Best Free App Monetization Strategies 2020: A Complete Guide

Krunal Shah

Jul 24, 2020 | 11 min read

Free app monetization strategies 2020

Amongst the millions of existing mobile apps on app stores, there are some truly exceptional ones that get lost in the crowd. No matter how groundbreaking your app idea is,it’s good for nothing if users don’t know it or pay for it. App marketing techniques play a huge role in getting your app some recognition. But what after that? You have to earn revenues in order to grow. This is where app monetization comes into the picture. To make the most out of your brilliant mobile app, here are the best free app monetization strategies to use in 2020.

In this blog, we will answer the following questions for you:

What is app monetization?
How do I monetize my mobile app?

What types of ads can I run on my mobile apps?

How do I choose the best app monetization model for my mobile app?

What is App Monetization?

App Monetization

In simple terms, app monetization refers to the act of generating revenue from an application. Typically, the mobile app monetization process begins after the app has been downloaded by the users on their devices. Once the companies have a better understanding of their market and users, they can capitalize on a relevant mobile app monetization model to get started.  

“All developers put in a lot of effort into making an app. The amount of sweat and time that goes into it cannot be measured fairly. Sometimes, developers incur a cost to get their app running, either for some service they're dependent on or other common requirements with an app - a supporting website, it's hosting, its domain, etc. Building something for free is great, but it's even better to be rewarded for your hard work.”
- Rajat Vaghani, Founder and CEO, Snap Search

Most modern businesses adopt an app monetization model as it is critical for the development of their app business model. Free apps attract the maximum number of users. So, once these apps are downloaded, the developers can make modifications to earn a profit out of them.

It is necessary that such changes do not drive away from current users while earning revenue at the same time.

Top Free App Monetization Strategies in 2020

Considering a large number of app users, organizations can employ a myriad of strategies to make money off their apps. However, make sure you don’t compromise on UI UX of your app while deciding on app monetization strategies. In the long run,  a bad UX can have a number of serious repercussions on your app revenue.

“Protecting the user experience at all costs will keep users coming back. They'll continue to use your app, leave positive reviews, and even recommend it to their friends. Just wait and watch how your app begins to generate more revenue than before.”
-  Dennis Bell, Founder and CEO, Byblos Coffee

Following are 7 of the most popular free app monetization strategies along with their pros and cons:

1. In-app Advertising Models

In-app ads are the most popular model among app development companies for generating revenue from their apps. Since it allows businesses to earn profits by keeping the app free, it’s the most sought after method of mobile app monetization in 2020.

However, these ads can also backfire by cluttering up the UI if displayed at the wrong place or time.

There are 5 types of in-app advertisements for mobile apps:

Mobile App Banner Ads

Banner ads are the oldest form of in-app adverts. These ads are more relevant in mobile apps that have a free and a paid version. The free version of the apps hosts banners that occupy a certain area of the UI to advertise a product/service.

Over the years, banner ads have garnered negative reviews. They make the UI repulsive and the users find them intrusive.

Moreover, these ads take up a small area of the screen making them almost invisible to the eyes of the users. Since they have a low engagement rate, the advertisers are not willing to a hefty amount for running these ads.

Interstitial Ads

Mobile App Interstitial Ads

Interstitial ads are a popular alternative to banner ads. It is named so because it appears as a full-screen advertisement between separate user flows such as pages, stories, etc. Interstitial ads can be in the form of a display or a video and ask the users to just simply look at the screen during its run-time (usually a few seconds).

By understanding the dynamics of their user, app developers can optimize this strategy in their best interest. It is important that these ads don’t cause a negative user experience inadvertently. The end of a user flow is generally considered an appropriate time for displaying interstitial ads.

A great advantage of this model is that it demands the users’ attention for a very short amount of time. After just a few seconds, the users have an option to close the ad and move on or click through to get more information.

Native Ads

Mobile app Native ads

In this model, the adverts are adapted seamlessly into the overall look and feel of the app. These ads are placed in such a way that they look like just another piece of content on the app.

In this way, they don’t distract the users but rather blend in naturally with the UI. This also results in an increased engagement rate and user-friendliness.

In hindsight, this method does raise concerns over its use. The ads can deceit the users into thinking that it is an organic part of the app which disrupts the user experience. The app is perceived as spam and it chases away the users. The solution is to make the adverts feel natural while clearly marking them as ‘sponsored content’ at the same time.

Affiliate Ads

Mobile app Affiliate ads

Affiliate ads are a form of Affiliate marketing. They allow businesses to use other apps, products, and services to generate revenues. The developers earn commission by advertising related third-party apps and products on their applications. Since these ads use the ‘word-of-mouth’ principle, the success rate is relatively high as loyal users trust the recommendations given by their favorite apps.

Affiliate ads work the best when they enhance the user experience. Companies must place the ads at relevant points in the users’ journey. Example: A home workout app can advertise for an equipment store in between the individual exercises.

Reward Ads

Mobile app Reward ads

Reward ads are the most effective type of advertisement for app monetization. This is particularly beneficial for free apps that get the users hooked for long periods of time such as mobile games. The users are motivated to watch a short ad (usually a video) in return for an incentive such as an extra life.

