Everyone wants to learn how to create an app for free and make money.
Mobile apps are a great way for business owners to make improvements to their company. They are also the perfect platform if you think that your idea will be the next big hit, like Instagram or Snapchat.
All of you want to make money. But getting your app revenue strategy figured out before you start app development is crucial. Without nailing down your app monetization models, you could end up wasting time and money.
I’ve seen so many people who were naive enough to think that just because they created an app, it would automatically generate money. That’s not true.
Here’s an analogy. If you start a new business, will it automatically make money. Absolutely not.
With mobile app development and other businesses alike, it all starts with an effective monetization strategy. Not sure where to begin?
Fortunately, you’ve come to the right place. As an expert in the mobile application industry, I have the knowledge and experience to help steer you in the right direction.
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How Does an App Make You Money?
We’ll cover the best app monetization strategies and show you some examples throughout this guide. But generally speaking, apps make money in the following ways:
Unless you’re selling a product, service, or subscription, then you’ll likely be relying on some form of ads or affiliate programs to make money with your app. Even if your app is free and you’re not charging users to download it, you can still make money using these methods.
App Monetization Strategy – What Are The Best App Monetization Methods?
Having an idea and turning that idea into something profitable are two very different things. Lots of people want to create an app, but the money-making aspect holds them back. Will you ever see a return on your investment?
I get asked dozens of questions about apps on a daily basis. But “how do you make money with an app” is definitely at the top of the list—which inspired me to create this guide.
Fortunately, there are lots of different ways to monetize an app.
Whether you’re building a new app for the first time or trying to make money with your existing app, I’ll explain everything you need to know about app monetization below.
How to Make Money With an App
Generally speaking, app monetization strategies fall into one of two categories—direct monetization and indirect monetization.
Direct monetization is definitely the most popular. In fact, the vast majority of the app monetization models covered in this guide will fall into that bucket. But before we get into the specifics, I want to quickly clarify the difference between these two app monetization methods.
As the name implies, direct monetization is money generated straight from your app.
If an iOS or Android user pays $1 to download your app from the Apple App Store or Google Play Store, the cash comes directly from the app. When someone uses your ecommerce app to buy something from your business, the sale is coming from your app.
Again, this is pretty self-explanatory. But it’s essential to understand how direct monetization works before we dive into indirect monetization.
Indirect monetization isn’t quite as black and white. You can still make money by creating an app, but the actual dollar amount can’t necessarily be tied to the app itself.
The best example of indirect monetization is a standalone product or service that comes with a free app. In this situation, the app is secondary. You’re making money whether the app gets used or not. Having an app makes the product more appealing to prospective customers since it will ultimately improve the user experience.
Indirect monetization is extremely popular for software products. I’ll give you some actual examples of this shortly as we talk about app monetization strategies in greater depth below.
6 App Monetization Models and Strategies
There are six different ways to make money with an app. I’ll explain each one’s advantages and drawbacks to help you figure out the best way to monetize your app.
You’ll also see some real-life examples of apps using these monetization models successfully.
1. Paid Downloads
Charging users a fee to download the app is one of the simplest ways to make money with an app.
As you can see from the graph, most paid apps cost less than $5. This particular study only used data from the Google Play Store.
Statista also determined that the average cost of a paid app in the Apple App Store was $4.37. While this is slightly higher than the distribution of paid apps in the Google Play Store, it still falls in the less than $5 range.
You have the freedom to charge whatever you want for your app. But if you’re going to charge users a download fee, it should be in the range that they’re used to paying.
While pay-to-download is definitely a straightforward app monetization model, it does have its drawbacks. You can’t expect to get nearly as many downloads as you would for a free app. Some people won’t consider installing an app if it’s not free.
With that said, it’s more likely that paid users will be highly engaged.
Anyone who pays for a download will want to get the most out of their investment. If those people are using the app frequently, you could potentially make even more money from them with other app monetization models on our list.
2. In-App Purchases
The in-app purchases monetization model can be used for both free and paid apps alike. You can use this method for physical and virtual products.
Gaming apps love to leverage the in-app purchase methodology for virtual coins or experience upgrades. For example, users playing a mobile gaming app could spend money to unlock a new vehicle, weapon, map, or something along those lines.
Pokemon Go is a great example of a free mobile app that makes money from in-app purchases.
