The app stores are FULL of apps that cost exactly $0 to download. In fact, over 90% of apps are free according to TechCrunch!
But just because apps are free doesn’t mean they can’t make money.
Here’s proof: The Verge reports that over 98% of worldwide Google Play revenue comes from free apps!
Obviously free apps have huge revenue potential.
So how do free apps make money?
You’re probably thinking I’m going to give you the same answer that you’ve seen a million times before. Advertising and In-app purchases, right?
What’ I’ve aimed to do here is give you the most complete list of ways to make money from your free app available anywhere.
What you’re getting is a list of 9 different ways to generate revenue with an app that costs $0 for a user to download.
And I also want to show you that these actually work and aren’t just some fluffy ideas I’ve come up with or read about somewhere. To do that I’ve included successful examples of each one for you to check out as well.
To make things even easier for you, here’s the complete list. Just click to skip to the method you’d like to read about:
- Email Marketing
- The ‘Freemium Upsell’
- Amazon Underground
- Selling Merchandise
- Affiliate Income
- In-App Purchases
How do free apps make money?
Just like with web sites, you can make good money by getting people, companies or brands to sponsor your apps.
This was an under-utilised app monetization method until fairly recently, but it’s starting to take off.
Basically the idea is to build a niche app with a specific target audience. You then find a person or company who has a similar target audience and do a deal for them to sponsor the app.
The sponsorship arrangement usually looks something like this:
- You take the app and change all of the graphics out to reflect your new sponsor’s brand
- You change the name of the app and any other content to also match your sponsor’s brand
- This is commonly known as ‘white labelling’. What you’re doing is taking your app and making it look like it is owned completely by your new sponsor
- The sponsor gives you money in return
The amount of money you make and how it’s paid can vary depending on the deal you make with the sponsor.
Here are a couple of ideas:
- Revenue split – You and the sponsor agree to splitting the revenue generated by the app.
- Monthly sponsorship fee – The sponsor could pay you a set monthly fee for use of the app + maintenance.
Another benefit of taking on a sponsor is that they probably already have a large online following. Often sponsors will have popular social media accounts, blogs, YouTube channels etc.
If you’re white-labelling an app for them they will probably promote it to their existing audience. This can get you lots of downloads from a channel you couldn’t have used otherwise.
Here are some examples of successful sponsorship arrangements:
Subway sponsored the PrePlay football game app to engage with fans during Super Bown XLVI.
Subway wanted to get in front of the PrePlay audience and this is a perfect way to do that.
The Subway brand is featured throughout the app and Subway also gets mentioned during videos inside the app.
You can read more about the sponsorship deal over at MobileMarketer.com
Another example is the partnership between Evernote, the mobile note taking platform, and 3M. The sponsorship meant that digital Post-it® Notes were integrated into the Evernote mobile app.
The subscription model looks something like this:
- The app is free to download
- There might be some free content available in the app, but not always. It’s completely up to the developer.
- The user must pay a regular subscription fee to unlock all of the content in the app.
Subscription models work well in mobile apps that regularly have fresh new content added to them. Think news apps or apps with unique video or audio content.
How do you manage the subscription model?
The good news is it’s not much harder than adding in-app purchases to an app. Apple and Google offer subscriptions through their platforms just like IAP’s. This means Apple or Google handle the payments from users and pass your share on to you.
Some of the most talked about and most successful apps in recent times have been the Kardashian / Jenner series of apps. Basically a bunch of the Kardashian / Jenners released their own apps with makeup tips, fashion advice, videos etc.
They monetized the apps by having a $2.99 / month subscription fee. Users must subscribe to get access to any of the content inside the app.
You would think that requiring a subscription before letting a user see any content would be a deterrent for new users.
But here’s the kicker: The apps offer a free 7 day trial. Users can subscribe with a couple of taps and no up-front payment. Unless they manually cancel the subscription before the trial ends they are automatically billed after 7 days. Pretty smart.
The other interesting thing about these apps is the very small monthly subscription fee.
Even with such a small fee, the sheer volume of users quickly rocketed them to the top of the top grossing charts.
3. Email marketing
Just like on the web, email marketing works by collecting email addresses and marketing offers to people via email.
Mobile apps offer a new opportunity to collect email addresses of people who are interested in your product or service.
Even though email marketing is one of the most effective marketing strategies on the internet, it’s still largely underused in the mobile space. Most of the big players are taking advantage, but it’s not something that most smaller developers are looking at yet.
The only reason I can think of for this is because it seems like it is difficult to do.
Hopefully I can convince you otherwise by the end of this section.
