How Do Free Apps Make Money?

A crucial decision needs to be made before you upload your app to either the App Store or Play Store once the entire app development process has been completed. Would you consider making your app free?


Would it be possible for users to download and use your app for a fee?

App developers and entrepreneurs often charge for their apps because they have no other way to generate revenue from them. App owners tend to think that charging a fee per download is the only way to generate a return after spending so much money on development. There are several misconceptions about app deployment that abound among app owners.
You can make money from free apps!

Yes, that’s right! In this case, you just need to ensure you employ a smart strategy. You might be thinking about whether to offer your app for free, in which case I suggest you go for the free option.

What Is Free App Business Model?

For as long as we can remember, businesses have offered free commodity in exchange for a profit. Examples include giving a free shoe-shiner when purchasing shoe polish or giving a free smartwatch when purchasing a high-end smartphone. They also make free business models much more workable for virtual products like mobile apps than for physical ones. Material products with many users can otherwise be costly to produce. The notion of creating a digital product and providing it for free is much more feasible today. Many entrepreneurs understand this and have incorporated it into their app business models. Apps are provided for free and then up sold and monetized. It is a win-win situation.

Why Is a Free App Business Model Beneficial?

It has many benefits, but one is its ability to reduce friction during user acquisition, an expensive and time-consuming process. Installation of the app and asking users to spend money might not be ideal, since it is difficult enough to convince users to download it. Therefore, offering the app for free removes some obstacles to its use.

In contrast to paid apps, free apps have a wider user base and may be more likely to achieve mass adoption. This metric is especially important to investors because a large user base can help monetize your business and increase your ROI. Furthermore, free apps give you a large user base, which can be crucial in getting funds.

Free apps are business models where the companies offer free app installation, then up sell or monetize their premium features later.

How Do Free Apps Make Money — Popular App Monetization Strategies

1. In-App Advertisements

The advertising industry is everywhere. Every channel of media is filled with commercials. Americans are exposed to 5000-10,000 advertisements each day on average. It is predicted that mobile advertising spending will top $224 billion worldwide. No wonder, why apps can make money from advertisements.

App owners form an ad-publishing partnership with advertisers to monetize their apps. Advertisers pay you to display their ads within your app. It’s as simple as that. But how do you make that happen?

It’s done through a mobile advertising network, which is like a marketplace where you can sell advertising space to companies. The app allows you to connect with advertisers who can place their ads within your app. AdColony, Unity Ads, ironSource, Apple Search Ads, Admob, and Airpush are some of the leading ad networks in the market.

Calculating Ads Payout

Depending on the type of advertising campaign, the payout is calculated differently. These include cost per click (CPC), cost per view (CPV), and cost per install (CPI).

Payouts are calculated based on CPC, which stands for the clicks on displayed ads. Payouts are based on how many clicks on the ads are made per mile (a mile in Latin).

CPV is calculated based on the amount of time the video ad is viewed by the buyer or the number of interactions the buyer has with the ad. Regardless of whether the video is shorter or longer, the full duration of the ad or the interaction is taken into account.

Using a CPI, you receive money when users take a specific action – like installing an app described in the advertisement.

The payout for different ad formats is also calculated separately from these models. You must consider the following six formats.

  • Banner Ads:Typically, these ads are displayed at the top or bottom of the screen with text and graphic elements without interfering with the app’s functionality. CPM payout is typically low for these ads. According to a report, the highest eCPM was $0.60 on banner ads.
  • Interstitial Ads:They may appear at once after completing a task or between game levels or at specific times or events. In addition, because these full-screen ads are positioned between the apps, they may interrupt the user’s experience. But as with other full-screen ads, they also offer high payouts, with an eCPM of over $11.
  • Native Ads:Ads that are native are designed to blend in with an app’s interface. Due to their less interruption nature that also improves their view and interaction rates, these ads are getting growing popular. The Instagram in-feed ad is a fitting example of native advertising.
  • Video Ads:These short videos are usually placed between different events and natural pauses and are usually 10-30 seconds long. The same goes for the payouts of these ads as for those of interstitial.
  • Rewarded Video Ads:Incentives for watching a video ad are subsets of video ads that motivate the user to complete it. According to Unity Ads, it has the highest eCPM of more than $17.50, making it one of the hottest revenue generators. This also improves the engagement rate and retention rate of the apps.
  • Playable ads:An ad of this type allows users to interact with it. This is a relatively new type of advertisement.

