How Do Free Apps Make Money? Top Tips For App Monetisation

By Mairead Quigley

19 Feb 2018

You’ve had a great idea for an app, you’ve done your market research, you’ve developed an app with a fantastic user experience and you've more than likely spent a small fortune in the process.

Before releasing your app to your users and into the App Store, you need to consider the different monetisation strategies that would be the best fit for your app and your overall business objectives. Selecting the wrong monetisation strategy will inevitably damage your user experience and result in a quick loss of users and poor user engagement and retention.

Many people presume that when the develop an app, the best way to make money from it is to charge an app download fee. In fact, this is quite the opposite. Some of the highest-grossing apps in the world are in fact, free.

Let's take a look at some of the most popular app monetisation strategies for free apps:

Key Considerations

Decide On The Best Platform 

Choosing an app platform can greatly affect your earning potential due to difference in market penetration and platform popularity. The leader in this sense is Apple’s iOS platform, with over 25% of it’s developers earning over $5,000 a month. This is followed closely by Android, where 16% of it’s developers earn in the same bracket.

Platforms that aren’t as favourable include Blackberry OS and Windows mobile platforms. These typically have less market penetration and although Windows has a big corporate backing from Microsoft- it still lacks popularity among mobile users in comparison with Apple and Android platforms.

Know Your Market

Market research is absolutely vital before deciding on which app monetisation strategy you use. Different market demographics will engage with your app in different ways and it’s vital to understand how your monetisation model fits with your users. Strategies will also differ on what type of industry your app is serving- for example a retail or e-commerce app will probably differ significantly from a gaming or fitness related app. Conduct research into competitor apps and analyse their monetisation strategies- are there any opportunities that are being missed that you could take advantage of?

Let’s take a look at some of the best app monetisation strategies: Ad Revenue

Ad Revenue

The easiest and most popular way to make money from apps is advertising. In a nutshell, you display third party add within the app and generate revenue through clicks, views or actual conversions .The most important element to remember when implementing ads is not to disrupt the user experience which can turn users off and affect retention and engagement levels. There are a number of different ad formats you can choose from: - Banner Ads- Probably the most common form of app advertising and you are likely to have seen hundreds of these in your daily life. The ads are typically displayed as rectangular ads at the top or the bottom of the screen. They are generally easy to design, easy to deploy but not surprisingly, these ads are also often viewed as a nuisance. The best click through rates for banner ads occur through precise personalisation and targeting and ensuring you do not post these too frequently.

  • Interstitials Ads - This can be a reliable source of mobile advertising revenue and is used commonly among developers due to the ads ability to take up the whole screen and it’s better design and formatting options compared to banners ads. Since these ads are displayed full screen, it forces the user act to perform an action which ultimately increases click through rates and installs generating higher revenue for the app. Due to the more intrusive nature of these ads, you also need to consider the frequency in which these are displayed so it does not impact negatively on the overall user experience.
  • Native Ads - dubbed the ad format of choice for millenials, native ads unlike other formats are relatively unintrusive. A report by Business Insider has found that native advertising will drive over 70% of ad revenue by 20121. Native ads refer to advertising formats that appear to blend into the app by matching the visual look and overall feel and slots into the overall user experience. The benefits of native advertising is higher engagement with the user and better click through rates.
  • Video Ads - video ads typically receive a higher level of engagement and like interstitial ads, tend to take over the whole screen. Typical video ads can last in the rage of 15-30 seconds and can communicate more powerful information to users.

Freemium Apps

A freemium app allows the user to access the app for free but also displays gated content which costs money to be unlocked. In other words, users can access the apps basic functionality but there is a charge for additional premium or proprietary features. This model allows users to come in and “get a feel” for your app and a preview of what it can do in the hope that the app will build a big enough user base and good engagement to start charging for additional in app- features.

This app tends to work well within gaming apps. Angry Bird pulled this off well by offering the game free, getting their users addicted to the game and then offering “locked” additional game features and hidden levels that users need to upgrade for a fee to unlock.

This model allows you to easily build up a large user base and and showcase your app so people get hooked and then offer premium subscriptions to drive revenue. Implementing this also means finding the balance between incentivising people to upgrade but also not offering a sub standard free app experience.

In App Purchases

In app purchasing is essentially another sales channel (or a mobile storefront) for your product or service. In app purchases can contain a wide variety of consumer goods and is not limited to just retail. In app purchases can also include unlocking an extra workout in a fitness app, a one-time cheat for a mobile game or access to other premium content.

While in app purchases are are made inside of the app, the app store still controls the purchase including the billing but you will pocket 70% of the revenue generated.

It’s important to note that the existence of the in app purchase path isn’t enough alone to drive consumers to pay. The entire experience needs to be seamless, more convenient and more enjoyable for in app purchasing to deliver significant revenue returns.


Depending on the type of app you are providing, a subscription based model can be a great way to build up a consistent and reliable revenue stream. The key to this is ensuring to continually refresh your content so people see the value in the app and are happy to pay a monthly subscription fee.

Many apps are now offering discounts for users who commit to 6 or 12 month subscriptions. This is a double win as users love saving money and are more likely to commit and app developers are able to make more reliable revenue projections.

A subscription model also increases the likelihood of app user engagement and retention, something that other apps typically struggle with. If users know they are paying for a service, they are more likely to to be invested in getting as much from the app as they can.

Mix It Up

There are also a number of other ways you can monetise your apps including leveraging SMS, email and push notifications, these strategies are designed to help you push app users to the app on an ongoing basis and increase retention. There’s also been an increase in the number of apps who are partnering with other successful apps to drive downloads and revenue. As the app landscape becomes more and more sophisticated, there is a move towards adopting a more blended approach. For example, you could start by offering a “free with ads” model and then offer users a paid upgrade to go “ad-free”. Or you could combine leveraging email lists to push in app purchases.

The best way to find out what works best is to experiment with different monetisation approaches. Test elements with your active user base in order to find out what’s giving you the best bang for your buck and what is resonating with your audience.

Finally..Don’t Be Annoying!

This is perhaps the most important aspect of determining app monetisation strategies and again, it comes down to understanding your user base and associated behaviours. Good app monetisation strategies are clever, highly targeted and relevant and not annoying or intrusive. The best strategy should not disrupt the overall user experience and allow you to generate recurring revenue for your app now and into the future.

Thinking about building a mobile app? We want to hear from you! Whether you need some expert guidance on how to get started or you need an expert team of developers to help you make your app a reality, we can help. Contact the xDesign team today for a chat! 

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