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How Do Free Apps Make Money?

I get comments and emails like this every week:

Do you have any advise on making money from your app?

How do free apps make money?

One question, how do you market your app and since your app is free, how did you monetize this app?

If your app is free, how are you making a profit?

It’s a fair question.  With so many apps being free, how are they making money and staying in business?

There are basically 4 options to app monetization.

Charge Money

Charge money for users to download your app.  Most popular apps are $.99-$2.99.  But pricing is completely dependent on what your app does and how big of a market there is for it.  For example, Nathan Barry created OneVoice which helps autistic kids and it sells for $199 – not 1.99 but $199 as in almost $200.  And people gladly pay for it because it solves a big pain point for them and actually saves them money compared to the other options they have.

I created a paid version of my app as an experiment but the main focus was always on the free version.

It was more important to me with this app to get a large number of free downloads then a much smaller amount of paid downloads.  This was because this app was designed more as a way to boost my resume, portfolio and education so demonstrating that I was able to get 100,000 downloads was more impressive then saying I got 500 paid downloads.

So a large factor with deciding which way to go is to decide what your goals are.

Do you want a portfolio or resume piece?

Do you just want extra beer money?

Do you want to maximize revenue?

Do you want to be able to get as many downloads as possible?

Do you want a balance of both?

You can expect to get about 1% of the number of free downloads if you charge money.  Out of my 120,000+ downloads, about 570 were paid downloads.

Promo codes and review: Also – here’s something to keep in mind:  Each time you update your app, you get 100 promo codes to give out to anyone you’d like so they can download it for free.

I thought this would be a great way to get some initial reviews for the app.. But it turns out that Apple blocks users who’ve downloaded an app using a promo code from leaving a review.

They’re always one step ahead of us :)

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This is the route I chose to go with my first app.  There are different ad networks, which are the services which insert the ads into your app.  The two most popular are iAds, which is Apple’s and AdMob which is run by Google.  I went with iAd because I read that it typically pays out more than AdMob (Apple takes 30% of the revenue though).

To integrate iAds into your app:

– When updating your app in iTunesconnect.apple.com, click on your app and then hit ‘Enable iAd network’

– Then have your developer integrate the iAd code into your app

With ads, you get paid based on how many impressions or views your ads get.  So the more people who use your app daily, the more impressions you’ll get and the more money you will make.

So how much money can you expect to make if you go the ads route?

Here is a breakdown of my numbers from September 2014.

Requests: 75,522 (this means when your app requests an ad to be served – a request is not always fulfilled)

Impressions: 61,296 (This is how many times an ad was shown on the app)

Fill rate: 84% (This is the number of impressions divided by the number of requests)

eCPM: $1.49 (This is how much money I made per thousand impressions.  CPM stands for Cost Per Milli – milli meaning thousand.

Revenue: $91.24 (The most important number of all :) This is calculated by dividing my total number of impressions 61,296 by 1,000 (because the metric you are paid by is 1 thousand impressions. So 61.296 x my eCPM above $1.49 = $91.

I had my developer ad iAds after I had originally launched the app – but it only cost me around $30 for them to add in the code.

In App Purchases

This option was rolled out by Apple a few years ago and is quickly becoming the most popular ways to monetize an app.

The reason is because your app is listed as Free in the App Store – so you still get a larger volume of people downloading your app.  But then you have an Up-sell option, where they can pay to get rid of ads, or pay to unlock levels or features.

This is extremely popular with games because instead of only getting $1 for someone who originally downloads the game, they can charge them for new levels or weapons or cars and make more money from each user.

In-app purchases are also great for users because they get to try out your app before spending money unlike with normal paid app downloads.

Spend a few minutes thinking about any add ons or upgrades that could be given to users as an in app purchase.

The simplest one is to offer users the option to pay to disable ads.  Most users won’t take this offer though because they don’t mind ads that much.

Offering in app purchases takes extra time for your developer to implement so will increase the cost of your app so keep that in mind as well.

Free

The last option is to just offer your app completely for free.  This is the option favored by apps looking to acquire as many users as possible and to sell to a larger company – think Instagram.. but can also be fine for your first app if you just want to get something out there that your friends and family can use for free and don’t spend the time or money implementing ads or in app purchases.

Make a combo

You can also use a combination of monetization methods.

For example, for a while I only had a free version of my app which made money through ads.  It was going pretty well revenue wise.. But then I decided to do an experiment and duplicate the app and release a separate version, but this time, remove the ads and charge $.99 for it.

With an hours worth of work, I almost doubled my revenue.

I really wish I had done that sooner!

So remember, if your spending a lot of time debating back and forth over whether you should charge for your app, make it free or do IAP – just do a combination.

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