How do free apps make money?

So you have a brilliant app idea. But as the excitement bubbles, a daunting question follows suit—should you offer your app for free, include in-app purchases, or put a price tag on the download?

You saw that it is going to cost a few thousand to build it, how will you get that back?

This decision might seem simple, but in the evolving digital ecosystem, it’s a crossroads that could determine the success or stagnation of your app. Whether you’re an aspiring developer, a serial entrepreneur, or just someone with a killer idea, understanding the dynamics of free vs. paid apps is crucial.

Let’s delve into the intricacies of both models to help you make an informed choice for your brainchild.

Paid Apps:

The notion of charging users to download your app seems straightforward, right? You’ve invested time, energy, and resources into crafting your app, so it only seems fair to ask users to pay for it. But let’s hit the brakes for a moment and consider the wider landscape.

According to data from Google, a staggering 1 out of 2 users have never paid for an app. That’s half the potential audience you could be missing out on just by setting a price for entry. This is a clear signal of the reluctance many have towards shelling out money upfront, especially in a market saturated with countless free alternatives.Open IebP1-marketing-strategies-app-and-mobile-paid-vs-free-ap-user-statistics-.jpg?width=1440&height=800&name=IebP1-marketing-strategies-app-and-mobile-paid-vs-free-ap-user-statistics-.jpg

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In addition the Google Play store, and Apple store charge a fee to be come a developer and then an ongoing 30% of any commision.

Free Apps:

Free apps can still be lucrative if you adopt the right monetization strategy. Here are some of the most popular ways to monetize a free app:

In-app Ads
1. From small banners at the top or bottom of the screen, to annoying full screen pop ups ads have been used to turn free apps into money machines, however the cost per click can require a sizeable user base, or highly targeted ads to become profitable.
In-app Purchases (IAP):
1. In app purchases are a great option but be aware that Google and Apple will charge the 30% fee for any in app purchases. These can be one off purchases, or recurring subscriptions. Most can be broken down into:
  1. Freemium: Offer basic features for free and then charge users for premium features or content.
  2. Virtual Goods and Currency: Particularly popular in games where users can buy virtual items or currency.
  3. Unlockable Content: Content (like additional levels or features) that can be unlocked for a fee.
Affiliate Marketing and Referrals:
1. Affiliate and referals can work especially for niche apps without their own product. e.g. your workout planner app can sell supplements for 10% commision (Affiliate) or sign users up to a local gym or trainer (referrals).
Selling Merchandise: E-commerce integration allows the sale of physical goods through the app. This is useful for brands with tangible products or for collaborations.
Sponsorship and Partnerships: If your app has a significant user base or a niche audience, companies might pay to have their brand or product featured in your app.
Licensing: If your app technology or concept is innovative, other companies might be interested in licensing it, this is also called whitelabling. You build an ap for a niche and then sell it to other companies that cater to that niche.
1. E.g. a gym planner app, that you then sell to gym chains who put their branding on it and sell, or give with any membership.
Email Marketing: With user permission, gather email addresses to send newsletters, offers, or other marketing content to then sell other products, this gets around the Apple and Google 30% tax on in app purchases.
Donations: If your app has a dedicated user base, they might be willing to support it through voluntary donations. Platforms like Patreon or simple in-app donation features can facilitate this.
Data Monetization: Some apps monetize by anonymizing and selling user data to market research companies. However, this approach requires careful handling to ensure user privacy and adherence to regulations like GDPR. It can also annoy users so we don’t recommend this approach.

Type	Pro	Con
In app ads	Easy to implement	Can increase user churnInconsistent revenueNeeds large user base for solid returns
In app purchases	Can be combined with ads in free version, none in premiumLets users learn to like the app prior to purchasing	30% commission to app storeCompeting with fully free alternitives
Affiliate and Referrals	The affiliate does the sales and fullfilmentGreat for building partnerships	Can be seen as a pushy sales tacticAffilate programs can change rapidly
Merchandise	You keep all of the profits	Requi^{res managing fullfilment, returns, etc}
^{Sponsors and partners}	^{Great for niche auddiences that want niche products}^{Can build good partnerships}	^{Can be seen as a pushy sales tactic}^{Often hard to find profitable}
^Licensing	^{Can generate consistent recurring revenue}	^{You need to sell it to people to whitelabel}
^{Email marketing}	^{No comissions paid to app store}	^{Can be seen as a pushy sales tactic}
^Donations	^{Not likely to get recurring revenue}^{Not super profitable}	^{Can be seen as a pushy sales tactic}
^{Data monetization}	^{Profitable for huge user bases}	^{Has the potential to really annoy users}^{Potential law changes}^{Needs great security on user data}

Diversification is key in this industry, if you have a free app with ads, and a paid premium version, affiliate marketing for some low value products, and whitelabel your app to an adjacent industry to avoid any direct competition you will have a consistent recurring revenue stream.

Got an app idea you want built, check out our post on costs to build an app.

Or book a free meeting to discuss monetisation strategies.