How do Free Mobile Applications Generate Revenue?

app make money

There’s no denying the fact that free apps are dominating the mobile market. Whether it’s Android or iOS, free apps are completely outnumbering paid apps both in terms of revenue as well as a number of downloads. To believe statistics, in the first quarter of 2018, 94.4% of mobile apps were placed under the list of free apps. So, if paid apps share only 6% of the worldwide mobile market, how does the rest of the free apps make money?

Every business owner, who invests in mobile app development for the very first time usually struggles to find an answer to this question. To understand this a little better, let’s first take a look at some of the benefits of having a free mobile application for a business.

Benefits of a Free Mobile App for a Business

Think of it like this, any user is likely to choose a free app over a paid one on any given day. No one likes to spend money on buying an app unless it’s solving a major purpose. Why would a user pay for your app when it’s providing the same functionalities as a free mobile app from your competitors.

One of the main reasons why you should invest in developing free mobile apps is that it encourages a user to hit the download button. Since you aren’t asking the user to pay an amount right away, you’re moving one step closer towards building a healthy relationship with him.   

Furthermore, paid apps are only beneficial when you already have a strong customer base. If you’re just trying to set your name in the market among your competitors, a paid app may not be the best solution for you. A user who has no idea about your business whatsoever is less likely to pay for the app.

App Market Overview

There’s no denying the fact that mobile apps are dominating the online market. As of 2016, Apple’s App Store had 2 million apps while Google Play Store was in the lead with 2.4 million Android apps. As per Statista, the projected revenue generated by mobile apps is expected to be twice the revenue generated in 2016.

app_market_overview

From the above graph, it is clear that mobile app revenue is going to increase exponentially in upcoming years. It means that you have tons of opportunities to earn money through mobile apps, given that you utilize the most appropriate strategies.

Furthermore, it is also crucial to understand whether your business needs a free mobile app or a paid one. Every business has a different set of goals and audience, and therefore a free app may not be the most optimal solution to earn revenue.   

So, prior to building a mobile app, make sure to figure out your business goals to find a suitable mobile app development strategy for your business. We recommend taking professional assistance from a well-reputed mobile app development company.  

Which App Suits your Business the Best?

Like we mentioned earlier, if you are a startup or a small-scale business, a free app is your optimal solution to engage new customers and expand your business boundaries. Apart from branding your business, a free app also helps you boost up the overall business revenue.

While as surprising as it may sound, but the revenue shared by free mobile apps is way more than paid apps. Though the initial years of mobile app development were beneficial for paid apps, the revenue share has undergone a severe downfall in the last decade.

In fact, in 2016, the total number of downloads for paid apps decreased gradually as business owners started to provide the same functionality through the free apps as well. As a result, customers stopped paying for mobile apps and shifted towards using free apps.

Take a look at the following graph from Statista, which shows the fall in the percentage of revenue generated by paid mobile apps.

As you can see, the percentage has fallen down severely in the past couple of years. On the other hand, the revenue shared by free apps has hiked up exponentially. So, investing in free mobile app development does not only helps you engage more customers but also boosts up the business revenue.

How Do Free Apps Make Money?

Now, that you understand the benefits of free mobile apps, let’s take a look at how free apps actually make money?  

  • Advertisement.
  • Email Marketing.
  • Sponsorship.
  • Subscriptions.
  • In-app purchases.
  • Freemium.
  • Amazon Underground.
  • Physical purchases and merchandise.
  • Collecting and selling data.
  • Affiliate income and referral marketing (from CPA to CPI).

Let’s discuss each of these revenue models individually to find the most suitable as per your business requirements and goals.

Advertising

One of the easiest ways to earn money through a mobile app is via ads. All you have to do is sign up on an ad network and display ads within the app. Of all the apps available on the app store, the majority uses advertisement as their only app-revenue model.

Advertisement

In fact, the advertisement is the first choice of mobile app developers despite the fact that almost 2/3rd of people never click on an ad while using a mobile app. However, that still leaves you with 1/3rd of the audience who are likely to click the ad and help you generate revenue through your mobile app.

However, to earn money through advertising, your app should have a large user engagement. Since ads eventually make you profit through impressions and clicks, it is crucial that these ads are displayed in front of a vast audience and that’s only possible when you have a strong customer base.

Here are some of the commonly used ad formats in which you can display ads as per the type of your mobile app.

Interstitial Ads

These are the full-screen mobile apps which are displayed at specific time frames. Since these type of ads affect user engagement, they are usually displayed at consistent transition breaks. These types of ads are optimal for games and news apps as you can display ads before showing certain content.

Banner Ads

Banner ads are smaller in size and usually appear at the top and bottom of the screen. Since these ads don’t cover the user’s entire mobile screen, a user can freely interact with the app without having to close the ad. However, the CTR for these apps is comparatively low as they are less likely to catch a user’s attention due to their smaller size.

