How Do Free Apps Make Money? [6 Revenue Models Explained]

Are you thinking, “How do free apps make money?” Fret not. Go through our blog to explore effective strategies that top app publishers implement to keep their apps free for users.

As an app publisher, it becomes imperative for you to create a sustainable revenue stream to fund your app development. While you can make your app paid, let’s be honest: you won’t see substantial progress in the long run.

According to 42Matters, 96.94% of the apps on the Google Play Store and 95.4% on the Apple App Store are free. The numbers speak for themselves: free apps reign the app ecosystem.

Our blog delves into one of the most commonly asked questions, “how do free apps make money” while creating a sustained revenue stream. We will also guide you to choose the best monetization model for your app, and highlight the common mistakes that app publishers tend to make while choosing a model.

How Do Free Apps Make Money?

Unlike the paid apps, free apps take the longer route towards monetization. The reason is simple: users won’t pay unless they get a taste of your app’s features. Rather than asking the users to pay, they tap the user engagements to make money.

The app publishers serve ads, personalize the app offerings (in-app purchases), or collect anonymized data to create a revenue stream. 

However, this approach requires patience; the perseverance to optimize the strategies at each turn. This involves creating a blueprint for ad monetization, a roadmap for sponsorship/partnership agreements, and identifying key points where users can convert into consumers.

Having that discussed, let’s straightaway get to the heart of the matter, “how do apps that are free make money?”. 

6 Effective Monetization Strategies for Free Mobile Apps

1. In-app Ads/Advertising

In-app advertising is one of the most popular models for free apps to make money. Yet, a section of app publishers shy away in fear of losing users. Even so, in-app ads can bring in big bucks if implemented without a hitch.

Interestingly, seven out of ten free apps make money via advertising and promoting other businesses (The App Solutions). The process is simple: You join a mobile ad network like AdPushup or Google AdMob, sell your ad space, and start displaying ads to the users.

You can utilize multiple ad formats to keep your users engaged, such as:

• Banner ads: Rectangle/square-shaped ads displayed at the top or bottom of the app to drive traffic.
• Video ads: Short and engaging videos used to promote products and services of brands.
• Native ads: Blend with the app’s surroundings to complement the user experience. 
• Interstitial ads: Ad format added between the natural transitions within an app.
• Rewarded video ads: Users watch short video ads in exchange for app-specific rewards like upgrades or coins.

At the same time, there are many available payment charging models that you can implement:

• CPM or cost per mille: App publishers are paid for every 1000 impressions an ad receives.
• CPC or cost per click: Publishers are paid when a user clicks on an ad. 
• CPA or cost per action: Publishers get paid when a user completes an intended action (signups or purchases) through the ad.
• CPV or cost per view: Mainly for video ads, publishers are paid when a user views the ad.
• CPI or cost per install: Publishers get paid when an app gets installed via an ad.

Example

Many popular apps like the Royal Match employ in-app advertising to keep the app free while generating revenue. Moreover, the app also displays ads on other gaming apps to increase downloads.

Pros	Cons
In-app ads reach users where they spend most of their time – inside mobile apps.	Too many ads can disrupt the user experience and lead to app abandonment.
Ads can target users based on location, behavior, and demographics.	Data tracking raises privacy concerns and regulatory challenges.
Rich media formats like video and interactive banners increase user engagement.	Poorly placed or timed ads can feel intrusive or annoying.
Platforms offer analytics for campaign tracking and performance insights.	Metrics like CTR don’t explain user intent or interest.
Developers can promote their own apps or partner products.	Irrelevant cross-promotions can reduce credibility and trust.
In-app ads show higher click-through and conversion rates than web ads.	Accidental clicks can inflate performance numbers without real value.

2. Data Monetization

Among the many answers to the question “how do free apps make money,” this method stands out for its behind-the-scenes effectiveness. The next monetization technique to keep your app free is data licensing. It involves collecting and selling user data to advertisers in an anonymized form.

With the rise in mobile usage, apps have become goldmines for marketers, making user data digital gold. They use it to understand consumer behavior and improve their products and advertising. By offering anonymized data, you are bridging the gap between users and marketers. 

For this, you simply have to integrate Data Monetization SDK into your app that would capture particular data points like clicks, session duration or ad interactions, while maintaining user anonymity and compliance with privacy standards such as GDPR.

Example

The health monitoring software Strava monetizes user data by providing anonymized activity data to municipal planners and transportation departments. This data contributes to better infrastructure for bikes and pedestrians.