Despite being the main revenue generator for free apps, advertisements also present several challenges. The most difficult part is keeping a balance between content and advertising. Ensure that the ads do not interfere with the user experience and that you earn sufficient revenue; simultaneously, ensure that they are not too intrusive.

2. Freemium

Freemium users are encouraged to upgrade to premium features through upselling. Consequently, the free version of the app only offers basic functionality, while the premium version offers more features, premium functionality, and an enhanced experience.

Providing users with immense value with a free app makes the freemium model work. Creating value and building trust should begin from the very first session with your app. Users are ultimately convinced to spend money on premium features once they realize the value of the service, utility, and fulfilling experience. An unhappy customer is not likely to spend money on a premium product. Regardless of whether your app is free or paid, you should bring value to your users.

3. In-App Purchases (IAP)

Users can buy extra features, functionalities, and virtual items in the app by engaging in in-app purchases (IAP). This typically gives users access to exclusive content and items like virtual currencies or features. A subset of this strategy can be found in free games like Candy Crush and PUBG Mobile, as well as in apps including VSCO.

IAPs come in three types: consumable, non-consumable, and subscriptions.

There are two types of IAPs: consumable and non-consumable. Consumable IAPs include virtual currencies, power-ups, extended gameplay, and additional features. Many mobile games offer these purchases.
IAPs that are non-consumable are products that customers buy in the app – for example, the option to remove ads or upgrade the photo filter.
Subscribers are given access to services or additional features for a recurring charge throughout the subscription period. Apps that stream and read the news are using these, whether they are renewable or not.

A significant portion of free apps’ revenue comes from in-app purchases, which are on the rise year after year. Millennials and Gen Z are considered two of the most tech-savvy generations, which may be partly to blame for their rapidly growing purchasing power.

There are challenges with in-app purchases, too. For transactions to run smoothly, IAP implementation requires extra effort on the backend. You also need to ensure that your users are getting the best experience when they pay for something, and this goes for both the in-app experience and off-app things like customer support. You’ll also have to give Google Play and the App Store a huge share of the proceeds – 30% through commissions.

4. Subscription

Service-based apps usually use subscriptions to monetize their revenue. The process is simple. Free apps provide limited features, and users must subscribe to a paid app to get full access. A freemium model is another example of this.

Streaming apps like Spotify and YouTube use subscriptions to offer new content regularly, as do news and media apps like The New York Times, productivity applications like Headspace, and brain games like The Sims.

Businesses and users benefit equally from the subscription model. Subscription-based apps are generally more profitable and generate more stable revenue than free apps. Compared to ad revenue and even paid apps, subscription-based apps earn 2-3 times as much revenue. In addition, subscription revenue is nearly 50% higher than in-app purchases.

You can spend a budget on advertising if you have a revenue stream that is reliable and stable. With the subscription, you can also set the price and features based on the needs of diverse groups of users. The process makes it easier for users to make purchases.

5. App Sponsorships and Partnerships

Sponsorships for in-app content have proven to be a highly effective mobile marketing strategy for brands that want a strong presence and results. Free apps can also benefit from sponsorships.

The next level of advertising is in-app sponsorship and partnerships. Connecting the right audience with the right purchase intent enables advertisers to have a more integrated presence. Advertisers can also show a connection between their brand and the positive app experience, thereby increasing their visibility and sales.

You need, however, an app with a large or a niche user base to appeal to sponsors. This will expose brands to the right audience and help you achieve your goals. The Weather Channel app, which features sponsorship from Home Depot, offers a fitting example of this. Home Depot offers a Weather Channel App that can weatherproof your house.

Partners with other products and apps are not only able to introduce revenue but also enhance the user experience and app functionality.

6. Crowdfunding

Today, crowdfunding is very mainstream. There is a crowd that will support your great idea. Various crowdfunding platforms, such as Kickstarter, Patreon, Crowd Supply, Fundable, Indiegogo, and Chuffed, have helped make it possible. Thank you so much to each of you who made small contributions that made a significant difference.

