Ever scrolled through the app store, amazed by the countless free apps available? From games that whisk you away to fantastical worlds to productivity tools that streamline your day, these little digital powerhouses seem never-ending.
But here’s the head-scratcher:
- How do free apps make money?
- Do they have magical money machines hidden inside?
As of March 2024, around 97% of all Android applications were free, with only 3% requiring payment. Overall, the number of free applications accessible on the Google Play Store has remained greater than the number of premium apps.
Millions of people use apps every day, and developers have gotten creative in turning those app ideas into cash. In this guide, we’ll explore the secret strategies developers use to keep their apps running and, even more exciting, how you can turn your app idea into a money-maker!
From in-app purchases that let you level up your game to sneaky (but strategic) ads, we’ll unveil the hidden revenue streams that power the app world.
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By 2024, mobile applications are estimated to produce more than $935 billion in revenue.
Now, it’s time to delve into the nitty-gritty: how do these apps actually make money? Let’s explore the top strategies developers use to turn their app ideas into cash:
1. In-App Purchases (IAP)
The in-app purchase business has increased from $171.82 billion in 2023 to $213.36 billion in 2024, with a compound annual growth rate (CAGR) of 24.2%.
In-app purchases (IAP) are when you pay real money to buy virtual stuff or special features inside an app. Imagine buying coins in a game or extra stickers for your messages. It’s like shopping at a virtual store!
How do apps make money from in-app purchases?
App makers offer cool things you can buy with real money. You use your phone’s payment app to get them.
Why it’s great!
- Apps can earn lots of cash from in-app purchases.
- You’re more likely to play or use the app longer if you buy stuff.
- You can sell one-time items, subscriptions, or things you use up quickly.
Why it might not be perfect:
- Too many offers to buy stuff can bug you.
- Lots of apps use in-app purchases, so it’s hard to stand out.
Examples: Clash of Clans and Candy Crush Saga.
2. Freemium Model
According to Mixpanel’s Product Benchmark, the changing landscape of the 2024 freemium model has grown by 2.4% across main sectors.
Freemium is like trying a taste before you buy the whole cake. You get to try the app for free, but if you want the full experience, you pay.
How do apps make money from freemium model?
You can download and play the app without paying a penny. But you must pay for extra features or to remove ads.
Why it’s great!
- Lots of people will try your app because it’s free.
- Some people will like your app so much they’ll pay for more.
- People want to unlock the cool stuff, so they keep using the app.
Why it might not be perfect?
- It’s tricky to decide what to give away for free and what to charge for.
- Many people will just use the free version and never pay.
Examples: Music apps like Spotify, cloud storage like Dropbox, and note-taking apps like Evernote.
3. Subscription Model
A subscription model is like a magazine; you pay regularly to keep getting new stuff.
How do apps make money from subscription model?
You pay a set amount every month, quarter, or year to use the app.
Why it’s great!
- You get money every month, which is super helpful for app makers.
- Users are more likely to stick around if they’re already paying.
- You can offer special features or content only to subscribers.
Why it might not be perfect!
- Some people will stop paying if they don’t think it’s worth it.
- Many apps are doing subscriptions now.
Examples: Streaming services like Netflix, design software like Adobe Creative Cloud, and news apps like the New York Times.
4. Advertising
Advertising is when you show ads in your app to make money.
How do apps make money from advertising?
Other companies pay to show their ads in your app. You get money based on how many people see or click the ads.
Why it’s great!
- You don’t have to do much extra work to earn money.
- Ads can show to many people who use your app.
Why it might not be perfect!
- Too many ads can make people dislike your app.
- You might not earn a lot of money from each ad.
Examples: Most free games, news apps, and weather apps.
Also Read: 18 Best Offline Games
5. In-App Advertising
The total global in-app advertising market’s estimated spending in 2024 is $352.7 billion. In-app advertising is like regular ads, but they’re made for apps.
How do apps make money from in-app advertising?
You show ads inside your app, but they’re designed to fit in better.