There are many ways to collect email address from within a mobile app. Here are a few to get you thinking:
- Ask nicely
One of the easiest ways to do it is to simply ask the user with a pop-up box. You can simply present a pop-up box asking the user for their email address in return for something (free in-app currency, unlock certain features, etc.).
- Use the Facebook SDK.
Did you know that by having Facebook login enabled inside your app you can use it to collect email addresses? That’s right, whenever someone logs in with Facebook inside your app, you can collect their email. All you need to do is use a backend like Parse to store the name & email.
Of course if you are using this method you should tell users that by logging in with Facebook they may receive emails from you.
- Use a 3rd party tool like LeadLayer
You can also integrate 3rd party SDK’s into your mobile apps that make email collection easier. These SDK’s make incentivising & collecting email addresses quite simple. It can be as easy as adding a few lines of code to your app, so it’s definitely an option worth considering.
Example of email marketing in action:
Check out what 1App did with in-app email collection. This app belongs to the creator of LeadLayer, and he managed to collect over 40,000 email addresses from the app.
4. The ‘Freemium Upsell’
The ‘freemium’ model is one of the most common ways for free apps to make money. I’m sure you’ve seen it in use plenty of times before.
Freemium apps are free to download, but they contain in-app purchases (IAP’s). When I say ‘Freemium Upsell’ I’m referring to apps that offer limited free functionality, with the option to unlock full functionality with an IAP.
The general idea is that a user can download & use an app for free. If they like it and want more from the app, they have the option of spending money to get it.
The benefit of the freemium upsell is that it removes a lot of friction from the download decision. People are very hesitant to download paid apps because they don’t know exactly what they are getting. But with a freemium app people can download it, test it for free and just delete it if they don’t like it.
The downside of freemium apps from a developer perspective is that only a small percentage of users become paying customers. A lot of focus is required to find a balance where you are converting a high number of users to paying customers without driving people away.
5. Amazon Underground
Amazon Underground is a relatively new way for developers to make money in the Amazon App Store. It doesn’t require advertising or in-app purchases. In fact, neither of these are allowed in apps listed on Amazon Underground.
So how does it work?
Amazon Underground is a separate app store, with it’s own mobile app that people must use to access it.
If your app does contain in-app purchases, you agree to waive the fees for them by listing on Underground. In other words, users can ‘purchase’ an unlimited number of your IAP’s without ever paying a cent.
Developers are paid directly by Amazon. Amazon pays developers $0.02 per minute of use, per user.
This could be a particularly attractive option for developers with apps that have a very high average session length, but struggle to monetize with IAP’s.
6. Selling Merchandise
One of the first big apps to use branded merchandise as a monetization method was Rovio’s Angry Birds. You can buy all sorts of Angry Birds merchandise including toys, clothing and more.
The basic principle here is taking a your brand or product and creating physical goods to sell along side it.
These physical goods can be sold from within the app, and they can also be sold through email marketing if email addresses of users are being collected.
For a long time, it was difficult to create branded physical goods to sell along side a mobile app. Then there are issues with handling payments & fulfilment as well.
The good news is that this is getting easier, with new services being offered that really simplify the whole process.
Amazon is a great example. They have a program called ‘Merch by Amazon’ that allows developers to easily sell custom designed t-shirts from within their apps.
Here’s how simple it is to use Merch by Amazon:
You just create & upload the artwork you want on your t-shirts, promote the shirts using the tools provided by Amazon, collect your share of the revenue.
With Merch, Amazon handles the payment processing & fulfilment. This makes the whole process super easy for mobile app developers.
7. Affiliate income
Affiliate marketing, put simply, is the practice of promoting & selling someone else’s products or services in exchange for a percentage of the revenue.
It’s something that has existed on the internet for a very long time. Amazon is probably the best example of just how big affiliate marketing is. Their whole business is based on affiliate marketing. People create & list products on Amazon. Amazon handles sales & fulfilment, and in return keeps a cut of the revenue. Simple.
But affiliate marketing extends way beyond physical products. Information products, software (including apps), and services all benefit from affiliate marketing.
So as a mobile app developer, how can you make money from affiliate marketing?
There are several ways to do it, so let’s take a look at each one individually.
- Promoting other apps
You may have seen advertisements inside of some apps promoting other apps. This is most commonly done using an ad network. The ad network decides which ads to promote inside the publishers app, and the publisher gets paid each time someone clicks the ad or installs the advertised app.
Well you can actually do something very similar with affiliate marketing.
The benefit for you as a publisher is you get to decide which apps you promote, and the payouts per install are often much higher.