This revenue comes from roughly one billion downloads. But since people aren’t paying to download the app, how does it make money? In-app purchases. The app sells “PokeCoins.” This virtual currency can be used to pay for upgrades within the app that improve the gaming experience.
But mobile games aren’t the only way to monetize an app with in-app purchases. Ecommerce websites can build an app as a way to increase mobile sales.
If a customer buys a shirt, pair of sneakers, book, watch, or whatever you’re selling online from your app, it falls into this category as well. Using an app to make money is a no-brainer for anyone who already sells physical or digital products online.
Subscriptions are an excellent way to generate recurring revenue with an app. The Apple App Store and Google Play Store both make it easy for you to set up a subscription business model with your app.
Users only need to sign up for a subscription once, and they’ll continue to get charged on a recurring basis until they manually cancel the subscription.
In most cases, subscription apps are billed on a monthly basis. But you can set up annual or quarterly billing cycles as well. It’s common to offer a better monthly rate for longer subscription terms, as shown in the example above.
Subscription apps could be applied to a wide range of industries and potential use cases.
If you’re creating a fitness app, you can charge users a monthly subscription for access to workouts, videos, and training regimens. Even a small business owner, like a local dry cleaner, could leverage the subscription model to offer pick-up and delivery cleaning services.
An excellent subscription-based app, called PepTalks, was recently built using BuildFire’s platform. App users pay a monthly fee to receive motivational words delivered to their devices via push notification on a daily basis. You can read the full PepTalks customer story here to learn how one person took a simple idea and monetized it with an app.
4. Freemium Model
The freemium app model is essentially a mix between subscriptions and in-app purchases. Technically speaking, it could potentially fall into either category, but this is definitely worth mentioning on his own.
To clarify, the term “freemium” comes from combining the words “free” and “premium.” Free + premium = freemium; get it?
So offering your app for free is the first step to using the freemium monetization strategy. Next, you need to offer different versions of your app—free and premium.
The idea here is to offer a free version with basic features and an upgraded version that delivers a better user experience. For example, let’s look at the Pandora mobile app subscription options.
This Internet radio service has multiple plans, including a free version.
Anyone can download the app for free and listen to music for free. However, you’ll be interrupted with ads between songs. There are also some limitations and contingencies in terms of skipping songs, searching for songs, and playing what you want.
The free version is fine, but if you want to get the most out of this app, you’ll need to get a paid subscription.
With freemium apps, you still need to make the free version good enough. For example, if the free version of Pandora only played one minute of each song, nobody would use it. So you’d have a tough time converting those free users to paid subscribers.
You’ll also need to make sure the cost associated with the premium features are justified. If the only difference between the two versions is a minor inconvenience, people won’t feel the need to upgrade.
Another way to entice premium upgrades is by offering extended free trials of those versions. Some users might not know what they’re missing until they try it out. So don’t be afraid to offer a premium month for free.
Ad revenue is an extremely popular app monetization strategy. With this method, you’re selling space within your app for advertisements. Some of you might be familiar with this model if you display ads on your website.
As you can see from the chart, 8 of the top 12 methods on the list are ads—including 4 of the top 5.
App advertising can come in all different shapes and sizes. Not only are there different types of ad formats (video ads, banner ads, native ads, pop-ups, interstitial ads, etc.), but there are also different revenue models within this category:
How you’re paid and how much you get paid depends on a wide range of factors. For example, simply displaying a banner ad with a CPV revenue model usually won’t pay as much as CPC or CPI model.
Check out our guide on the top mobile ad networks to help facilitate ads within your app. This resource contains an in-depth description of the various revenue models as well. Ad networks help ensure the ads displayed within your app are relevant to your target audience.
While in-app advertisements are popular and profitable, they’re definitely not for everyone. Sometimes ads can hinder the user experience, and ultimately make your app less desirable. So you need to take this into consideration before blindly adding ads to your app.
6. Product Extensions
A product extension falls into the indirect monetization category, which I mentioned earlier.
This strategy is a great way to generate revenue for your product, service, or business, but the money won’t be tied directly to actions within the app itself. Let me give you an example to explain what I mean.
Take a product like QuickBooks. For those of you who aren’t familiar with this name, QuickBooks is an online accounting software used by 7+ million customers worldwide. The platform controls more than 50% of the accounting software market share, which is why it makes such a great example.
QuickBooks is a paid software. But anyone who buys the software gets to use the iOS and Android mobile app for free.
