How Do Free Apps Make Money? [10 Best Tactics]

Are you curious about how free mobile applications can turn a profit in the market? Here are the ten tactics they use to make their money.
Austin Betzer
Posted on
January 7, 2022
Minute Read

In the current market of the mobile application industry, you may have noticed that a vast majority of apps are free. In fact, according to Statista, as much as 96.9% of all Android applications on Google Play and 93.6% of all iOS Apple Store applications were freely available for interested users as of August 2021. This is now a long-standing trend that’s primarily led people to expect free access to applications, and they will often shy away from non-free apps when looking through the ones available to them. 

While this is great for users, future app developers may find themselves confused by these figures. If you’re thinking about creating and launching an app, you may be wondering how you’re supposed to make any money from it if it needs to be free. That’s a reasonable question and one with a wide range of answers, as there are many ways for free applications to rake in a profit. Please continue to learn about the ten best tactics mobile apps can use to make money in 2021 and figure out which may suit your future application.

Related: Custom Mobile App Development: Everything to Know [2021]

1. Freemium Upsells

A significant part of why so many applications are free for download is that they work based on a freemium sales strategy, which involves offering a primary product or service for free while charging money for unlocking additional or premium features. The intention behind this business model for applications is to attract interested users into the initial download and then convince them to pay for other features that expand the free software’s functionality. Not only does this tactic allow app developers to gain money from their most invested users, but it also makes it easy to gain new users in general.

Freemium upselling is a low-maintenance app monetization tactic that is compatible with other monetary approaches. However, app developers should understand that the method also has some drawbacks, such as revenue fluctuations and extra maintenance costs. Additionally, users can easily abandon the app without concern since they got it for free.

Holding a smartphone displaying an app ad for Pexels.

2. Advertising

When it comes to making money through free apps, arguably the easiest and most common way to do so is through advertising. This is a straightforward tactic involving simple ad implementation into the app via a third-party ad network. This method consists of the app developer agreeing to display advertisements inside their mobile app or to opt for affiliate marketing agreements that lead to payments from third-party ad networks. App owners are typically paid when users click the ad or install an advertised application by following the ad link. App owners can also be paid every time an ad is displayed to a user.

There are several primary types of display ads that app providers can utilize for monetization, including: 

  • Internalized ads
  • In-app video ads
  • Banner ads
  • Native ads
  • Rewarded videos

This method of app revenue generation is highly effective because it offers a strong probability of reaching their target audience while also providing the benefit of measuring user interaction. That said, it tends to only be truly effective for apps with a large user base. Additionally, it does have the drawback of being ignored by users, especially if the ads are irrelevant or unappealing. It may also annoy users by interrupting their ability to navigate the app.

3. In-App Purchases

In-app purchases are another excellent way for free apps to earn revenue by offering special content or more detailed app features. Some common examples include powerups, extra lives, or access to restricted levels in mobile games, or unlocking better, more complex features in other types of apps. One of the most popular free mobile gaming apps using this model of revenue creation is Angry Birds, which offers an enhanced user experience through access to in-app purchases. According to an article published by Forbes, apps with in-app purchases generate the highest revenue compared to other monetization methods, especially gaming apps that offer purchases for more than one type of in-game currency, like gems, coins, crystals, and gold.

The in-app purchase model offers a good chance for developers to obtain high profits from a low monetization method. However, they must be effectively implemented or risk leaving users frustrated and more likely to abandon the app. Additionally, developers must ensure the paid content they offer enhances their app enough to meet user expectations, which rises significantly when purchasing additional content. 

Related: How to Get an App Made: 7 Strategies

4. Sponsorship

Sponsorships can be an effective and powerful monetization tool with a correctly targeted audience but are still less commonly utilized than other methods. Sponsorships involve a partnership between app publishers and outside companies whose products or services are targeted at the same audience. For example, a weather app may have a sponsorship with Home Depot and feature an animated background app advertising Home Depot products targeting homeowners who want to weatherproof their houses. 

Not only can this method produce a measurable profit if done correctly, but it also offers minimal disruption to the user experience. However, apps will need a strong brand with a large enough user base to attract potential sponsors, and developers will likely need to invest in sophisticated data tracking and measurement tools to monitor their success. Additionally, developers should keep in mind that working with the wrong people or businesses could negatively impact the app’s ROI.

A smartphone displaying the YouTube logo.

5. Subscriptions

Subscription strategies are often considered one of the best and most useful methods for app monetization. It typically involves publishers offering free access to exclusive content on their app for a limited time, then charging a subscription fee to interested users that permits access to the app’s full content without restrictions in the future. This tactic is prevalent and commonly used by most free app publishers, especially for apps utilizing video and audio streaming, cloud services, and access to online news stories. For example, YouTube is a free service that offers users the option to subscribe to YouTube Premium, which removes ads, allows background play, allows music and video downloads, and more.

