How do Free Apps Make Money?
Once the app development process is completed, you’ve got to make a crucial decision before you make it available on the Apple App Store or Google Play Store.
Are you going to charge users to download it? Or will you make a free app?
One of the reasons why so many people decide to charge for downloads is because they don’t know any other way to generate money for the app.
After spending so much money on development, they think the only way to get a return on the large investment is by charging a fee per download.
This is a common misconception.
Free apps can generate real money.
You’ve just got to make sure you take a smart approach to this strategy.
There are lots of big players out there who are making lots of money. You can achieve this similar success as well if you follow a few very important monetization strategies.
- Understand the users
- Understand the competition
- In-app purchases and advertisements
- The art of subtlety
So if you’re up in the air about whether or not offer your app for free, I’d say that free is definitely your best option.
All you need to do is follow these tips, which I’ll outline in greater detail as we continue.
The majority of apps that get downloaded are free.
What does this information tell you?
Mobile users are not used to paying for their apps.
So it’s unlikely they’ll make an exception for yours.
I’m sure there’s something similar that’s available on the market, so they could just get it for free somewhere else.
So your best choice is to offer or it without charging anything. Then try to get as many free app downloads as possible and look to other options for revenue streams.
As an industry expert who has been through this before, I can tell you from personal experience that it works.
This guide will teach you everything you need to know about how free apps make money and how to have success with a free app.
Understand your users
Before you do anything else, you’ve got to take the time to do some research.
Think about the people who are currently using or will be using your app.
This will be easier for some of you compared to others.
For those of you with an existing business, the demographics of your app users will mirror your current customers.
But if you’re planning to launch an app that’s not an extension of an existing company, you’ll have to focus on the potential target market.
You’ve got to understand how these people think and behave.
For example, the operating system that your app is available on even effects the user behavior.
Apple users and Android users behave differently.
If you don’t understand your users, you won’t be able to understand anything.
But take this one step further.
Understanding the user means much more than just knowing what kind of mobile device they’re using.
Ask yourself these three questions to get started in the right direction.
- Who is using the app?
- What are they using it for?
- How are they using it?
Once you can answer these questions, you can start to figure out what your users are doing.
Now compare this behavior to your app.
Does it meet those considerations?
If the answer is yes, then you’re in a good position to proceed to the next steps.
Just make sure you start with the user before you jump ahead.
Understand your competitors
Competitor analysis is a marketing tactic that’s often overlooked by so many businesses.
They are so busy focused on their own company, that they neglect to see how their competitors are doing.
Before you can move forward, the first step in this involves identifying your competitors.
Once you have completed that part of the process, you can start to analyze the components of their operation.
This graphic can help steer you in the right direction in terms of what you should be looking for.
You can learn so much from this.
If your competitors are doing something similar to you, see if they are doing it better.
There’s no shame in learning from someone else who is having success.
You can simply apply their same methods to your own mobile app monetization strategy.
On the flip side, you may also find out what your competitors are doing poorly as you conduct this research.
You can take notes from these mistakes and make sure to avoid them as your implementing certain changes to your own app.
Once you analyze the competition, you’ve got to come up with a differentiation strategy.
Separate yourself from the crowd.
What makes your app unique?
Think about what you can do better than everyone else and make sure that’s the focal point of your marketing strategy.
Properly branding your app will make it much easier for you to generate money, even if it’s available as a free download.
Now that we’ve covered the preliminary components of monetizing your app, it’s time to focus on what will actually generate money.
There are two basic ways that free apps can make money.
- In-app purchases
So you can apply one or even both of these methods to your app.
Each one has plenty of benefits.
I’ll explain how both of these work in greater detail, so you know exactly what to do.
An in-app purchase offers users extra features and additional options.
These upgrades help increase their engagement and improve the user experience.
Take a look at how much money the average user spends each month on in-app purchases.
As you can see from the data, the majority of mobile users don’t purchase upgrades.
It’s also clear that users on the iOS platform are willing to spend more than Android users.
So you can’t expect every single person who downloads your app for free to spend money.
That’s not a realistic or attainable goal.
So you’ve got to focus on the group that is willing to buy those upgrades.
These additional features can add a layer of complexity depending on the nature of the app and the depth of its functionality.
You’ve got to find a way to hook the user and keep them coming back for more.
For example, gaming apps do a great job of enticing users to purchase upgrades that improve their gameplay. Very few games are paid apps. So someone can download and play the game for free, but can’t unlock certain maps or game functions without spending money.