The app itself doesn’t directly generate any revenue. You can sign up for a QuickBooks subscription and never use the app.
However, people love apps. Being able to access the software from anywhere with a native mobile experience adds value to the product.
Having an app as a product extension also helps differentiate you from the competition. If your product comes with an app and others don’t, then it gives you a significant edge. Your business will automatically be more appealing to consumers who are shopping around for a product in your category.
How Do Free Apps Make Money?
If you don’t want to charge users for downloads, you might be wondering how to make money with a free app. Don’t panic—you can still make lots of money without charging for app installations.
Refer back to the app monetization strategies we discussed above; five of the six methods can be applied to free apps.
All of these monetization models can be leveraged with a free app. You could even use more than one method for your free app.
For example, let’s say you plan to use the in-app purchases monetization strategy. You can leverage advertisements as well. Using multiple monetization methods will help you make money with a free app.
The vast majority of app installations from the Apple App Store and Google Play store are free downloads.
In short, don’t feel pressured to charge for app downloads—you can still make money with a free app.
How to Choose the Right Monetization Model For Your App
With so many app monetization methods to choose from, how can you decide which method is best for your mobile application?
There’s no single answer to this question. You’ll have to weigh the pros and cons that we’ve discussed above.
Some industries and app types are easier to determine than others. For example, in-app purchases would be the obvious monetization model for an ecommerce app. Using ads for an ecommerce app or charging for downloads probably won’t be the best idea. Ads can take attention away from the products you’re selling, and making users pay extra for the ability to buy products through the app doesn’t make a ton of sense either.
Depending on your app type, you could experiment with different monetization models. Let the data do the talking for you—track engagement and other valuable KPIs to figure out which method will be the most profitable for your app.
Do I Need to Monetize My App?
In most cases—yes.
Without a monetization strategy, your app won’t make any money. You’ll want to make sure you can recoup the cost for app development, and eventually turn a profit for your efforts.
But with that said, not every app needs to be monetized. Some apps can make money without an actual monetization strategy. For example, let’s say you build an internal workforce app. An HR mobile app or an employee communication app doesn’t need to be monetized.
You wouldn’t charge your employees to download an app or interrupt their experience with advertisements. But building an app for these purposes can ultimately save money in labor and productivity costs. Your profit total profit margins will increase elsewhere, even though the app itself won’t directly drive revenue.
App monetization can be a challenge for app developers and business owners. But making money with an app doesn’t need to be complicated.
The first step is understanding the different ways to make money with an app. Then it’s just a matter of figuring out which ones work for you.
This guide covers everything you need to know about app monetization. So use it as a resource as you’re going through the process.
For those of you that don’t know what geofencing is, I’ll also explain the basic concepts of how it works. That way you’ll be able to use this guide as a reference for when you apply geofencing to your business and mobile application.
It also depends on your app monetization models. There are three main ways that mobile apps can make money.
Which app monetization model is right for you? You’ll also have to take into consideration that mobile apps aren’t just for phones anymore. There is an emerging market for additional devices.
In this guide, I’ll cover all of these topics in greater detail. You’ll also learn more about how free apps make money, how paid apps make money, how game apps make money, and more. This will give you a much better understanding of how to make money from your own app or with an app development idea.
Can you make money from apps? Here’s what you need to know.
Depending on which type of app you’re planning to create, the answer may vary. Different types of app categories have more success than others. The most profitable mobile apps cater to the broader mobile app market. Some of the top apps include gaming apps, dating apps, fitness apps, entertainment apps, lifestyle apps and more. These app categories generate revenue on the app stores through a wide range of methods.
First, you’ve got to segment yourself into one of two buckets.
According to Wiselytics, the total life of a Facebook post is only a few hours, while a tweet’s lifespan is just over an hour. Email, on the other hand, has a lifespan of 12 days.
And the best way to gather those email addresses is to add an email subscription form to your app.
An in-app subscription form will give your app a real boost by prompting users to enter their emails, especially if you tempt them with the prospect of some great benefits for email subscribers.
And your email strategy can be pretty varied. If you have promotions or deals, send an access code in the email that they can enter inside the app. If you write a regular newsletter or have a blog component on your website, promote those through the email while reminding users they can read all the content you produce on their mobile device.
So, whether it’s to remind your users to come back to your app after being away for a while or to try and draw in new users, email lists are marketing gold. Just something to think about.