Unlike other methods of getting money for apps, crowd funders work differently. By following this strategy, you can get the funds you need to develop and market your app.

While non-tangible products like apps have performed well in crowdfunding campaigns, they have not fared so well in the past. Things are different now. Several mobile games have reached $100,000, and even apps that are not games such as education, social, dating, productivity, etc. We have seen better response rates. Kickstarter users have raised over $580,000 for Fluent Forever, an application for learning languages.

If you want to crowdfund your app, you need to find and connect with a large group of people. Hence you should develop a strong brand and promote your app and your vision using a strong promotional campaign. Funds raised through crowdfunding will compensate for initial capital shortages, but that is only a start. If you want to monetize your app, you should find other options.

7. Sell API

Apps using this model make money differently. The app API is being sold as a product instead of monetizing the app.

The most popular examples of apps with APIs are Google Maps’ navigation, Sky scanner’s airline and hotel search, MusiXmatch’s lyrics and album database, and Vimeo’s video site.

Businesses can make money by using APIs from apps like WhatsApp, which is free. Facebook used to sell the app for $1 in the past, but it stopped doing that in 2016. As a customer communication solution, it now sells WhatsApp Business API to large and midsize businesses. A few of its famous clients are Uber,, Singapore Airlines, and Wish. You can sell the API of your app to other products if your app offers something unique.

8. Consumer Products & Merchandise

You can earn money outside the app by making physical purchases and selling merchandise. A new revenue stream can be created by selling merchandise like toys, t-shirts, collectibles, etc.

A notable example of this monetization model is Angry Bird. In 2012, revenue from merchandise and other consumer products accounted for 45% of revenue generated from Rovio’s wildly popular casual game. Every month, it earned $1 million in revenue from the plush toys alone.

Although extremely popular and successful as a brand, that huge amount of revenue was the result of the company’s immense popularity. This means apps looking to earn merchandise need to consider user connections with their brand.

Selling products that compliment or are associated with your app is another way to earn through merchandising. Fitness apps, for example, can sell workout equipment. This method, however, has limitations and is ideal as an additional revenue stream alongside other monetization methods.

Selecting The Right Monetization Model for Apps

When choosing the best monetization model for your app, you must consider many factors like your business goals, the category of your app, the offerings, audience, and even the price.

It may be in your interest to minimize advertisements and upsells premiums, so users get the best experience. In addition, your app will deliver frequent latest content, which makes it an excellent subscription service. The right strategy for you might be rewarded ads if your target audience prefers free rewards through advertising instead of purchasing.

App monetization models are supple, so keep that in mind. There is no need to dominate one another. To generate revenue and to create value, a good balance must be struck between the revenue generation and value creation models.

Creating Mobile App That Makes Money

Those were all the things I had to say about how mobile apps make money. However, you must develop the app before generating revenue. Assume that you already have an app idea. This app solves problems for users and provides value. This is a great start. Unfortunately, it is not sufficient to generate revenue.

It is important to properly execute your idea to attract users and retain them. The app should be functional. A great user experience, flawless code, and right packaging are three things your app must have to succeed.

Well-Thought UX

User experiences must be positive on your app. A well-designed UX starts with usability. An effective UX design puts the user’s needs before any other consideration. Users are thus left with a satisfying experience.

Impeccable Code

It must be flawless – the code must be impeccable, the functionality must be well-executed, the integrations must be seamless, and the stability must be unsurpassed. All operating systems have best practices for building apps. The app must undergo rigorous testing and be continually improved as a result of user feedback before it goes live.

Accurate App Packaging

Approximately 50% of users discover apps through the mobile app stores, according to a report. About 65% of App Store searches lead to app downloads for iOS. This makes your app packaging – how it is presented in the store – one of the most crucial elements of its success. You should work on-

  • Your app should have an appealing name
  • Provide clear and informative descriptions
  • Make eye-catching app screenshots and videos
  • Optimization of app stores (ASO)


As there are so many revenue models available for apps, understanding that each model comes with its advantages and disadvantages is crucial. Additionally, you may want to try out these tactics and see what your competitors are doing. By doing so, making the right decision will become clearer. You may now be able to find a better answer to your question concerning free apps making money. You should contact an app development company to create an app if you have an app idea that might work.