Smartphones have generated a storming change to internet usage and mobile marketing has not stopped to grow yet. Around 80% of internet users use smartphones to access the internet. Talking about smartphones, apps come naturally in the context. There are around 2.6 million apps in the Google Play Store and you’ll be surprised to know that most of them(94.24%) and 78%(till 2013) of the apps in the App Store are absolutely free of cost according to statista and fueled respectively.

Now like everybody you’re thinking if so many apps don’t charge a cent how free apps make money by them! Yeah, again it’s time for you to surprise that not only these apps make money but also they make much more money than a lot of paid ones. There are actually a number of ways of how free apps can make money. So, let’s begin a detailed discussion on ‘how free apps make money’. And you can also have an idea of the amount of money you can earn through your app by reading our blog. 
Mobile internet usage has beat desktop internet usage long ago. People have made thousands if not millions of dollars through apps. And this process continues to grow till date. 5 years back it was not so much difficult but the days go by and more people are bending to this field of making money, making it more competitive. So, now it needs more hard work and a more aggressive marketing strategy to shine. But nothing to worry, here we are to provide you with 10 effective techniques on how free apps make money.

App Monetization Options:

As we said before there are a number of ways how free apps make money. So, here are 10 proven ways of how do free apps make money:

1. By Placing Advertisement

2. Adding Subscription Policy

3. In-app purchase

4. Through Sponsorships

5. Email marketing

6. Referral and affiliate marketing

7. Collecting and selling data

8. Freemium upsell

9. Selling merchandise and Physical PUrchase

10. Crowdfunding Platforms

So, we have many options for how one can earn money from a free app. Now let’s evaluate which options among them are the top ones and how free apps make money by them.

By Placing Advertisement:

Mobile advertising remains one of the best techniques to earn revenue from a free app. It is the most common and easiest method of how free apps make money. It’s simple and requires the least effort for implementation. Also, it is done by a third-party ad network.

7 out of 10 free apps providers have used advertising in their revenue model in 2016 and many others have shown interest to use it.

According to Sweet Pricing report, 32.5% of the largest mobile providers use in-app ads as the only source of in-app revenue. To monetize your app, advertisements are the easiest way. One just needs to put a commercial ad on their app screen and they would get paid by the third-party ad networks.

The main 4 types of ads used to gain revenue in an app are as follows:

Interstitial Ads:

Mobile app revenue rates keep changing in favor of interstitial ads. You would be surprised to hear that the impact is so overwhelming that some people even like to call it “revenue doubler”. Researches show that developers mostly like interstitial ads to monetize their apps. So, what are interstitial ads? 

Interstitial ads are those ads which appear in a full-screen ad format, covering the interface of an app and appearing on natural app transitions like a pause in a game. There is also a cross button attached to it so that the user can skip the ad if they like.
Developers are more likely to use interstitial ads in their apps as these ads have higher click-through rates than other ads because of their sizes and also their compelling and convincing visuals which create bigger and better impressions on users.

Banner Ads:

Banner ads are rectangular image or text ads that occupy a certain area of the screen while the user is interacting with the app. These ads can be refreshed automatically after a certain period of time. This is an effective way to make money by developing a free app. They are small and less obtrusive so that users can freely interact with the app.

A study by Medialets observed top performing banner ads by size and position where it’s shown that the lower half of the app is the most effective at drawing the attention of the users. Apps like Tinder and Uber are great examples of this criterion. A significant amount of their app revenue comes from banner ads.

In-app Video Ads:

 
In-app video ads are also a compelling way of how free apps make money. These ads are displayed automatically or displayed as “reward video” which can be opened on demand in exchange for any in-app purchases or rewards. Eg. the user would get extra points or lives in games, extra app currency or features for watching a video ad. As long as you can use these ads in your app wisely it won’t drive your audience away instead you can make more money by using them.

Native Ads:

Native ads are those ads which don’t disrupt the natural flow of the app on which they appear and thus an effective way how free apps make money. These ads completely match with the look, feel and media format of the app. It appears as a regular content than as a display ad so that the reader might not understand that by clicking on the links they are actually consuming paid advertisements. 

These ads are highly famous among the developers for their intrusive nature. Eg. if you click on an article about “Top 5 beaches in the world” and the link leads you to some XYZ Travel Agency’s blog. The results are not the same as a Discovery blog, right? The XYZ Travel Agency is paying the publisher of the original blog you’re in for your click on the link. But one of the major cons of the ads is that they produce quite less amount of revenue compared to the other ads.