Why it’s great!
- You can show ads that relate to your app or the people using it.
- Some ads are interactive, which can be fun for users.
Why it might not be perfect?
- Ads can still bother people if there are too many.
- Some people use tools to block ads.
Examples: Many free games and social media apps.
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Affiliate marketing is like getting a commission for recommending a friend’s product.
How do apps make money from affiliate marketing?
You promote other companies’ stuff in your app and get paid when people buy through your link.
Why it’s great:
- You can earn money without making your products.
- You can recommend things people might like.
Why it might not be perfect:
- Most people won’t buy something just because you recommend it.
- You have to work with other companies.
Examples: Shopping apps, travel apps, fitness apps.
6. Virtual Goods
Virtual goods are things you can buy that only exist in the app.
How do free apps make money from virtual goods?
You sell virtual items like characters, clothes, or weapons for real money.
Why it’s great:
- People can spend a lot of money on virtual stuff.
- People want to collect or show off their virtual items.
Why it might not be perfect:
- Not everyone cares about virtual stuff.
- You have to make sure the virtual items are fair.
Examples: Games like Clash of Clans and Fortnite.
7. Sponsorship
Sponsorship is like a brand paying to be part of your app.
How do free apps make money from sponsorship?
Companies pay to have their name or products in your app.
Why it’s great:
- You can earn a lot of money from sponsorships.
- Partnering with big brands can make your app seem better.
Why it might not be perfect:
- Having too many sponsors can make your app look cluttered.
- It takes time and effort to find sponsors.
Examples: Fitness apps partnering with sports brands, music apps partnering with artists.
8. Direct Sales
Direct sales mean selling real products or services through your app.
How do apps make money from direct sales?
You let people buy things directly from your app.
Why it’s great:
- You can charge more for your products in the app.
- People can buy things easily without leaving the app.
Why it might not be perfect:
- You have to deal with storing and shipping products.
- You need to handle returns and customer issues.
Examples: E-commerce apps and food delivery apps.
9. Paid Downloads
Paid downloads mean people pay money to download your app.
How do apps make money from paid downloads?
You charge a set price for people to download your app.
Why it’s great:
- You get paid right away.
- People might think your app is better if they pay for it.
Why it might not be perfect:
- Not as many people will download a paid app.
- Many people prefer free apps with in-app purchases.
Examples: Some productivity apps and professional tools.
10. Crowdfunding
Crowdfunding is when you ask a lot of people for small amounts of money to make your app.
How do apps make money from crowdfunding?
You create a campaign to raise money from people who believe in your app idea.
Why it’s great:
- You can get fans before your app is even finished.
- You’ll know if people are interested in your app.
Why it might not be perfect:
- You might not raise enough money.
- You have to give something to people who support you.
Examples: Many indie game developers and new and innovative app ideas.
11. Data Monetization
Data monetization means selling information about your users to other companies.
How do free apps make money from data monetization?
You collect information about how people use your app and sell it to companies for research.
Why it’s great:
- You can earn money without doing extra work.
- Data about people is worth a lot.
Why it might not be perfect:
- People worry about their information being sold.
- You have to be careful about how you handle user data.
Examples: Many free apps that collect information about what you like.
Pro Tip!
Most successful apps use a mix of these ways to make money. It’s important to find the right combination for your app.
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Understanding Your Target Audience
Are they kids, teens, adults, or older people? Where do they live? How much money do they have? What do they like to do? These are called demographics. Knowing your audience’s demographics helps you understand what they might be willing to pay for.
Another thing to think about is what your users want. Do they want a free app with ads, or would they pay for a better version without ads? Are they into buying extra stuff within the app, like coins or power-ups? This is where understanding their spending habits comes in. Some people love to spend money on apps, while others are really careful.
For example,
If you’re making a casual game for kids, offer a free version with ads and then sell stickers or extra lives as in-app purchases. Kids might be more likely to ask their parents to buy these things. But if you’re making a business app for adults, they might be more interested in paying a monthly fee for premium features instead of watching ads.