Pros	Cons
Allows for more tailored user experiences through personalization.	May raise user concerns about how their data is collected and used.
Improves ad targeting by providing advertisers with relevant behavioral data.	Requires secure storage and responsible handling of user data.
Valuable for apps in sectors like fitness, navigation, and weather.	Might not suit apps with sensitive user data, like those in healthcare.
Works best with large or diverse user bases.	Smaller apps may struggle to earn meaningful income through data.
Offers opportunities for partnerships and market research.	Can deter privacy-conscious users and affect trust.

3. Sponsorships/Partnerships

Sponsorships are similar to in-app advertising. However, instead of joining a mobile ad network, an app publisher would partner with a specific brand and display their ads for monetary compensation.

Sponsorships and partnerships are highly strategic collaborations where contextually relevant products and services are advertised on the app to align with the publisher’s user base. 

It’s an ideal revenue source as the publisher improves user experience by introducing its users to complementary services and gets paid in due process.

Example

Snapchat and Tacobell collaborated to create a new filter where the users’ heads would turn into giant tacos. This was done to celebrate Cinco de Mayo.

Pros	Cons
Offers predictable and steady revenue via premium ad space compared to variable ad earnings.	Partnering with the wrong sponsor can damage brand image or alienate users.
Gives flexibility in pricing and how sponsorship spaces are offered.	Apps with general or broad audiences may struggle to attract relevant sponsors.
Builds long-term brand relationships and opens doors to future deals.	Misaligned sponsorships can dilute the app’s focus or user value.
Complements user experience if the sponsored content is relevant and useful.	Over-commercialization may reduce trust or make the app feel too branded.
Gives sponsors an edge in mobile-first environments.	Not all app categories are equally suited for sponsorship-based monetization.

4. In-app Purchases

Another popular way for app publishers to keep their app free is through in-app purchases. These can include in-game powerups, limited edition skin for game characters, or extra game currency.

There are generally two types of in-app purchases:

• Expendables: Often found in free games, these can include game currency like coins or town cash, or powerups. As the name suggests, you will have to repurchase them once consumed.
• Unlockables: These purchases are permanent in nature, i.e., the validity of such features are not dependent on time or consumption.

Sometimes, many apps also devise a subscription module within the in-app purchase model. The user is billed on a monthly or yearly basis. In-app purchases are one of the best strategies for app monetization without ads.

Example

Honor of Kings was the highest-grossing game in 2024, generating $1.86 billion in in-game income from in-app purchases (Business of Apps). Similarly, Among Us is another game that utilizes in-app purchasing models to earn revenue.

Another example is DramaBox, which is an excellent example where the users have to buy coins to watch further episodes after accessing the first few for free.

This data serves as a strong example of one of the most frequently asked questions: “how much money do free apps make?”.

Pros	Cons
Allows you to offer the app for free, attracting more downloads.	Many users never make a purchase, leading to unpredictable or unstable revenue.
Lets you monetize based on actual usage, capturing more value from active users.	In-app purchases may be viewed negatively if they block essential features.
Lower upfront cost helps reduce friction for users to start spending.	Doesn’t build user retention as strongly as auto-renewing subscriptions.
Highly effective in high-frequency apps like mobile games and content streaming.	Apps with low usage or sporadic engagement may lose recurring revenue opportunities.
Supports both consumable (reusable) and non-consumable (one-time) digital products.	Success depends on designing high-value items that users are actually willing to buy.

5. Freemium Model

Freemium is the most popular monetization technique, with 83% of apps embracing the model (Social Plus). In this model, app publishers let users access the app’s basic features for free. However, to access premium features, they will have to pay for them.

However, it’s not easy to implement the freemium model. Your app needs to deliver clear value in its free tier for users to explore the gated features. Moreover, if you are combining expendable in-app purchases with the freemium model, your offerings should reflect value in the eyes of the consumers to keep coming back.

Example

The corporate communication app, Slack, operates on a freemium model. Users can use the app for basic communications. However, users will have to pay to access features like viewing messages older than 90 days, Slack AI, data export, or creating an employee directory.

Pros	Cons
Freemium eliminates the initial usage barrier by offering free access, attracting many users.	A large base of non-paying users can quickly drain a company’s resources and cash reserves.
It helps build a large user base quickly, which can later be monetized through upgrades.	Many free users never convert to paying customers, limiting revenue potential.
Freemium supports differential pricing, where heavy users may generate more revenue than a flat fee.	Too many features in the free version can discourage users from upgrading to the premium version.
Users can try the product before paying, increasing trust and likelihood of future conversion.	Companies risk creating user frustration if the free version lacks features or meaningful upgrades.
The model is highly scalable as the user base and brand reputation grow.	Low conversion rates can threaten the sustainability of the business model.

6. Transaction/Service Fees

This is another model that is utilized by many apps in the marketplace that rely on users’ transactions. These apps mainly function as an aggregator or intermediary by providing unified services to the users on a single platform. And for the suppliers, these apps offer a unified and convenient approach to reach a wider audience. 

