in exchange for showing advertisements? Or is it a smart idea to use a paid subscription model? In certain cases, a more specialized market may make it simpler to turn a profit with a less common monetization technique.

Expert advice: Data.ai is a platform that enables you to examine expansion into new countries, evaluate rival analysis, enhance paid UA and ASO, comprehend an audience base, find possible collaborations, and develop novel app features.

5. Decide On The Monetization Model

You must choose the app’s monetization approach if you’re satisfied with the data that has been obtained. It’s occasionally feasible to combine two or more revenue-generating strategies for free apps. Next, you must specify the metrics that will be used to determine whether the monetization plan was successful.

6. Set And Track The Key Metrics

In the end, profitability is what matters most, irrespective of the model you select. The following are the essential product KPIs to assess the effectiveness of your app monetization strategy:

Downloads: Indicates initial interest by counting the number of times a program is downloaded.
Tracking unique users throughout a month, Monthly Active Users (MAU) indicates a product’s continued popularity.
By dividing total revenue by monthly active users, average revenue per user (ARPU) is determined.
Multiplying ARPU by the average lifespan of the user yields Lifetime Value (LTV), which is the total projected revenue from the user during their lifetime.
Customer Acquisition Cost (CAC): Determined by dividing marketing expenses by the number of new customers acquired, CAC is the cost to acquire a new user.

Retention Rate: The proportion of users who continue to use the app over time, which shows how satisfied and devoted users are.
Engagement Rate: Calculates how often users interact and use the app.
Conversion Rate: The proportion of users who finish a desired action, indicating how well the program achieves its objectives.

Establish the goal for your app and keep an eye on its release date. Next, you should compare it realistically to the sentiment of the market at the moment and the performance of your competitors. These icons aid in navigating the rough waters, particularly in the initial version of the software.

7. Create A Prototype And Test It

User acceptance is a prerequisite for having an app that is easy to commercialize. Building a prototype and testing it with users is the only method to be sure of that. It could take the shape of a sketch shown to a group of users for comments, or it could be an app with just the visual layout.

In this case, it’s critical that customers comprehend what the app provides and how it functions to address their issues.

8. Build MVP

Cost, profitability, and time-to-market should all be balanced. To do that, it is helpful to build an MVP, which consists of the essential elements in a skeletal frame. Start with an MVP and get user input on what is and is not working.

Based on the feedback, make the required changes and progressively add more “nice-to-have” features. Keep an eye on the engagement element to see if it increases conversion.

Here are some ways to think about in order to make in-app ads function smoothly and not interfere with the user experience:

Display full-page advertisements when users finish a level or an action;
Examine user behavior on your app to tailor advertisement content.
Make sure the advertisement is error-free and of excellent quality.

How To Earn Money From Apps?

Interstitial advertisements,

banner ads,

in-stream video commercials,

native ads,

in-app purchases,

freemium models,

subscription models,

and sponsorship models.

How Do Free Apps Make Money in 2024?