You have an app idea that you are sure is going to be the next big thing. You put in a lot of effort to plan and design the app, hired the best app developers to work on your project, and ticked off all that is necessary for success.
All these efforts are unlikely to yield results if you don't have a monetization strategy for your app. How do you plan to make money from your mobile app?
While free apps might have a higher chance of being successful on the app stores, making money off your free app requires a carefully thought-out monetization strategy. Unlike with apps that have a clear price tag attached to them, making money from free apps is somewhat complex.
There are multiple ways to make money from your free app, and each monetization method has its own set of pros and cons. Read on to get critical insights about how free apps make money, what options are available to you, and the pros and cons of each, helping you choose the one you can use to maximize profits from your mobile app.
1. Advertising
Digital advertising via mobile applications has become a go-to strategy for marketers. Its surge in popularity has resulted in high returns for mobile app developers. Users are spending an increasingly large amount of their time on smartphones, making apps a highly effective platform for advertising.
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Pros of advertising model
Increased benefit to the marketers: Studies have shown that consumers are more likely to remember and retain the ads displayed on the mobile apps over those they see on television and laptops because of the higher engagement levels with the former.
Ease of adoption: There are multiple mobile ad networks you can sign up with to get started with app advertising, like AdMob by Google. You can easily partner with relevant brands over these platforms and get paid by them to post ads on your app.
More options: You have the choice of the type of ads you want to display in your free mobile app. You can choose between interstitial ads, banner ads, native ads and video ads according to your requirements.
Cons of advertising model
Obstruction of the user experience: Ads within mobile apps can act as major detractors and, unless they show relevant content to the target audience, a source of annoyance to users.
Need for widespread users to be effective: Your app needs to enjoy heavy traffic with a large user base to generate a sustainable revenue stream solely from advertisements.
To be successful at in-app marketing, you need to incorporate the ads in such a way that they don't detract from user navigation of the app. Relevant content that actually provides them value, instead of meaningless and irritating adverts, is the way to go if you wish to follow this revenue model with your free app.
2. In-app purchases
In-app purchases bridge the gap between free mobile apps and ones with premium features. While the app itself is free to download, users can access the app's premium features by purchasing and unlocking them.
Pros of in-app purchases
User willingness: The customers don't feel like something is being shoved down their throats. They make purchases based on the value they feel is being offered. Since the power resides with the end users, in-app purchases have become a highly effective app monetization strategy and will continue to remain an important part of app development in the near future.
No need to develop two different applications: You don't need a free app with basic features and another fully packed paid version for customers to upgrade to. In-app purchases ensure that a single app meets all user requirements.
Value addition for the users: Whether you are offering consumables (virtual coins or gems), non-consumables (access to an ad-free version of the app) or subscriptions (access to additional content on a periodic basis), the perceived value of the in-app purchase makes it a lucrative offer for the app users.
Cons of in-app purchases
Cost-value equation: The additional features that you provide as in-app purchases must provide value and be compelling enough to drive the users to make the purchase. This can be tricky to achieve.
Added technicalities for payments: You need to install additional payment gateways to process the purchases. Since you will be processing sensitive credit card information, data security is another factor that must be taken into consideration, which amps up the functionality requirements of the app.
To successfully implement in-app purchases within your mobile app, you must have an understanding of human psychology to help you design features that compel the users to hit the buy button and complete their purchase. App revenue follows the model for a freemium app, which is a hybrid between free apps and premium apps.
3. Subscription model
In the case of content-based mobile apps, a subscription model for making money from your free app works wonders. The revenue generated is more or less consistent. Subscriptions can be offered on a monthly or a yearly basis to incorporate choice for app users.
Pros of subscription model
Higher engagement and consistent revenues: The advantage of content-based apps is that fresh content in the form of audio, video, images and even news is highly engaging. All you need to do is provide fresh content that meets what your target audience is looking to consume and you have ensured a consistent revenue stream.
Higher demand: The demand for content is ever increasing. With smartphone penetration becoming ubiquitous, widespread access to the internet and changing content consumption trends, the demand for these apps is only going to get higher.
Platform support: Both the Google Play Store and the Apple App Store are incentivizing the subscription model by slashing their cuts of the revenue, making it an attractive option for app developers.
Cons of subscription model
Content creation: Creating engaging pieces of content that compel users to subscribe is a resource-intensive process.
Limited scope: There are limited categories of apps for which the subscription model has shown high potential of revenue generation. If your app idea doesn't provide consistent value over a certain period of time, users aren't likely to subscribe.
Simply knowing how free apps make money isn't sufficient. The application of this knowledge is what matters.
There isn't one single correct answer to which monetization strategy you should choose for your free app. You could pick one that best fits your needs from the options available or create a mixed monetization strategy for your business that combines two or more of these methods.