So, before you decide how to make money from an app, spend some time thinking about who you’re trying to reach.
Analyzing Your App’s Value Proposition
What problem does your app solve? Why should people use your app instead of others? This is called your app’s value proposition.
What is its superpower? What can it do that no other app can? Once you know your app’s strengths, you can figure out how to make money from it.
For example, if your app helps people learn a new language quickly, you can offer a subscription for access to more lessons and features. People who value learning languages are often willing to pay for something that helps them learn quickly and easily.
On the other hand, if your app is a fun game with lots of levels, you can make money from ads or in-app purchases of extra lives or power-ups. People who play games don’t mind watching ads or spending a little money to have more fun.
So, spend some time thinking about what makes your app unique. Once you know that, you can choose a way to make money that matches your app’s value.
Considering Development and Maintenance Costs
So, before you decide how to make money with your app, you need to determine the cost of building and operating it.
How Much Money Do You Need?
| Cost | Expected Cost Estimation |
| Planning and Design | $5,000 – $20,000 (Includes market research, user persona creation, wireframing, UI/UX design) |
| Development | $50,000 – $200,000 (Depends on app complexity, features, and platform) |
| Testing | $5,000 – $15,000 (Includes quality assurance, user testing, and bug fixing) |
| Cost | Expected Cost Estimation |
| Bug Fixes | $500 – $2,000 per bug (Varies based on severity and complexity) |
| Server Costs | $50 – $500 per month (Depends on usage, storage, and bandwidth) |
| Updates | $5,000 – $15,000 per major update (Includes design, development, and testing) |
| Marketing | $5,000 – $20,000 per month (Depends on marketing channels and strategies) |
Wrapping it Up!
So, we’ve covered a lot of ground! The most important thing is how to make an app that people love to use. If you focus on creating a great user experience, the money will follow. But it’s okay to try different ways to make money.
Ready to make money from apps? AppVerticals is going to help you!
There are tons of resources online to help you learn how to code, design, and market your app. Explore our blog and find what you need. You can also find mentors, join online communities, or contact us to make a competitive and creative app.
Don’t be afraid to experiment and have fun. Now, start creating the next big app!
FAQs
1. How do apps make money?
Apps primarily generate revenue through a combination of the following strategies:
- In-app purchases: Users pay for virtual goods, premium features, or content within the app.
- Advertising: Displaying ads (banner, interstitial, video) to users and earning money based on impressions, clicks, or conversions.
- Subscriptions: Offering premium access to features or content for a recurring fee.
- Freemium model: Providing a basic version for free and charging for advanced features or removing ads.
- Paid downloads: Charging a one-time fee for the app itself.
2. How do free apps make money?
Free apps typically monetize through:
- In-app advertising: Displaying ads to users and earning revenue from ad impressions, clicks, or conversions.
- In-app purchases: Offering additional features or virtual goods for purchase.
- Freemium model: Providing a basic free version and charging for premium features or removing ads.
- Data monetization: Collecting and analyzing user data to generate insights for sale to advertisers or other businesses.
3. How to make money from apps?
To generate income from an app, consider these strategies:
- Identify your target audience: Understand their needs and preferences to tailor your monetization strategy.
- Choose the right monetization model: Select a model that aligns with your app’s value proposition and user experience.
- Optimize for user experience: Ensure your app is engaging and user-friendly to maximize revenue potential.
- Continuously analyze performance: Track key metrics to identify areas for improvement and optimize your monetization strategy.
- Consider multiple revenue streams: Diversifying income sources can increase profitability.
4. How to create an app and make money?
Building a successful app involves:
- Ideation and market research: Identify a problem or need and validate your app concept.
- App development: Design, develop, and test your app.
- Monetization strategy: Determine how you will generate revenue.
- App store optimization (ASO): Optimize your app’s visibility in app stores.
- Marketing and promotion: Build an audience and attract users.
- Post-launch optimization: Continuously update and improve your app based on user feedback and market trends.
