How do apps make money? It is an obvious question considering the abundance of free apps available for the major mobile platforms. No one invests money in building an app without a strategy to get their money back. What is the magic behind app monetization.

So, how do free apps make money? People are very interested in knowing how to create an app for free and make money because the number of free applications is far superior to that of paid apps, which tells people that there are ways to build free apps that bring money.

If you want to know how to create an app and make money, you have to split the matter into two: key strategies to monetize free apps and the essential tools for free app monetization.

How to Create an App and Make Money

Before you learn how to build an app, you should first make sure you understand how to make money with apps, i.e., how free app development can generate money. There are strategies for app monetization, and there are tools to app monetization.

  1. How to Make Money from an App: App Monetization Strategies

There are several strategies that app developers consider in their efforts to monetize their app. Developers may focus on several or all of the app monetization strategies presented.

Strategies if you want to know how to make money from apps include advertising, email marketing, sponsorship, subscriptions, in-app purchases, Fremium upsell, Amazon Underground, physical purchases, collecting/selling data, and affiliate/referral marketing.

  1. How to Make Money from an App: Best Tools for Free App Monetization

In addition to strategies that allow developers to monetize on their app development, some tools enhance app monetization, including in-app advertising tools, in-app advertising for game applications, the Freemium model, and in-app video advertising.

How Do Apps Make Money? A Synopsis of the App Market

A quick overview of the app market reveals staggering numbers:

  • The App Store for iOS/Apple featured 2 million applications in 2016
  • The Play Store for Android/Google featured 2.4 million applications in 2016
  • App stores are the most prevalent distribution platforms in the app market
  • Revenues produced by mobile apps are expected to double by 2020

The popularity, numbers, and diversity of mobile devices have reached record levels. Within this context, it becomes apparent why businesses feel the need to develop their applications. What app is suitable for your business and how do free apps make money?

Paid vs. Free Apps

How long does it take to make an app? How much do app developers make? These are all legitimate questions, but, before you answer any of these questions, you need to decide whether you want to develop a paid application, or you want to build a free application.

  • 90% of the applications available on the market today are free apps
  • Revenues from downloading paid apps are likely to plunge in the next years
  • The number of paid apps downloads plummeted in 2016 compared to past years.

These are just some of the statistics. You also must consider the results of a report released by Gartner Research that states that customers will dedicate 24% more money to making in-app purchases than to acquiring paid apps. So how do apps make money if they are free?

According to Gartner Research consumers are ready to pay for additional features of an app and make in-app purchases once they become satisfied with the app’s value to their lives.

  • Average spending on in-app transactions was $11.59, while the average expenditure on paid-for downloads reached $7.67 in 2017
  • People aged 25 to 34 years, people aged 35-44 years, and people aged 18 to 24 spend more on in-app transactions than on paid-for downloads
  • Older people prefer paying for an app upfront than spending within an app

Focus Factors when You Build an App for Your Business

If you are interested in how to build apps and how apps make money, there are several tips that you might find useful you get into the details of the actual app development process:

  1. Name: Clear and Catchy App Name

Give your app a name that alludes to its functionality. Including a keyword in the app’s name might prove very useful. Make the apps’ name a clear, easy to remember name.

  1. Description: Useful App Description

The value of description is in its first 2-3 sentences that end just before the More or Read More button. Make the description informative and relevant and stick to up to 225 words.

  1. Screenshots: Dazzling App Screenshots

A picture is worth a thousand words so make sure you include high-quality, relevant screenshots of your app that allow users to visualize how your app will look on their device.

How Do Apps Make Money? Free App Monetization Strategies

Once you understand how to invent an app that users would want, you must move on to the next level and investigate the topic of how free apps make money. You’ve developed a top-notch app that looks, feels, and works great. How do you make it generate money?

Here are key app monetization strategies that teach you how to make money with an app:

  • Advertising

Advertising remains the main monetization strategy in the mobile app market with 70% of the app providers using ads to monetize their apps in 2016. Advertising agencies or networks pay app providers for displaying commercials inside their applications.