While this method can be highly profitable for app creators, it also comes with a few distinct drawbacks. For example, developers will need to continually innovate their app’s features and content for subscription fees to be worth it for users. Many apps probably won’t be able to offer enough value to justify requesting recurring monthly payments. Additionally, free-trial periods are a must, but the transition from one-time fees to monthly charges can cause backlash from users.

Do you need the assistance of a strategic, hard-working development team to help turn your app idea into an authentic, meaningful product in record time? Please consider reaching out to the industry experts at Strides today to learn about everything their developers can do for you.

6. Collecting & Selling Data

You’re likely aware that apps collect a large amount of user data, especially regarding usage and behavior patterns. This behavioral data is a highly sought-after resource that’s coveted by researchers and advertisers in many industries, meaning that app developers and publishers can sell the data to make a considerable amount of profit. The data sold typically contains information on personal preferences, social media accounts, and even user email addresses. The most optimal way to do this typically involves tracking and gathering user data to get a detailed understanding of an app’s audience and then selling that data to companies also looking to attract attention from that target audience. If developers can collect enough data from their app, they can make a significant profit from it.

This particular monetization method is an excellent way to earn money on a free app while also allowing the potential for a profitable relationship with brands and businesses targeting similar audiences. That said, it does have some distinct drawbacks concerning the disclosure of consumer data. For example, people don’t often like the idea of their data being sold, and it can be tough to maintain accountability with your users when utilizing this method, especially since it can be pretty challenging to ensure data security.

7. Physical Purchases & Selling Merchandise 

Yet another innovative approach to profiting from free applications is the sale of app merchandise and other physical products to users. Many e-commerce businesses explicitly build free apps to sell physical goods directly through the app or via email marketing campaigns. Amazon, for example, offers the Merch by Amazon service, which allows publishers to create and sell their artwork on various products. Additionally, Rovio Entertainment earns a massive amount of income through selling merchandise for their Angry Birds franchise. They sell approximately 1 million branded products per month, ranging from t-shirts to stickers and backpacks.

The sale of physical products and merchandise is a highly flexible and potentially profitable business model that can allow marketers to make a considerable sum of money with a meager amount of risk. That said, apps selling physical products need to be more transparent on their listing page, and it can be very challenging to accurately predict user behavior and returns. Additionally, apps will need to worry about e-commerce integration issues and creating a disjointed shopping experience for users.

8. Referral Marketing

Referral marketing is a process that involves promoting third-party products or services in ways that can optimize revenue opportunities for apps. App publishers can promote these products and services based on the number of installs or clicks using pop-up ads that appear in the app. There are several referral marketing methods apps can utilize for this tactic, including:

This monetization method is one of the most trusted and influenced models for apps and can help create loyal, long-term customers. However, it is a complicated, time-consuming process that not every developer will want to deal with. Additionally, there isn’t usually an option for apps to utilize multiple referral programs at a single time. 

Related: How to Submit Your App to The App Store [2021]

9. Crowdfunding 

Crowdfunding is a commonly used method for app developers, startups, and others to share their ideas and receive funding donations from interested parties on platforms like Patreon or Kickstarter. Non-gaming mobile apps are especially popular on these platforms and have raised tens of thousands of dollars in funds compared to mobile game applications featuring similar funding goals. Crowdfunding provides many people with access to cheap money and can even help them develop foundations for promising investor relations and future partnerships. However, the process does require significantly increased levels of transparency, and the process takes a considerable amount of time. Additionally, there is never a guarantee that people will voluntarily fund your ideas.

woman holding her credit card and smartphone, getting ready to make a purchase.

10. Transaction Fees

One of the best monetization methods for free apps on the app store involves transaction fees, especially if the app provides a specified platform for regularly occurring digital transactions. For example, if an app allows third parties to sell their products through the application, they can charge transaction fees for each purchase that occurs. This is a fantastic method for unseen income generation through the promotion of cashless transactions without the potential to impact user credibility negatively. That said, it will only produce a fixed income, and the method isn’t compatible with other monetization methods.

The Bottom Line on Free App Monetization

Even if an app is free for download, that doesn’t mean developers and publishers can’t make a sizable profit from their creation as long as they leverage the correct marketing techniques in effective ways. You just have to be intelligent about how you approach the process and don’t be afraid to give multiple methods a try to see what works best. If you’d like to learn more about the mobile app development process, please consider reaching out to the industry experts at Strides today, and also consider reading through their range of top-quality articles for even more information on the world of app development. 

Are you on the lookout for a trusted and professional app development team that can turn your app ideas into full-blown applications in record time? Check out the services offered by the experts at Strides today to find out more about how they can make your app dreams into a profitable reality.

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