2. In App Advertising
If you aren’t including ads in your app, you might be missing out on a phenomenal opportunity for monetization.
Digital advertising through mobile apps has improved the communication between advertisers and consumers dramatically. This is largely due to the crazy amount of time people spend on their phones. We’re talking at least 90 minutes a day – the equivalent of 23 days a year.
And a lot of the time, people simply don’t want to pay for the apps they spend all that time on. The temptation to download an app that costs $.99 drops away as soon as they see a cheaper (or free) alternative.
So, how can you get around this and still monetize?
Simple. Make your app free, and utilize in-app advertising.
Advertisers realize the value of mobile apps over those embedded in browsers or sent via SMS messages. Here’s what that breakdown will look like in 2018:
And when advertisers create ads to be used in apps, these are the five types of native ads typically used:
Interstitial/full screen ads – These ads are usually placed at natural pause points, like when moving between menus. Because these aren’t actually interrupting the experience of using your app, they’re more likely to generate clicks without causing frustration.
Notification ads – These pop up in the mobile device’s status bar and make users more aware of the ad’s presence. Be warned, these aren’t the most well-loved ads out there, and could damage your app’s reputation.
Capture form – Relying on user opt-ins, these offer incentives (like points or tokens) for users who enter their email addresses. You’ll most often find capture forms in mobile games.
Advanced overlay – These use transition points like interstitial ads but are interactive instead of being simple clickable images. They’re sort of a mixture of capture form and full screen ads.
Banner ads – App banner ads are usually found at the top or bottom of the screen and can be somewhat ineffective because they are more distracting than other forms. They can also irritate your users, so think twice before agreeing to incorporate one into your business’s app.
Which ad format is right for you? What you want to focus on the most through the implementation of these ads is engagement. It’s an idea a lot of brands are struggling to define. Put simply: the better the experience, the higher the engagement. Your ads need to entice the user, not frustrate them.
So, when you plan to incorporate an advertisement into your app, ask yourself these questions:
How can users have a more meaningful experience when dealing with these ads?
What sort of ads would the target audience prefer?
How can these ads tie back to my brand?
Will these ads be too clunky or ugly, potentially ruining part of the experience for users?
Depending on your brand, the advertisers you associate yourself with could pay you a considerable chunk of change to host their ads. According to Gartner Research, mobile advertising is poised to reach $18 billion annually.
So choose wisely – your decision could make all the difference in the profitability of your app.
3. Sponsors and Partnerships
If you can secure a partnership with another brand, you can significantly step up your monetization game.
A partner or a network of partners can seriously benefit your customers and your businesses alike, especially if you create an integrated experience – like when Localytics and Optimizely partnered to deliver mobile analytics as a combined service.
Imagine users on another app who see your brand logo, and maybe even an interactive element typically found in your app appearing as part of the app they’re currently using. That could potentially convince them to go download your app.
And if your partner includes advertisements featuring your apps, there’s a solid chance their users might click that ad to go straight to your app. This is called a click-through rate (CTR), and in some instances, it can be as high as 12.5 percent.
So, once you’ve opened yourself up to the idea of hosting and sharing advertisements, definitely consider forming partnerships to strengthen your brand outreach.
4. Creating Strong Code
If you develop your own code from the ground up and it proves to be successful, other brands may approach you and offer to re-skin your app (either for their purposes or yours). By licensing your code to other developers, you can make money without disrupting your users’ experiences.
For example, the popular game Temple Run was re-skinned for Temple Run Oz as a film tie-in.
Another thing to consider with code-sharing is your app’s endgame. After your business has gotten as much value possible out of your app and is preparing to move onto the next step, you can actually sell it as a whole to a buyer who wants to use your existing framework to create their own app.
Fortunately, there are easy ways of doing this, like using Apptopia, a popular marketplace that facilitates the buying and selling of mobile apps.
“White labeling” your code is similar to selling it from the ground up – without actually selling off your IP. The only issue here is that there will inevitably be multiple slightly different versions of your source code bouncing around on marketplaces.
Regardless of which one of these you choose, you’ll be sure to make money by saving other developers from having to create code from scratch. All it takes is for your app to be initially constructed out of strong, desirable code.
5. In-App Purchases
Most app downloads are unpaid, but that definitely does not mean the users never have the opportunity to spend any money within the app. App purchases are the solution.