Example

The best example of such apps is Uber. The cab aggregator connects users to various cab drivers and takes a pre-decided cut from the income earned by the drivers via the app. Many stock management apps also follow this financial model to keep their apps free.

Pros	Cons
Revenue scales directly with transaction volume, encouraging business growth.	Customers may become price-sensitive if fees are perceived as too high.
Low upfront costs for users attract more participation and increase transaction activity.	Revenue heavily depends on consistent and high transaction volume, making it vulnerable to fluctuations.
The model aligns revenue generation with user success and value delivery.	Competitive markets often drive down fees, leading to shrinking profit margins.
It offers predictable revenue streams in industries with steady transaction flows.	Complex or non-transparent fee structures can cause user frustration and erode trust.
The model supports rapid growth by removing participation barriers for users.	Sudden drops in user activity or seasonal trends can severely impact income.

Understanding how do apps make money that are free is one thing; choosing the right monetization plan for your app is another. 

Thus, let’s explore how to pick the best app monetization strategy for your app. 

How to Choose the Best App Monetization Plan for your Free App?

1. App Category

Conduct a thorough competitor analysis of the app category you are targeting. Understand what the offerings of your competitors are, and what revenue model is working best for them. At the same time, see which revenue models work best for the app category you are targeting.

Study the market reports and the statistics. Follow AdTech news websites to be apprised with the latest developments.

At the same time, identify your app’s USP or the value that’s unique to your app. Follow the same due procedure to understand how to showcase and monetize it.

2. User Behaviour

Understanding your user base is essential to your app monetization strategy, which is evident as they are at the center of it. Even if a monetization model may seem right for a user, it won’t work if it doesn’t sit well with the user.

Small-screen users won’t prefer being bombarded with big ads while grocery app users won’t pay to unlock the gated content/features.

In a similar fashion, understand how your potential consumers behave in the app ecosystem and accordingly prepare a roadmap.

3. Hybrid Approach

No market works on a single approach. In this ever-shifting market, a hybrid approach will take your place and reach new heights. For example, rather than solely relying on a freemium model, you can combine it with in-app ads or purchases.

You can also tap into social media’s powerful presence to promote your app. Similarly, you can even get into email marketing to apprise your audience of the latest developments within your app.

Now that you are through with “how do free apps make money”, let’s look at the common mistakes that publishers end up making. 

Common Mistakes Publishers Make

1. Single Monetization Approach

In today’s world, when app stores are flooded with a gazillion similar apps, it can be hard to stand out. But what is even more difficult is the monetization part.

However, many app publishers fail to understand the reality of the market and rely on a single monetization plan to break even. That time is long gone. 

Relying on a single financial model tends to leave the untapped revenue opportunities on the table. Moreover, it doesn’t guarantee a recurrent revenue flow. On top of that, a single financial model only serves short-term goals and can hinder app development in the long run.

2. No Market Research

Not doing market research before finalizing on the financial model is just like building a house on sand. It might give an illusion of steadiness, but doesn’t last long. Simply stating, you won’t be paid if you don’t know your audience.

A thorough market research lets you understand the market saturation, the loopholes/gaps, user interests and behaviour, and your competitors, among other things. An on-point analysis of your potential market will give you hefty results in the long run.

3. No Long-term Monetization Goals

Sometimes, app publishers opt for a monetization model without creating a long-term revenue roadmap (something along the lines of a five-year plan). But let us understand that short-term plans will only give you results for the short term.

Your app may generate revenue from, let’s say, subscriptions, but what if a competitor offers in-app purchases? Or makes it free via in-app ads?

Long-term monetization goals take care of such changes in the business environment and create mitigative plans accordingly.

Key Takeaways on Free App Monetization

Charging upfront with paid apps can boost immediate earnings. But free helps build a loyal user base that drives long-term revenue. The real challenge lies in creating an experience that keeps users hooked.

App developers primarily have 4 app monetization models: In-app advertising, data monetization, freemium model, transaction fees, and sponsorships. However, Freemium is the most popular monetization technique, with 83% of apps embracing the model.

The most critical part of the process is choosing the best strategy for your free app. While there are many options available in the market, you should consider some factors like the app category, target market behavior, or a hybrid approach before finalizing your strategy.

However, a publisher should keep in mind the common mistakes while choosing a strategy to prevent future losses. Some of them include not doing a thorough market research, relying on a single financial model, and not creating long-term plans.

Are you looking to monetize your free app? Contact AdPushup, a Google-certified Publishing Partner, and get a free demo. Our unified mobile SDK for in-app advertising enables you to access premium demand to justify your inventory’s value. 

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FAQs on Free App Monetization

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