Native Ads

Native ads are designed in such a way that they do not interfere with the user-engagement at all. They automatically fit the design of the app and are displayed within the content of the app. These ads are most suitable for content-based mobile applications like news and informative apps. In such apps, you can easily display the ad within the content itself.

In-app Video Ads

These ads are more appealing than other ad formats. You can display video ads while providing app-rewards to the user. For instance, in a mobile game, video ads can be displayed in exchange for in-game currencies or specific gaming items like weapons, shields, skills, etc.

Which Ad Format Suits Your Business Model the Best?

The advisable practice to skyrocket your business revenue through advertising is to combine all the above-mentioned ad formats altogether. You can display different ads at a different point in times to boost up your mobile app revenue.

Email Marketing

Though email marketing does not directly generate revenue, it can help you utilize other revenue models in the most efficient way. For instance, a user who hasn’t been using your app for a while can be notified regarding the new features and services. Once the user returns to the app, you can then earn revenue through other app revenue models.

There are many ways through which you can collect customers email addresses. For instance, asking the user to sign up to access the features of the app. Some of the other methods include:

  • You can simply ask the customers to share their email addresses through a pop-up. Provide some in-game content to the user in exchange for the email address to make your proposal more convincing.
  • One of the easiest ways to collect customer data is to buy it from third-party sellers. Many companies collect customers’ email addresses through different seminars and sell them to app publishers. Reach out to such organizations and directly buy emails of your target audience. Once you have the email list, consistently notify the customers with anything new happening in your business.

However, make sure to add unsubscribe button at the end of every email so that users who don’t want to receive emails can unsubscribe easily.       

Sponsorship  

Sponsorship can be a great app revenue model if you find the right funders within your niche. To make money through sponsorship, you need to find investors whose business goals and target audience is similar to your business.

Simply look for companies who are willing to sponsor your app and launch it under their name. This way you won’t have to worry about the revenue at all as you’ll be getting a fixed share every month.

Sponsorship is extremely beneficial when you are looking forward to exposing your app in front of a vast audience. Most of these sponsors are well-reputed firms having a large customer base. So, when you launch your mobile app on behalf of these reputed names, your app is likely to attract more customers, and thereby more revenue.

Subscriptions

Though subscription is the least used revenue model, it can easily skyrocket your business revenues. However, every mobile app cannot implement Subscriptions to earn money. In this revenue model, you provide users with content for a limited period of time and then charge a monthly/yearly subscription fee.

subscription

To execute this model in the most efficient way, you need to provide customers with highly engaging content. Take Netflix, for instance. Their content is extremely engaging and therefore users willingly pay the monthly subscription fee.

Furthermore, Subscription is highly appreciated by App store as well. Apple recently raised the revenue share to 85/15 for apps that utilized Subscription as their revenue model. Since these apps easily hook a customer, Apple raised the revenue share by 15%. Similarly, Google also charges 15% of the total revenue.

In-App Purchases

If you own a mobile game, in-app purchases are likely to be your suitable companion to generate revenue. In this scenario, you sell in-game (virtual) items to the players within the app itself. These items can include anything, be it weapons, costumes, skills, etc.

in_app_purchases

Majority of the mobile games utilize this revenue model along with others to make a decent profit. Clash of Clans, for instance, ended up earning $1.5 million/day through selling gaming items to players.

However, to ensure that this revenue model brings back a fortune, you need to integrate safe payment gateway. Since a player is going to share his/her banking details, it is crucial to provide him with advanced level security.

Freemium

Freemium apps are the mobile apps which are available for free on the App Store but have some paid content which can be accessed by paying a certain fee. In such apps, the user can access the free content without any restriction. However, to access the premium content, he’ll have to pay a specific amount.

After downloading the app, if the users find the content worth their money, they can upgrade to the paid version. However, if you want to implement this revenue model, you are likely to launch two different mobile apps; one with basic features and the other with all the premium features.

As a result, the app development cost of Freemium mobile apps is more than a regular app.

Amazon Underground

Amazon Underground is a relatively new app revenue model which hasn’t established a name like others. However, it still has a huge potential for apps to earn a decent revenue. Amazon Underground is Amazon’s personal app store which only has specific apps.

Amazon_Undergorund

To get your app listed on Amazon Underground, it should follow specific criteria given by Amazon.

Once your app gets listed, you get $0.001 per minute per user. It means that for every one minute that one user spends on your app, Amazon pays $0.001 to the app publisher.  If in-app purchases didn’t work for your app but it still has a significant user engagement, publishing your app on Amazon Underground can help you boost your revenue.