Coin or token systems are a great way to achieve this and get users to spend more per purchase.
Rather than saying something costs $1 you can offer it for 100 tokens.
Allow users to purchase tokens for real money and give them a better exchange rate based on the amount they spend.
So for example:
- $5 = 500 tokens
- $10 = 1200 tokens
- $20 = 2500 tokens
According to Apple Support, there are four main types of in-app purchases.
- Non-renewing subscriptions
- Auto renewing subscriptions
So the coin example would fall under the consumable category.
A non-consumable purchase would be upgrading a premium version of an app that has added bonuses such as no advertisements.
Non-renewing subscriptions are a set for a specific period of time.
So if you had a sports app, you may offer a subscription for just the NFL, NBA, or MLB season.
Here’s a good example of this from the Fantasy Football My Playbook app.
An auto renewing subscription is something that’s ongoing and won’t expire after a few months.
A subscription to a newspaper like the Wall Street Journal would fall into this category.
Video and movie subscriptions such as Netflix, HBO, or Hulu are also examples of auto renewing subscriptions.
So figure out what type of upgrade your in-app purchase will qualify for.
All of these are viable strategies, but some work better for different types of apps, as we’ve seen with the examples above.
Advertisements – In App Advertising
Advertisements are pretty self explanatory.
If you’ve got a website, you understand how ads work.
It’s the same concept for your app.
You’ll get paid based on impressions or clicks.
The type of ads offered on your platform will affect the pay rate as well.
For example, you could charge companies more for a video advertisement as opposed to a static ad or banner.
Advertising works for some models and apps.
You’ll have to decide if this is a reasonable strategy for you to consider after analyzing your users and competitors.
Here’s an example of some basic app advertisements.
While these can make you money, sometimes they can be intrusive to the user experience.
So you don’t want to go overboard with ads.
With that said, you can combine your advertising strategy with your in-app purchases business model as well.
Let’s say you use both of these techniques to make money.
Do you remember what we discussed earlier?
You can offer a premium upgrade for users who don’t want to see ads while they are using the app.
Here’s another great example of this.
As you can see, using in-app purchases and advertisements in the same app can be done at the same time.
The most crucial part of using free apps to make money is convincing the user that they want to buy things to enhance their experience.
How do you this?
You’ve got to create the illusion that they need to spend money to get the most out of your app.
In order to make this happen, the free portions of your app need to be good, but not perfect.
It’s a slippery slope.
If you make the free version amazing, the user won’t have any reason to spend extra money.
But if you withhold too many features in the free version, users won’t experience enough to realize that they want to do or see more.
So you’ve got to find that middle ground.
Subtly tease them with those enhanced features and benefits.
If you’re going to use advertisements, make sure that they don’t hinder the user navigation.
For example, a user shouldn’t have to watch a 30 second video every time they open the app.
But some popups or banners from time to time may not be unreasonable.
Think back to everything we’ve discussed so far.
It takes a thorough analysis of your app, your users, and the market to determine which monetization strategy works best.
You’ve got to figure out which ones will result in the highest revenue.
There’s no magic bullet when it comes to making money with free apps.
But there are definitely ways you can learn to take advantage of the opportunities as they present themselves.
Conclusion – Free Mobile Apps Make Money
Do you need to charge users to download your app?
Free apps make money. You just need to follow right app monetization strategies and app monetization models for your free app.
What does this graphic tell you?
The top apps on the market drastically throw off the averages.
So don’t be discouraged if your app isn’t making money hand over fist right away.
It takes time.
There’s still plenty of money to be made, it just takes some time and effort.
Start by analyzing your target market.
Once you can understand the user, it will be easier for you to come up with the best strategy to make money.
But your planning doesn’t stop after doing user research.
You’ve got to analyze your competition as well.
How are they making money?
If they are having success, take some of their methods and incorporate them into your own strategy.
But you’ve got to differentiate yourself.
Don’t be afraid to experiment with your app idea and and free app monetization strategy.
There’s no one single way that’s the best method for generating revenue with free apps.
As you’ve just seen, there are several ways you can approach this with both in-app purchases as well as in-app advertisements.
App owners should have a subtle strategy. Try to make the user think that they need to spend money to get the full benefits of the app.
Take advantage of any tools available on the market that let you run prototypes and explore the options that might work best for you app.
Once you have this figured out, you can commit to building the app that’s right for you.
What type of additional benefits will your app offer to entice users to spend money after they’ve experienced the free version?