Drawbacks: Though a significant amount of revenue can be generated through imposing ads in free apps, there is another side of the coin too. Ad revenues can be pretty low for apps with a few audiences. In spite of widely used by the developers, it remains hated by the users.

Adding Subscription Policy:

There is another productive way, how free apps make money. Free apps can contain restricted contents or features available for a limited time period i.e. a user can access to the full service after paying a certain subscription fee.

Cloud services, video, and audio streaming are techniques of how free apps make money by adding subscription policy. Online newspapers and magazines also generate revenue through subscription policy. The majority of developers use this technique by offering a trial for a certain period of time. Then the users can continue with the services if they wish to.

Drawbacks: Putting subscription services is a good method to monetize your app. But your app has to draw the attention of a large amount of audience otherwise this approach is definitely going astray. Developers need to constantly put and update worthy contents to guarantee subscription. Besides that, it is hard to decide the best time and location to put paywalls.   

According to the Sweet Pricing report, only 5% of the most successful apps are using subscriptions, making it one of the least used monetization models among developers.

In-App Purchase:

In-app purchases are purchases made within an application by a user. Initially, a free version of the can be published by the developer and then the users can be asked to unlock paid features or buy special items within the app by paying a certain amount of money. So let’s look into how free apps make money despite giving the basic version away without cost with the In-App purchase method. 

This allows the application makers to upsell the application users within the application itself, rather than other making channels. Eg. a game application may offer the user the ability to skip a particularly difficult level for a fee or the owner may provide consumers with the ability to view premium content which can only be accessed after the payment of a certain amount of money.

The developer hopes to obtain a good amount of revenue from these transactions and ad revenue to cover up the making cost of the application. The most common example of in-app purchases is to get access to an ad-free version of an application.

Special tools and resources are used by some developers to build in-app purchasing functionality. Specific resources can be attributed to specific brands of smartphones, where third-party services pay for in-app purchasing for app developers. In-app purchasing can also be done by using virtual currency.

Some applications also have refund policies if refunds are requested soon after the purchase has been made. Application stores also take a percentage of the in-app sale. Consumers making purchases through an application do not need to compulsorily visit a separate website to conduct the transaction. In fact, attempting to conduct a sale by redirecting to an external website violates the terms of most application stores as it prevents them from collecting a commission.

Drawbacks: Though in-app purchase is an easy way how free apps make money, it may create some problems as well. 

As it is purchased through a mobile device, unauthorized purchases may result in security issues. It becomes more troublesome if the username and password used in the purchase are not strong enough and the credit card details are stored in the app in an insecure way. It’s better to send a receipt through email after the purchase is done.

Through Sponsorships:

Sponsorship is a relatively less used method of earning money through free apps but still, it can be an interesting process, how free apps make money. Sponsorship can be a very effective way to monetize a free app if the publisher of the app builds a proper niche app for the target audience. It’s important to build a proper list of the companies and brands which can help to get benefitted from a partnership.

There are many reasons why the sponsor companies are eager to fund an app. Let’s look into some of these:

1. Associating with a free app they can build up a strong image in the community.

2. By supporting a free app they show their responsibility towards the community.

3. Sponsoring free apps opens up a possibility to draw new customers towards them.

4. It’s another way for the sponsors to present a different image of them than their competitors.

5. It’s better than advertising to the same audience repetitively.

We can list 5 primary methods for mobile app promotions which sponsor companies will pay for. Among these, the most popular method to promote a sponsor is to make the sponsors’ icon/logo visible in the mobile app. Let’s take a look at these:

Method 1. Homepage Logo:

The homepage logo is one of the most effective methods of promotion for the sponsor. In this part, the sponsor’s logo appears on the screen alongside the sponsor’s details. Also, text like “sponsored by” or “powered by” can be added.

Method 2. Splash screen:

Another highly effective technique of promotion is the splash screen. The name and logo of the company can appear in full screen while the app’s homepage is loading.

Method 3. Sponsor Icon:

An app icon of the sponsor appears on the homepage of the application which directs to the sponsor’s page.

Method 4. Multi Sponsor Page:

A link to a page enlisting multiple sponsors can be added to the homepage of the application. 

Method 5. Push Notification:

Push notifications can be used to notify users about the sponsor company’s product.

Drawbacks: Though sponsorship is a very effective way how free apps make money but finding sponsors can be a very difficult task.

Email marketing:

Despite being a comparatively old strategy email marketing is a convincing way of how free apps make money. Users can be asked to sign in by email while logging in to the app and promotional emails can be sent to their email ids afterward. This an effective way to reach your customers.

