April 10, 2024

Free App Monetization Model: Step-by-Step Guide

Defining an optimal monetization strategy for your app involves a tailored approach, recognizing that each app has its unique essence and goals. Here's a refined guide to navigating this decision-making process effectively.

5 Main App Monetization Strategies

  • Advertising
  • In-app purchases
  • Freemium
  • Subscription
  • Sponsorship


Advertising is a prevalent revenue model for free apps, incorporating various ad formats like banner ads, interstitials, and video ads. Each interaction with these ads, be it a view, click, or installation, translates to revenue. The key to success lies in balancing ad integration to ensure a seamless user experience while optimizing revenue potential.

Ad revenue can be derived through multiple channels:

  • CPM (Cost Per Mille): Earnings are accrued per thousand ad impressions.
  • CPC (Cost Per Click): Revenue is generated each time an ad is clicked.
  • CPV (Cost Per View): Income is based on the number of video ad views.
  • CPA (Cost Per Action): Compensation is received when users undertake specific actions, like app installations or purchases.

For successful in-app advertising without hindering user experience, consider these tips:

  • Introduce full-page ads post-action or level completion to minimize disruption.
  • Personalize ads based on user interaction analytics to enhance relevance.
  • Ensure ads are of high quality and free from technical glitches to prevent negative user experiences and reviews.

Adhering to these steps with a focus on user-centric design and strategic monetization can significantly enhance your app's market viability and profitability.

In-App Purchases

In-app purchases offer users the option to buy additional features or content within the app. This model is particularly popular in gaming apps but can extend to various types of applications.

There are three main categories of in-app purchases:

  • Unlockables: Users can make a one-time purchase to permanently access specific features or content.
  • Expendables: Typically used in gaming apps, these are consumable items that enhance the gaming experience.
  • Subscriptions: This recurring payment model provides ongoing access to content or premium features.

Freemium Model: Free Entry, Premium Experience

The freemium model offers users access to basic functionalities at no cost, with the option to pay for advanced features. This model effectively engages users by providing a taste of the app's value, encouraging them to invest in a premium experience.

Freemium monetization can take various forms:

  • Gaming Apps: Users can purchase in-game items or features to enhance their experience.
  • Productivity Apps: Basic functionalities are free, with advanced features available under a premium tier.

Subscription Model: Recurring Revenue

The subscription model charges users a periodic fee for app access, ensuring a steady revenue stream. While similar to the freemium model, the distinction lies in the access limitations post-trial period; users must subscribe to continue using the app.

This model is favored by apps offering rich content or services, such as media, entertainment, and professional tools, though it represents a smaller fraction of the app market.


The sponsorship model involves forming partnerships with brands that align with the app's niche. In exchange for financial support, the app incorporates branded content, advertisements, or redirects to the sponsor's offerings.

While less common, this model can offer significant benefits when a synergistic relationship is established between the app and the sponsor, enhancing value for both parties.

Selecting the right monetization strategy requires a deep understanding of your app's user base, market position, and unique value proposition. By strategically implementing these models, developers can maximize revenue potential while maintaining a positive user experience.

8 Steps to Define The Best App Monetization Model For Your App

Step 1: What's Your Goal?

First up, think about what you want your app to achieve. If you're all about getting lots of people to download your app for brand awareness, charging them a subscription might not be the best move. Got an existing business and customer base? A free app with some premium paid features (freemium) or a subscription might work well. Just looking to make some quick cash? Ads could be the way to go.

Step 2: Stand Out

There's probably a bunch of other apps doing something similar to yours. You need to make sure your app brings something special to the table. If it's just "another app," it might be tough to make money.

Step 3: Know Your Audience

Tailor your monetization strategy to your audience's preferences. Gamers might tolerate ad interruptions for rewards, but this could frustrate a professional audience using a productivity app. Identifying your audience's needs and pain points is crucial for ensuring high engagement and retention rates.

Step 4: Analyze Competitors and Assess Risks

The app market, especially in gaming, is highly competitive. Analyze your competitors' strengths and weaknesses to identify opportunities and evaluate the feasibility of different monetization models within your niche.

Step 5: Select a Monetization Strategy

With a clear understanding of your app's value and market position, choose a monetization model. You might combine several strategies, but ensure you have metrics in place to measure their success.

Step 6: Monitor Key Performance Indicators (KPIs)

Regardless of the chosen model, profitability is key. Essential KPIs include Downloads, Monthly Active Users (MAU), Average Revenue Per User (ARPU), Lifetime Value (LTV), Customer Acquisition Cost (CAC), Retention Rate, Engagement Rate, and Conversion Rate. These metrics will guide your strategy's effectiveness and market positioning.

Step 7: Prototype and User Testing

A user-friendly app is more likely to be monetized effectively. Develop a prototype to test with potential users, gathering feedback on its functionality and problem-solving capability. This stage is crucial for refining your app's value proposition.

Step 8: Develop and Iterate an MVP

Launching with a Minimum Viable Product (MVP) allows you to balance cost, profitability, and market entry timing. Use initial user feedback to refine the MVP, gradually incorporating additional features while focusing on engagement and conversion metrics.

Read more about MVP and the Lean Start-up Approach here.

How Much Do Free Apps Earn?

Yes, people do indeed spend money on free apps, and the numbers are quite telling. As of the third quarter of 2023, the average amount spent by consumers on mobile apps per smartphone was around $5.05, showing a slight increase from the $4.86 spent in the same quarter of 2022. A significant portion of this expenditure is directed towards games, which tend to dominate app spending over other app categories.

When we look at the revenue generated by apps on Apple’s App Store, there was a 10.6% increase in 2022, reaching a substantial $36.3 billion. This growth signifies the substantial economic impact of mobile apps and the willingness of consumers to spend on digital products and services.

On the Google Play side, the growth story is a bit more varied. There was a remarkable surge of 58.2% in revenue in 2021. However, the growth rate moderated to 8.4% in 2022, culminating in a total revenue of $11.5 billion for that year. Despite the slowdown, this growth indicates a healthy and expanding ecosystem for Android apps.

Given that over 90% of the apps available on both the Apple App Store and Google Play are free to download, it's evident that the majority of this revenue comes from within these free apps. This revenue is primarily generated through various monetization strategies such as in-app purchases, subscriptions, and advertising. The data underscores the significant potential for revenue generation in free apps, driven by user engagement and monetization strategies that encourage spending within the app ecosystem.

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