This is a huge part of so-called “freemium” apps (typically mobile games) where users pay no upfront cost but pay for gated features, but any business can make use of this strategy.
Your business can choose to provide users with the opportunity to purchase your products directly from the app (in the case of physical items) and have them shipped. Or, if you’re a business that offers services, users can even opt for in-app billing.
The downside of in-app purchases is that developers walk a fine line between giving too many options for free and offering too few features. So, be mindful of that if you choose this monetization method.
6. SMS Marketing
By using in-app prompts similar to the ones used for collecting email addresses, you can send notices for app updates, reminders, contests, and promotions straight to your users’ text message inboxes. This marketing method is one of the more effective ways to strengthen your brand because it drives users back to your app.
For example, BLUE LION mobile GmbH – a German company that created the app Qeep, one of the world’s largest mobile social discovery platforms – used SMS messaging to reach and retain their high-value users. BLUE LION’s targeted process for reaching and reactivating app users who hadn’t used the app for days or weeks was able to achieve an impressive response rate of “slightly above 10 percent.”
So if you’re looking to enhance customer engagement, give SMS marketing a try.
7. Free/Premium Versions
As mentioned before, “freemium” apps cost nothing to download, but they typically include in-app purchases that make money for the developer.
Having a free/cheaper version allows users to get a sense of what your app can do for them.
Think of it like a teaser. Soon, after using the free version of your app, your customers will realize that the app can serve an important role in their lives that they simply don’t want to live without.
Then, if they enjoy what your app offers and want a better experience, they might be willing to pay for the premium version.
Keep in mind that, if users do pay for the premium version of your app, your responsibility as a developer is to make it worth it for them. That way, they’ll leave positive reviews and recommend the premium version to their friends.
8. Strong Content Strategies
One of the more certain ways to convert new or infrequent users into lifelong, paying users is to regularly refresh your app’s content.
For example, if your business has a blog, you could make the newest post available to your users via your app. And if you have industry news stories they can read natively, you need to make sure the news is always up to date.
That way, users have a good reason to keep coming back to your app for more.
But there’s another target out there besides these semi-occasional customers.
A report from 2015 from the app testing firm Swrve found that only 2.3 percent of users ever make a purchase, up from 1.5 percent in 2014. But shockingly, only 0.23 percent of that number are responsible for two-thirds of sales.
A whale will spend as much money as is necessary to collect and advance as far as possible in-app or in-game. Think of someone who has played a massively multiplayer online game for more than a decade – someone who consistently buys every new piece of content they need to stay on top.
So, when updating your app on a regular basis, always make sure there’s something irresistible in that content so you can keep your most consistent customers coming back for more.
9. Multiple Payment Options for Subscription Services
If you do regularly update your content, consider creating a subscription service for those customers who keep coming back. That way, all your users have to do is sign up to be billed monthly or quarterly, and they’ll receive all of that new content without having to remember to buy it.
But when you make use of the subscription service option, seek to differentiate between tiers of access to your content. The Economist used this strategy by allowing their users to opt for a web-only subscription, a print-only subscription, or both.
Many users saw the utility in spending that extra amount for the added value of access to both print and web subscriptions. So, when you’re monetizing your app, consider offering separate options and including one subscription package combining all the services together as a premium package. Your app could become much more profitable as a result.
10. Data-Driven Strategies
The best way to optimize your app’s ability to generate revenue is through studying the robust analytics you collect from the behaviors of your user base and putting those insights to good use.
Using this method, you can figure out who is spending the most time and money on your app and place a primary focus on those users instead of spending all of your development time on new user acquisition.
A recent study from Localytics showed that 20 percent of users never used an app again after using it only once. In other words, a considerable chunk of those new users you acquire may not engage on any level other than the initial download.
To make sure you get the highest ROI, you should always know which of your efforts are most successful with your target audience. By focusing on pursuing more of those same efforts, your app will prove more beneficial to your customers (and your business!) than ever.
And remember – whatever data you collect has value outside of your own business. Behavioral data is a gold mine to marketers. If your app is popular, there’s a solid chance that a major analytics company may want to purchase that data from you.
By this point, you’re well aware of how awesome a mobile app can be for your bottom line. It can allow you to expand your brand and make connections with customers you might never have reached before. And as you’ve seen in this post, it can also be a considerable source of revenue.
All app developers need to find the best app monetization strategies for success. The right app monetization models for me and my app might not be the best app monetization methods for you and your app.