Is it really possible to make money from free apps?

Take a quick look at the Apple Store app charts, and something becomes immediately obvious: None of the most downloaded apps cost a cent. At face value, they’re free to download and use.

So how are people making money?

Scratch beneath the surface of the highest-grossing apps, such as Pandora, Clash of Clans, and Netflix, and you’ll find a host of complex money-generating methods in use. From paid subscriptions and in-app purchases through to good old-fashioned advertising, freemium, and subscription-based approaches are now reigning supreme.

Every app is different, and this means that there is no gold standard when it comes to app pricing strategies.

If you can be absolutely 100% sure that you have a killer app that people will be fighting to download, a price tag of between 2 and 3 dollars may be justified. Alternatively, you may wish to specifically build ad space into your app or offer some form of subscription service.

Of course, the best apps are those that can do both.

Mentalstack has a lot of experience in app development and knows all the methods you can use to ensure the cost of app development is offset by lucrative returns. If you want some insider tips on pricing strategies and their associated benefits and pitfalls, give us a call and we’ll be happy to offer some sound advice.

How to Make Money From a Free App

In-app Advertising

We’ve all see the ads that frequently pop up on our games and mobile apps, but are these ads really effective? Just how much revenue are they actually generating?

Most app ads are paid on a cost per thousand impressions (eCPM) basis. A fee of somewhere between $0.53 and $1.12 is paid for each click.

You can simply multiply the number of daily impressions an app gets by the eCPM. This can be pretty lucrative if you have an app that is attracting a large number of users.

However, although mobile apps can make some solid cash from ads, ads of this nature are not typically the highest earners. Take Summoners War for example. This app earns around USD 150,000 a month from ads, yet this figure represents less than 1% of its overall revenue of 2.42 million. So where’s the rest of the money coming from?

In-app Purchasing

This is where the app operators earn the real dough.

In-app purchasing options can range from anything from micro-transactions as part of free-to-play systems that clean up the user interface or improve the gaming experience, through to tokens, weapons, gaming items, etc. that allow you to play a game longer or in more depth.

The market leaders are crushing it in this category. Candy Crush is reportedly earning a massive $2.1 million a day from in-app purchases.

In a nod to this trend, Apple has modified the wording of the download tab from “FREE” to “GET” for any free-to-download apps.

If you’re planning on launching a free-to-download app or game but don’t have the promotional support or funding of a major studio, you’ll need to offer the vast majority of the users access to great content without having to shell out their hard-earned cash first. If they can’t experience your content, they are not likely to recommend your app, and you won’t make money.

The Freemium Approach

There are also some app operators who have demonstrated that it is possible to make money from free apps through the free-to-premium model. When this approach is in use, the user can pay either a one-off fee or monthly subscription to access an ad-free version of the app and rid themselves of those pesky pop-ups and splash pages.

However, the past performance of this model indicates that people are willing to put up with the ads. In fact, only around one-third of users will be prepared to pay for them to be removed.

The one-off fee can also be somewhat limiting for you. If you have a lot of daily users, you stand to make more cash from the ad revenue than you will from the one-time charge. For this reason, the subscription-based approach is more popular. Examples of apps that are using this strategy are Tinder and Pandora. Tinder currently charges its users $14.99 for the Tinder Gold subscription and $9.99 a month for the Tinder Plus subscription. With millions of users, that’s some pretty big bucks!

If this is the type of approach you’re considering, it is important that you strike the right balance between giving your users enough to maintain their interest while also holding back some highly desirable features they won’t be able to resist.

For example, Tinder limits the number of swipes the user can perform per day while Spotify members can only play music on shuffle. The huge success of apps such as these can be directly attributed to the subscription model they employ and the innovative designs through which they attract a user base and subsequently encourage those users to part with their money.

E-Commerce

We’ve established thus far that providers make money from free apps through ads, apps that promote in-app purchasing, and apps that earn vast quantities of cash through monthly subscription fees.

But how are apps that are completely free to download and use making money? For example, the likes of Venmo and Uber.

Uber is operating a marketplace model through which it takes a cut of the revenues its drivers earn. At present, it scrapes around 20%. In 2016, the group’s earnings reached an estimated $500 million as acquired through its 40 million monthly users.

Venmo is also operating a marketplace; however, it isn’t charging us to transfer cash to our friends. So how is it making money?

It isn’t.

However, the long-term plan is to start partnering with merchants and introducing the functionality for these merchants to take payments directly. The sellers will be charged a small fee for the privilege, but the app will remain completely free of charge for the user.

Make Money From Free Apps

The app economy is growing at a steady rate and is set to continue to do so for the foreseeable future. App Annie, the app analytics experts, predict that the app economy will reach a staggering $6.3 trillion in 2021 with a similarly impressive user base of around 6.3 million users.

Regardless of the size of the outfit, big players and smaller fish alike can make money from free apps. Big money. Over 25% and 18% of app developers currently earn more than USD 5000 a month on the iOS and Android platforms respectively.

Is there a reason why free apps generate the most revenue? There is no one clear strategy to prove that this is the case; however, the vast majority of the revenue does come from subscriptions and in-app purchases complemented by a small amount of revenue from advertising.

If you’re launching an app, you should focus on making it free. The methods that you use to monetize it from there will vary according to a range of factors including the market, your needs, your users, and the latest trends. Get it right, and you will make money from free apps.

Just bear one thing in mind: People love a freebie!

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