Email marketing is there for ages and it’s neglected by most of the marketers nowadays. Though approx 70% of internet users between 18-50 years prefer companies to communicate with them via emails.

There are some ways to collect an email address from your users.

Firstly, you can ask them for their email ids simply with a popup box. You may offer some features like in-app purchases or anything you want to offer. It will bring profit to both sides. And users will give their email ids willingly like this.

Another way of getting email ids is through Facebook SDK. Ask your users to log in with facebook account and this will provide you a chance to collect their email addresses. Don’t forget to mention that your users might get notifications by signing in with Facebook.

Lastly, you can use a third-party tool to collect email ids from your users. This technique is comparatively easier. A third party SDK can be incorporated in your application by adding a few codes to it.

Email is an effective medium to reach your users when they are not using your application and to notify them about updates and new features within the application.

Drawbacks: Email marketing also has certain drawbacks. It’s has been highly neglected by internet users. So, nowadays it’s seemingly unappealing though it’s still an effective way how free apps make money.  Moreover, most big app publishers already have greater access to the market, it’s a tough game for the new ones.

Referral and affiliate marketing:

Referral marketing simply means to refer a brand to your users. App publishers get paid for advertising different brands in their apps. They can promote the products or services offered by their affiliated brands or companies. This is one of the major techniques of how free apps make money.

Pop-ups or banner ads can be used in promoting the products or services of the affiliated company or developers can create an “in-app store” for advertising the products themselves.

Amazon, Flipkart, eBay are some of the examples of affiliate marketing. Also, it can be used in any application by using pop up ads. There are different types of models for referral marketing that app publishers use:

1. Cost per Action (CPA):

Cost per action is a web marketing strategy that enables the customers to get paid for a specified action from yielding customers. It is also known as Cost per Acquisition or Pay per Acquisition. Here they run the risk to earn little revenue as it is fully dependant on good conversion rates. Effective cost per action (eCPA) can be used by advertisers to measure the effectiveness of advertising inventory purchased.

CPA can include not only a customer’s acquisition or sales but any kind of action. There can be different methods of action. If the action is a click then the sales technique is referred as Cost per Click(CPC), if it is a lead it’s called Cost per Lead(CPL).

1.1. Cost per Click (CPC):

In CPC model revenue is generated through the number of clicks on a displayed advertisement. Popular ad networks like Adfonic and Google’s AdMob can be used for both text and display ads.

1.2. Cost per Lead (CPC):

Cost per lead is an action-based revenue-generating advertising payment model. It can be described as a middle ground to the revenue models CPM(Cost per impression) and CPS(Cost per Sale). Here the advertiser is only charged when a customer shows explicit interest by signing up for the advertiser’s offer.

2. Cost per Impression (CPM):

Also known as Cost per Mille(CPM) can be an impressive method of earning for free apps. Here the advertiser is charged every thousand times his/her ad is displayed in the publisher’s app. It is comparatively an easy technique, how free apps make money because the publishers don’t need to wait to be paid after the ads get clicked or the products get sold. Generally, iOS CPM ads generate more revenue than their Android counterparts.

3. Cost per Sale (CPS):

In this payment method, the advertisers are only charged after a successful purchase has been made. App publishers get a fixed commission of the sale. Some of the secure and high paying CPS networks are  ShareASale, Rakuten Linksh, and Amazon Associates.

4. Cost per View (CPV):

This is another convincing way, how free apps make money. Their revenues are generated based on the number of ad interactions or video views. Mobile games development company BrightHouse has successfully increased its revenue by 130% by effectively operating the CPV network.

5. Cost per Install (CPI):

Just as the name suggests CPI is a method where the advertiser is charged on every installation of his/her promoted app/s. Chartboost and Playhaven are the best known third party networks used in this model.

Collecting and Selling Data:

Though this method is not considered an ethical method, it’s an effective method of how free apps make money. There are many people from various research fields on the internet and there are companies who want to specify their target audience based on their social habits and behavior. Now if your app contains a good amount of user data, then you can sell it to them in return for money.

User data can comprise their email ids, social media accounts, and personal details. A developer can make a profit in two ways by collecting user data. Either they can sell it to a third party who would pay them in return or they can use it for their own purpose as companies want to spend in display ads for the most relevant audience.

Almost 2.5 billion gigabytes data is being produced every day in the world, of which 90 percent had been produced in the last two years. It is growing at a very high pace day by day. Data which come from online transactions, social media, search engines, web traffic are highly valuable for the advertisers to select their target audience and to promote their products and services accordingly.