  • Interstitial Ads

As suggested by the name, interstitial ads are full-screen pop-up ads that show up at specific time intervals and can be closed either by hitting the close bottom or by opening the ad.

Interstitial ads are most efficient when they pop-up at natural transition breaks. An edifying example of natural transition passages or breaks is game levels for gaming apps.

  • Banners

Such ads show up at the bottom or top of the screen. They come in various sizes and, since they are not as big and flashy, they do not affect user’s interaction with the app.

Developers can target specific users based on previous behavioral patterns and demographic data. However, banners and display ads have low engagement rate (0.1% CTR)

  • In-app Video Ads

In-app video ads can be launched on-demand against an in-app reward, which means that users will be rewarded with extra lives (games), app currency, or additional features, among others if they choose to watch the video. In-app video apps display automatically.

How do apps make money? In-app video ads are among the most effective ways to do it.

  • Native Ads

Native ads show up as sponsored video or content that integrates seamlessly with the app’s design. Native ads are not as aggressive and intrusive as other in-app ads and, as such, they generate more popular income for app developers/providers.

  • Email Marketing

Often considered an old marketing technique, email marketing remains a powerful app monetization strategy. A mobile app represents in itself an opportunity to collect e-mail addresses, which enables app providers to implement effective email marketing campaigns.

Here are three ways how mobile apps can help providers collect email addresses:

  • Pop-up box. Providers can ask mobile app users to provide their email address via a pop-up box. In exchange, they offer some type of reward that could be in-app currency or additional features, for example.
  • Facebook SDK. When providers enhance logging-in with FB account, they can collect email-addresses. It is vital that users are informed that they may get emails from the app providers upon logging in with their FB account.
  • Third Party Tools. Providers may opt for implementing third part SDKs into their application. These tools allow for quick and easy e-mail address collection, and the implementation is as simple as adding a couple of code to the mobile app.
  • Sponsorship

The trick to making money off an app via sponsorship is to create an app that has a similar or identical target audience as another company, which will then become the sponsor. The app will be perceived as the funder’s app, where the funder is already an established brand.

Sponsorship can be a highly effective way to make money with a free app. The revenue generated by the app can be split between the sponsor and the provider as agreed. Also, the sponsor could pay a fee to the provider for maintenance and use of the mobile app.

  • Subscriptions

How do apps make money with subscriptions? Providers offer free apps with great features that they make available only for a limited period. For users to be able to enjoy the restricted features/content after the period is up, they must pay a subscription fee.

This type of app monetization works best for online magazines and newspapers, audio streaming, cloud services, video streaming, where providers can offer free trials at the end of which users can opt for paying a subscription fee if they want unrestricted access.

  • In-app purchases

How to apps make money with in-app purchases? What type of purchases can users make inside an app? The purchases that users can make fall into three categories:

  • Consumable purchases, i.e., a product that the users can use once inside the app, such as app currency.
  • Non-consumable acquisitions, i.e., a product that can be used without any time limit, such as maps or game levels.
  • Subscriptions that unlock content or features for a given time, such as annual magazine subscriptions or three-month video content subscriptions.

In-app purchases represent a reliable and prevalent app monetization strategy used by 50% of the significant app providers, especially game developers. The percentage is on the rise and is expected to become the dominant monetization strategy in the upcoming years.

  • Freemium

How do apps make money with Freemium and what is freemium?  Freemium is a monetization strategy where you provide users with two versions of the app: a free version and a feature-rich paid version that they will likely pay for after using the free version.

Ending thoughts on how do apps make money

How do apps make money? While providers can and do make money from apps, it isn’t an endeavor that pays up without effort. You can make money off an app, but you have to be prepared to implement original advertising and determined marketing efforts.

Employing a variety of marketing solutions, such as in-app purchases, ad networks, cost per installation, providers have the power to market their app better and generate more profits.