How do free apps make money? (scroll to bottom to watch video!)
This important question can be answered in a quick and easy breakdown. The hard work is, of course, up to you. The great news is that the work itself really isn't that hard.
Of all the myriad ways of making money with an app, you might imagine that starting with a free app would be a difficult path. After all, you're not charging for the download, so how are you going to get paid? The answer lies in the fact that there are a number of ways of making money within the app itself.
When the entry price is nothing, you get a lot more traffic. It's just simple dynamics. With nothing blocking your app from even the most casual interest, a much greater number of people will be willing to give it a try. When there's no risk on the customer's part, they're more willing and likely to see what you've got going. If you've created an app worthy of attention, they'll want to stick around and see what it can offer.
This is where the five major methods of making money in a free app come into play. Let's go over the options.
1. In-App Purchases
In-app purchases most often appear as small upgrades that the user can buy to enhance their experience in a given app. It's a way of adding value to those who want to pay for it. Whatever your app accomplishes, it can be designed to be just enjoyable enough in its free form, but even more so with an in-app purchase or two.
You'll want to be careful about achieving a balance so that the app is functional without additional purchases. This ensures that you don't alienate users right from the get-go. The open invitation of a free app means they're willing to step inside, but you need to lead the way toward purchases with real incentives. Think of a slot machine: the more you put in, the more chances you have to win big. The same principle applies to in-app purchases, except the returns are guaranteed instead of randomized.
Advertisements are a pretty straightforward concept. Whether they come as pop-ups, banners, or embedded links, they are the oldest form of making money electronically. The companies and apps advertised on your app will support you without any direct payment from the end-user themselves.
This is advantageous in a few ways, beginning with the fact that your user feels no pressure to spend money. They can click the advertisements that interest them, and ignore the ones that do not. They're able to enjoy your app freely, so long as the advertisements themselves don't become a hindrance. This is an important distinction to make: the ads within your app must not actively disrupt the experience, or users may flee.
Subscriptions are another old concept, going back to physical media with newspapers, magazines, and more. The idea is that once you get a user's foot in the door, you can sell them on the idea of getting consistently fresh content for a recurring fee.
Many popular celebrity apps use this model. Users download the app without paying a dime, then they're enticed into paying for a subscription to continue getting desirable content delivered again and again into the future. If your content is good, people will be happy to see it arrive every day, week, or month.
Sponsorships offer a unique opportunity to make money with a free app. Similar to advertising, but without the random nature that can become a downside, it's a way of being paid externally for your work without asking anything more of the end-user.
Whether it's a large corporate brand or a local business owner, someone pays you to have their name and branding appear on your app. It's as simple as that; brand awareness is raised for the business owner while your app continues to be available for free.
The sponsor will help you promote your app, develop it, and improve it, as this helps both of your bottom lines with a revenue split.
5. Sell Your Company
This final piece of advice is one that many people have made a fortune on. Once your free app has proven itself popular, you can sell it off for a hefty profit.
Companies love the idea of purchasing an established brand with built-in customers. It's an easy way for them to leapfrog into a successful app ecosystem without having to lay the groundwork themselves. This requires that you produce an engaging, well-supported app in the first place, but that's your aim anyway. Once you've got an established user base, you'll be in a great position to sell your company for a profit and begin on your next venture.
Making it happen
As we stated above, the only thing left to do is put in the effort to create the free app you want. The barrier for success with a free app is not very high, so once you've done it, you only need to decide which of these five methods you'll use to monetize it.