If your app can collect relevant data from its users, you can definitely make a good fortune out of it. But there are some valuable things to be kept in mind before you start monetizing your data. You have to confirm that:

1. Accuracy: Make sure that the data you collected don’t compromise accuracy. It needs a thorough survey to be sure about the credibility of the data.

2. Relevance: Your collected data should be relevant to the organization you’re selling it. This will definitely vary from company to company but be sure that your data is organized in a manner that they can use.

3. Segmentation: Segmenting data is a very important task before monetizing it. Organize your data in relevant categories which will help your customers to understand what they are paying for.

4. Security: While dealing with personal information lack of security runs serious risks. It can lead to legal problems if not handled with proper care. And this will be a bigger loss if you lose customers’ trust once. Data should be anonymized if needed. Authorization, Encryption, Masking, and Tokenization are some very useful data security tools. 

Drawbacks: Though the technique can be a potential way of how free apps make money, but it runs a great risk infiltrating personalized data. Hence, losing customer’s confidence.

Freemium Upsell:

The term Freemium is invented by Jarid Lukin of Flatiron portfolio company Alacra. Freemium, as the name suggests, is a business module comprising both the complementary and the extra-cost services. This is a productive method, how free apps make money.

Freemium apps services are initially provided absolutely free of cost and after using the complimentary services if the user likes it she/he can have further access to the extra cost services by paying a subscription fee.

Freemium Upsell is one of the best models to build a strong customer-publisher relationship. Basic level services are offered free for consumers to build trust. Later they can offer them in-app purchases, advance services, add-ons, storage enhancements and an ad-free experience in a premium service.

As the freemium feature is totally optional it’s effective to gain a lot more new users. This feature is commonly seen in education, health, and sports applications.

Drawbacks:  The user may not be convinced to use a premium feature and can stick to the free services. The app publisher needs to give the users a relevant amount of free features to get their confidence.

Selling Merchandise and Physical Purchase:

Free apps and games can be used by e-commerce groups to sell merchandise and physical products like toys, bags, and tee-shirts and they can make money through it. They can do it via email marketing or via specially developed apps. This is one of the proven tactics, how free apps make money.

One of the most convincing examples of free apps/games making money from branded merchandise was Angry Birds game. Rovio Company trades 1 million branded t-shirts, backpacks, and stickers every month. Moreover, they generate 1 million per month revenue only on plush toys. Thinking to develop your own game? You can check our blog on how to make a game app.

This can also be done by selling custom-branded tee shirts on Amazon. Amazon provides the offer to app publishers, all they need to do is to create a Merch self-service program. Developers will get their revenue share after the branded tee shirts are sold. The app publisher doesn’t need to handle any payment method which makes it just much easier.

Drawbacks: Despite being an effectual method of how free apps make money, there is a downside to this as well. The app publisher needs to attract a large number of audience so that they feel to buy the offered products. 

Crowdfunding:

Crowdfunding is a powerful method nowadays how free apps make money. Surely it takes a lot of effort to create an app and it will be very disheartening if the app couldn’t make any money. It can be very tough in this world of competition. So, there’s another way how free ups can make money.

Startups and companies can share their ideas in various crowdfunding platforms. It’s the way you can use your potentials and can make the best out of it. By putting your app in crowdfunding platforms you’ll get an idea of how much or how less people are liking your applications and if you find that your app is not getting proper attention, you need to make changes according to what people like. This evaluation will be an effective technique to understand how free apps can make money. AppStori, AppBackr, Indiegogo, Kickstarter are a few examples of crowdfunding platforms.

Drawbacks: It’s a very new idea in the field of app monetization so it depends on time to develop itself properly.

Future of Free Apps:

From the above discussion, it can be said that the app-monetization market is growing bigger day by day. In spite of growing competition in the industry, publishers are coming with new monetization tactics for their apps.

All of the above-mentioned techniques are the most potent techniques till now on how free apps can make money. Many app publishers have created successful examples of app marketing by using some of these methods if not all.

The mobile app market is highly dependable on time. But recent data shows that it will certainly able to generate higher revenues in the future. Every monetizing method stated above has its own potential and drawbacks. Though it can be proved to be a good strategy to follow up these techniques efficiently. Hope, we could provide you the answers to your queries like how free apps make money or different tactics to make money by free apps or how can free apps make money. Thinking of developing an app by yourself? Share your ideas about app monetization strategies with us by commenting in the comment section.