Affiliate Income and Referral Marketing

Affiliate marketing has always been one of the best revenue generating models for business owners. All you have to do is join an Affiliate program, like Amazon, and promote their products and services on your app. For every purchase, you earn split-based revenue. Though you cannot solely rely on Affiliate marketing for revenue, it still can be implemented with other revenue models as a secondary source of income.

affiliate-marketing

Amazon store is one of the widely used Affiliate marketing programs. You can simply choose the products from the store that you want to sell or promote and place them in your app to earn revenue for every purchase.

Here are some of the ways which generate revenue through affiliate marketing.

CPM (Cost Per Impression)

Cost per impression is a payment model in which you earn a specific amount for a certain number of impressions, 1000 impressions in most of the cases. It means that for every 1000 views on the shared product, you’ll earn a certain amount.

CPC (Cost Per Click)

CPC is the revenue model in which you earn a certain amount every time a user clicks on the affiliate ad. The user may or may not buy the product at the end, but you’ll receive the dedicated amount if he has clicked the ad.

CPS (Cost Per Sale)

With the cost per sale, the app publisher only gets a share of the revenue once the user has completed a purchase. In this model, the shared revenue is comparatively high than other revenue models.

Collecting and Selling Data

Though it is not an ethical way to make money through mobile apps, you can still go about it to earn a decent profit. Majority of companies look forward to buying customer data including their email, contact number, Address, etc. Such companies usually buy this data from third-party sellers which have a maintained database of this information.

Now, you can be that third-party seller. How? All you have to do is collect user’s personal information through sign-ups and regular surveys and maintain a proper database. Once you have a huge database, you can sell it for a certain amount.

However, collecting and selling data is not an optimal app revenue model in the long run. You don’t get to maintain a healthy relationship with your customers and you are less likely to convince them to use your app in the future. If you want to earn money without jeopardizing your brand name, avoid using this revenue model for your mobile app.

Sell Merchandise

Again this is not one of the widely used revenue models but selling merchandise through your mobile app can help you earn profit instantly. Amazon is one of the platforms which allows app publishers to sell custom T-Shirts within their app through its Merch Self Service Program. However, the entire shipping and payment will be handled by Amazon itself, making app publisher’s job quite easy.

amazon_merchandise

Upload your design on Amazon and promote it in front of a vast audience. Rest of the process including, printing T-Shirts, selling and shipping them will be handled by Amazon itself. For every purchase, you will get your revenue share. Selling Merchandise is not the best revenue model but it can be implemented along with others to boost your app revenue.

Do All Apps Manage to Make Money?

Out of those, four million mobile apps in the world, only a few manage to earn money through these mobile app revenue models. Statistics show that only 30% of the total mobile apps manage to make $100-$500,000 per month. It means that 70% of mobile apps can’t even make $100 per month.

This usually happens when your mobile app fails to engage a customer. So, before focusing on generating revenue, make sure that your app is rich in terms of design as well as functionality. However, if you’re in the top 30% of the list, you don’t have to worry about making money.

At this stage, your only goal should be providing customers with better features so that you manage to maintain a brand name in the market and stay ahead of your competitors.

Tools to Monetize Your Mobile Application

Now, that you know some of the best app revenue models, let’s take a look at some of the tools that help you integrate these revenue models in your app.

Advertising Tools

The first and foremost tool, used by a majority of app publishers, is Google’s AdMob. It lets you have an insight into the preferences of your target audience and then choose the most appropriate ads to be displayed.

While as analytically perfect as AdMob is, it doesn’t let you customize the ads you want to display. If you want to make your ads extremely appealing, InMobi is your perfect companion. Furthermore, InMobi also lets the users share their feedback regarding the ad. It means that you can customize your ad even better so that they become more engaging.

Along with these two, other popular Ad platforms include Tapjoy, Appsfire, Apple’s Ad Tool, etc.

In-App Video Advertising Tools

In case you are utilizing in-app videos as your revenue model, the above-mentioned tools aren’t meant for you. In this case, you need dedicated tools like Inneractive which lets you display video ads within your app. These ads are displayed as per the user preferences.

Other in-app video advertising tools include Adcolony and Vungle, two of the commonly used tools by publishers across the globe.

Conclusion

Having a mobile app for your business is one of the best ways to skyrocket your business revenue. However, it is extremely crucial that you implement the right revenue model that suits your business and target audience the best.

While as surprising as it may sound, but a majority of the mobile apps available on the app store don’t even make their first thousand dollars, mainly due to lack of engagement and the wrong revenue model. However, if implemented precisely, these revenue models can easily make you a fortune as well.

To understand the best revenue model for your mobile app, we recommend consulting with professional app developers who have the expertise to integrate the most appropriate revenue model as per your business goals.

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