How do free apps make money: monetization methods for software

Remember all those free apps and games on your phone? Their developers definitely weren’t altruists and worked for money. Any kind of work should bring profits. Software development is no exception.

Find out about how do free apps make money and the most popular monetization methods below!

Popular software monetization strategies

So, how app make money? Generally speaking, 8 different strategies may be applied to all kinds of applications. The list includes:

Showing advertisements;
Referral marketing;
Applying in-app purchases;
Blocking content behind a subscription model;
Donations;
Crowdfunding;
Email marketing;
Merchandise.

While these are the main monetization strategies, there still may be many other options implemented by developers. People make money from everything. Users do not always know that, but they bring in decent sums for devs using applications every day!

We are confident that we have what it takes to help you get your platform from the idea throughout design and development phases, all the way to successful deployment in a production environment!

Which option is better: freemium or paid downloads?

Logically, both options come with their own monetization methods. A free app will use one of the strategies from above and have a larger audience, while a paid app will mainly earn money from downloads and have a smaller audience.

In 2021, over 96,7% of all applications from Google Play are available for free. The iOS market has got 92,9% free software, meaning that the number doesn’t vary significantly. This leads to the opinion that freemium is more profitable.

Actually, even research shows that freemium software makes more income than paid applications. However, there is one major difference. It takes extra time for a freemium app to earn enough money to make it profitable.

How does advertising within apps work?

One of the leading sources of income is advertisements. It isn’t a surprise because they are seen almost everywhere. You play games – you see ads, you read the news – you see ads. The average revenue per ad impression from a banner is $0,10. A 30-seconds video will make around $10. Now, calculate the potential profits!

The following types of ads are used in software:

Native (within the content);
Interstitial (full-screen);
Banner (cover part of the screen);
In-stream video (play during videos);
Rewarded videos (watched for a reward).

Generally, you start with choosing a network. This could be Google AdMob, MGID, InMobi, Media.net, and a dozen of other options. Choose carefully because there are many hidden fees and terms.

After that, you connect your software to the network and choose the type of advertisements that will be shown within your application.

The last step is selecting the pricing model. It could be per mille, click, or action. The CPA model is the most valuable for advertisers and might become the most profitable if your audience is active enough. Now, you know the answer to “How do free apps make money by setting advertisements?”.

How do in-app purchases work?

How do free apps make money? Apart from advertisements, in-app purchases are another noteworthy option to earn money within free software. The best part is that it can be combined with ads for even more profits.

There are three types of in-app purchases:

Consumable (one-time only);
Non-consumable (permanent features);
Subscription (paid monthly for access to additional features).

For example, mobile games often sell in-app currencies for real money. If you have ever played modern games, you know what we’re talking about. Video editing software often sells separate features like watermark removal. Apps like Canva for editing media also promote a subscription model.

Clash of clans, a popular mobile game, earned $1 million daily solely from in-app purchases. World of Tanks, a game for PC, earns $1,000 every minute. Of course, you will often have to reinvest the funds to upgrade existing features and hold marketing campaigns. However, the reward is worth the effort.

One drawback of the in-app purchase model is that part of the money gets lost in commission fees and people tend to buy stuff only in the top applications. This means that you will have to invest a decent amount of money in promoting the software until there are any proper results.

How do subscription models work?

Today, subscriptions are available almost everywhere – editing features, music, in-game battle-passes, daily rewards, and hundreds of other options. It is applicable to most areas and is a great option to make revenue during a specific time period.

For example, when a user buys a subscription for one year, supposedly, you get $200. This means that they get access to all the features of your application for this period while you get a year’s pay from them. Now, imagine that at least 100 people buy a subscription. Such an investment should already cover part of the expenses on software development.

One drawback of the subscription model is that you should always have a good content strategy. You can’t give people the same materials for months, right? That is why your development team must constantly work on improvements and implementation of new features.

How long does it take to monetize a free app?

It is unlikely that you will get a clear answer here. Monetizing applications is a very tricky thing to do. Besides, many pitfalls may delay your progress.

Let’s look at the best-case scenario. Your application is already developed, and you have an advertising budget. Ads are shown everywhere – social media, blogs, influencers. Soon enough, people start downloading the application, word spreads, and a bigger audience joins the community.

“Raid: Shadow Legends” took several months to start earning around $8 million monthly. The company spends roughly $700,000 weekly only within the US market for promotion. Therefore, if you have the proper budget, consider a period of around half a year to be a reasonable estimate to start earning decent money.

The bottom line

It looks like that now you are eager to find out how to create an app and make money, right? The secret is simple. Contact the Global Cloud Team and let them know what kind of software would you like to create. Then, you will be able to reap the benefits of your investment.