The downside is there is more manual work required to manage it.
Here is how you would do it:
You would then find a mobile app affiliate offer that suits your app. The idea is to pick something that your app users would be likely to download. Take note of the payment conditions (per click, install, completed IAP) and the amount you receive per action.
If the advertiser has provided creatives, you can then just go ahead and use those. If not, you will need to make your own ad creatives.
Once you’ve done that it’s just a case of creating a pop-up in your app that shows the ad creative and takes the user to your affiliate link when they tap on it.
Basically you’re replacing ad placements with affiliate promotions for other apps.
- Promoting products through pop-ups or banners
The principle here is the same as what I just described promoting apps, but you’re promoting products instead.
You would follow the same steps I mentioned above, but instead of looking for other apps to promote, you would find products that your users would be interested in and promote those.
- Promoting products through an ‘in-app store’
These apps showcase products from a range of different stores. They add value by acting like a virtual shopping mall. Users of the app can browse products from lots of different locations all in the one place.
When a user decides to purchase a product, the owner of the app gets commission on the sale. But on the back-end the order is fulfilled by the retailer that actually owns the product.
The key for these app publishers is the added value they provide. There has to be a reason for people to use their app instead of just using the retailers app.
In the examples above, they are like a digital shopping mall. But there are others that add value differently. For example, some apps let you take a photo of yourself and see how you look in different clothes. You can then buy the clothes you like from within that app, earning commission for the app owner.
Check out this podcast episode if you would like to learn more about the topic of how mobile app publishers make money with ecommerce apps.
I left this one until near the end because it’s one of the most common ways for mobile app developers to make money with free apps.
The idea is simple. You display advertisements inside your apps and you earn money from the ad networks for doing so.
There are several ways to earn money from ads. You are either paid per impression (every time a user sees an ad), per click (every time someone clicks on an ad), or per install (every time a user clicks and ad and also installs the advertised app).
You should also consider the different types of in-app ads available and use which ever is best suited to your app. Here are the most common ad types:
- Interstitial ads – These are the full screen pop-up ads that are quite common in mobile apps. They are programmed to appear at specific times and take up the entire screen. The user basically has 2 choices. They can click the close button in the corner and return to using your app, or they can click the ad and be taken to the app store to download the advertised app.
- Banner ads – Banner ads are the most common ad type on the web, and they quickly found their way into mobile apps. A banner ad sits either at the top or bottom of the screen inside an app, and usually stays there at all times. These are less obtrusive than interstitials but are often ignored by users.
- Video ads – Video ads are a relative newcomer to the mobile app world. Video ads can either be displayed automatically at certain points in your app, or on-demand when a user chooses to view them.
Generally the on-demand type are known as ‘rewarded videos’. This is because the user can choose to watch a video in exchange for an in-game reward. This way you get paid for the video view & the user receives something in your app as a reward. It’s a win-win.
- Native ads – Native ads appear within the content of the app and are designed to fit in seamlessly with the design of the app. The idea is that they are less intrusive than other ad formats and therefore less irritating for users. The term ‘native’ comes from the fact that the intention is to make the ad look like a natural part of the app.
There are lots of things to consider when using ads as a monetization method. In face, I’ve written a separate post about maximizing mobile ad revenue.
9. In-App Purchases (IAP’s)
The final monetization method that I am going to cover is in-app purchases. I’ve mentioned IAP’s a few times in this post already, but in case you don’t know what there are here is a quick explanation.
In-app purchases are items available to buy inside your mobile app. Payments are handled by the app store that your app is in, and the app store takes a percentage of the revenue from each IAP.
IAP’s can be used to give your users the ability to unlock features in your app, unlock in-app items, buy digital goods, buy in-game currency, remove ads, and anything else you can come up with.
A lot of the top grossing app rely heavily on IAP’s as a source of revenue, so this is definitely a powerful way that free apps use to make money.
If you’re looking for new ways to make money from your free apps, there are 9 ways for you to think about. I’m sure there is at least 1 or 2 ways I’ve mentioned in here that you hadn’t heard of or tried out yet.
Each of these methods has its pros and cons, and some are more suited to particular apps than others. It’s about finding the right method for your app.
How do you find out which one works best for your app?
Get out there and check out what your competitors or other apps in your category are doing. If the top apps in your category are all using the same method, they are probably on to something.
The other way is to just try a few out and see how they perform. Worst case scenario is you get to collect a bunch of useful data about your user’s behaviour.
Which of these ways to make money from free apps interests you the most? Are you planning on trying any of them in your own apps? Go ahead and share your thoughts in the comments!