If you’re an entrepreneur interested in mobile app development, you may be wondering how mobile apps generate revenue? This article will help you as we detail how to make an income with free mobile apps.
Free apps generally outnumber paid ones and they are downloaded in greater numbers and deliver more profits too. What are the common revenue models for mobile apps and how can you earn money from them? We will answer these questions also as you read the article.
As per Techcrunch, the mobile app market was valued at $100 billion in 2020. But paid application revenues have decreased from 75.9% to 37.8%.
This shows that free apps can be as lucrative as paid ones. Google Play stats reveal that free apps play a dominant role in global app revenue. Therefore, you should implement effective app monetization strategies to make money from free apps.
How to make an income from a free app?
A majority of apps can be downloaded for free from app stores. And, revenues generated by downloading apps are expected to decrease in the future.
Advertising, which accounts for 31% of revenue, is the most popular method to make money from free apps. It is followed by commissioned apps/contract work with 23% and the pay per download model with 20%.
In December 2019, about 96% of apps downloaded from the Google Play Android store were free apps. The figure was around 91% for iOS apps.
6 Top revenue models for mobile apps
Now, let’s take a look at some of the common revenue models for mobile apps that can help you earn money:
You can offer your content for free in the app for some time and then charge users a subscription fee later for restriction-free access. Subscriptions are widely used by online news, video and audio streaming, and cloud services.
Currently, Apple splits revenue 70/30 and plans to make the ratio 85/15 in the future. This format has been implemented to encourage app creators to deploy a recurring subscription model rather than levying a one-time download charge. Yet, as per Sweet Pricing, just 5% of apps use a subscription model to generate revenue.
The pros of the subscription model are suitability for cloud video and audio content providers, attracting a more serious and engaged audience, and gaining reliable income.
It’s easy for free apps to use advertising to make money as they can do it through a third-party advertising network. In 2020, mobile advertising revenue topped $280 billion.
With advertisements, it’s simple to monetize your free app. You can display commercials or allow signing up for affiliate marketing, and get payment from the ad networks.
Such programs give you payment whenever a user downloads and installs an advertised app. You can also receive a handsome amount on a ‘per impression’ and ‘per click’ basis. Additionally, running advertising campaigns in your free app helps make ad revenue for a specified time period.
How mobile app generates revenue through ads? Well, you can display five types of ads in your app for monetization. However, it is crucial to determine if your users are blocking these ads or finding them entertaining.
- Rewarded videos:
You can reward your users with virtual goods or points for watching the advertising videos you show in your app. While the advertisers are able to effectively communicate their brand messages through this model, you earn money for it.
Retention rates are high for this advertising campaign as users are rewarded for watching ads. This method is ideal for gaming apps as most gamers love freebies and therefore this advertising model’s cost per millie is higher compared to other ad types.
- Native ads:
As the name suggests, native adverts are integrated into the mobile app so they seem natural. These ads are used to promote products or apps. Affiliate marketing can be touted as a type of native advertisement that helps boost user engagement in the app.
Native ads are a popular revenue model for the mobile app as users find them less intrusive and irritating. But the downside is that they generate less revenue compared to other methods.
- Interstitial ads:
Interstitial ads pop up on the mobile screen at specified times and they can be closed with the click of a button. For instance, you can display an ad after a user edits images and saves them. Gaana uses this method to monetize its app.
Interstitial ads enhance the app experience as they are displayed at relevant times to engage the user.
- In-app video adverts:
Videos are displayed in the app and users get rewards for watching them. Thus, in-app video adverts are quite similar to rewarded videos. As rewards, users can obtain the application currency that they can use to obtain added features or unlock levels in games.
The pros of this advertising revenue model are added primary income via CTR (click through rate), greater chances of engaging the target users, and measurement of user interaction. In addition, video ads produce more traffic compared to audio ads, web browsing, or social platform networking.
- Banner ads:
Banner ads are shown in various sizes at the bottom or top of the application screen. These ads are typically small and non-obstructive, allowing users to continue to utilize the app.
3. In-app purchases
In-app buys are one of the main sources of revenue for app publishers and this monetization method is expected to continue to be popular in the future. Game publishers use this model as they can offer digital money or game currency like gold, coins, and gems. Free gaming applications like Angry Birds and Clash of Clans offer in-app buys to boost the user experience. As a result, in-app buys are a major factor in mobile app downloads.
In-app buys are an ideal revenue model for mobile apps to gain paying users in an unobtrusive manner. But you need to keep users engaged in your app so that they continue to pay to use it.
Some of the effective in-app purchase methods are opt-in, rewarded videos, and playable advert formats. As they are more reliable than mobile browser adverts, they improve engagement and increase profits. This revenue model is most suitable for gaming applications.
4. Selling merchandise
Merchandise selling is an innovative method used by e-commerce platforms. They offer free versions to market physical products like shoes, shirts, toys, etc. through email marketing or directly in the app. Wondering, how mobile app generates money through this model? Let’s consider the example of Amazon to understand it better.
Amazon encourages app publishers with its Merch by Amazon model that allows them to upload artwork on their platform to promote products. In this model, both app users and owners stand to gain. You don’t have to worry about the nitty-gritty as Amazon handles payments and item deliveries.
The pros of selling merchandise are the ability to reach a higher number of users anywhere, anytime, enabling app users to peruse the inventory and make orders, and an endless aisle that is fully stocked for shoppers to make their purchases.
5. Referral marketing
This method of marketing helps to generate revenue by promoting third-party services or products. App creators can sell or promote affiliates’ services or products based on the number of installs or clicks. Pop-up adverts can be used to promote products or apps.
Let’s have a look at some referral marketing methods used by app publishers:
- CPA (cost per action or cost per acquisition): Select a suitable affiliate network for your free app and earn money by promoting apps or products in your in-app shop by using pop-ups to advertise them.
- CPC (cost per click): CPC generates revenue based on the number of clicks on a displayed ad. This model has been popularized by networks like Google’s AdMob and Adfonic.
- CPV (cost per view): The CPV model offers prices based on the number of video views or ad interactions. This model enabled mobile phone game development firm, BrightHouse, to improve its app revenue by a whopping 130%. They utilized interstitial and video ads in their mobile phone game as natural breaks in game sessions.
- CPI (cost per install): CPI is similar to web marketing’s cost per acquisition (CPA). As the name suggests, you get a payment each time a user installs the app you advertise. Third-party platforms and networks like Playhaven and Chartboost offer software that can be installed in your app. These networks charge a small fee.
With the referral marketing monetization model, you can promote popular products in your app and gain long-term, loyal, and profitable referred customers.
You can sponsor a related product or service in your app to make money. For this, you need to build a niche application for a target audience and sponsor another company using it.
Both the app publisher and the sponsor need to have the same target audience. Therefore, before creating the app, you should identify suitable brands for in-app sponsorship. For example, Home Depot displays animated ads in the background of the Weather Channel mobile app to sell weatherproofing products to homeowners.
With the sponsorship model, you can offer in-app advertising space to help brands provide discounts or market exclusive content, exposing users to rebates with minimal disruption of user experience.
Each revenue model for mobile apps has its pros and cons. While in-app ads is touted as the most successful model, subscription and in-app purchase models bring in the highest revenue. However, the success of the revenue model may vary depending on the type of application. So, it is equally important to understand the product you have.
If you are on the lookout for developing an application or introducing a revenue model to make money from your existing free mobile app, the experts at TriState Technology can help. Feel free to connect!