To get this model right, the value of the reward must be in line with the advertisement. The timing and frequency of the ads are also crucial. Users must not find themselves watching an ad over and over which ultimately defeats the purpose of your app.

“The rewarded video ad should be shown when there is something big in return. For example, on most of my games, when a user loses all the lives,I show a button to get an extra life and continue the game. The conversion rates for that button are always high.”
- Madhsudhan Khemchandani, Owner, MK's Guide

2. Freemium Models

Freemium Models for mobile app monetization

The Freemium model combines free and premium features into one app. Essentially, freemium apps can be downloaded for free. The free version of the app allows the users to browse through the basic features. The premium version of the app can be accessed by the users when they make a purchase that unlocks additional content and features.

The strategy is particularly useful for those with an aim to expand the user base while still being able to monetize the app. Free accessibility of the app has the potential to attract large crowds that can be converted into the users of the application.

The success of this method depends upon the user experience of the apps. Only if the users find the free features valuable enough, then will they be willing to upgrade to the premium version for a complete experience.

Spotify is a prominent example of a freemium app. Through constant experimentation and data analytics, the app has achieved a higher conversion rate than most other apps in its niche.

Pros of freemium model

  • The app develops a loyal user base since people are able to initially try it for free.
  • Highly adaptable and suitable for all the industries.

Cons of freemium model

  • The right balance of free and premium features is often difficult to determine. This can bring about too few or too many free features.
  • This model often requires the developers to provide users with time and options for decision making. The users can take a long time to test the free features and in the end decide against going premium.

3. In-app Purchase Model

In-app Purchase Models for mobile app monetization

One of the best free app monetization strategies in 2020 is the in-app purchase model. This functionality makes it possible for the users to buy content, services, or special features (such as a power-up in game) within an app, at a predetermined price.

While implementing this app monetization model, developers must ensure these in-app purchases add to the experience of the users and not otherwise. Like reward ads, the product/service must be worth the money spent.

This model demands some efforts on the part of the app provider. Users must be encouraged to make those in-app purchases. This can be achieved by sending personalized notifications and offering periodic discounts to the users.

The photo editing app VSCO has managed to successfully use this model to its advantage. The app offers a wide range of additional photo presets with their own aesthetic in the form of in-app purchases at bargain prices.

Pros of in-app purchase model

  • It is a very risk-free method of app monetization.
  • The model has proved to be most successful for the e-commerce vertical.

Cons of in-app purchase model

The selling platform (Apple store or Google Play Store) demands a high commission rate for selling virtual products.

4. Subscription Model

Subscription Models for mobile app monetization

In many ways, the subscription model is similar to the freemium model. However, mobile apps with subscription models go beyond the simple “buy” or “don’t buy” options. Several apps offer various levels (bottom to top) of subscription to the users.

Each level has its own pricing policy and an accompanying set of features. This functionality even allows those ‘not-so-sure’ customers to test the app with a low tier of subscription.  

Besides converting users to subscribers, these apps must also focus on introducing new and interesting features/content for the current subscribers.

Headspace can be used as a relevant example of the subscription model. By offering guided meditation on productivity, relationship, and other topics, the popular mindfulness app has amassed thousands of subscribers.

Pros of the subscription model:

  • Long term subscriptions result in a steady and reliable income.
  • The model can drive a significant amount of engagement.

Cons of the subscription model:

Apps with subscription models often require a huge investment to create highly responsive and constantly engaging content/features.

5. Sponsorship and Partnership

Using this mobile app monetization model, developers work together with advertisers to earn profits. The advertising company will provide a reward to the users upon completion of certain in-app actions.

The original app’s user base must be strong enough to attract brands for collaboration and greater exposure to the audience. The original app benefits from the interaction with the users of the advertiser app.

In other words, sponsorship is a mutually beneficial deal for expanding the respective user base of each brand.

“A creative way that an app can be monetized, which unfortunately a lot of developers are not thinking about, is by product placement. This is advertising, but not annoying advertising. For example, let's say you have a restaurant app. You could get paid by a big company like Coca Cola to show their logo in the restaurant menus. It's not annoying, it doesn't take up screen space, and users won't feel cheated.”
- Oliver Bravo, Founder and CEO,  Best Lawsuit Loans LLC

The best example is that of Nike + and Headspace. App users get the benefit of coaching from Nike pros along with advice from Headspace experts to improve their overall experience of the running and exercise experience.

6. App Data Monetization

app data monetization

Data monetization is quite a controversial free app monetization strategy. Under this model, app owners collect data from their users and sell it to others. A number of industries have already started earning revenues from their customer data.

“Data monetization can drive revenue to any app category. After the one-time SDK integration, there's no further commitment, so it's scalable.”
- Jus Chall, Brand Strategist, Skein

At present, the importance of big data is unparalleled and it is extremely useful in virtually every field. App developers can use this for creating hyper-targeted marketing campaigns for the current users and boost ad prices.

However, this model of app monetization is a tricky one. The developers must resort to a completely secure and transparent data collection process. Moreover, users should be able to voluntarily decide whether to opt-in for the process and should be allowed to opt-out at any time.

“Avoid data monetization if you can’t protect the privacy of your users’ data. While selling data can help you make some money, it will hurt your business in the long run and make you vulnerable to competitors.”
- Neal Taparia, CEO, Solitaired

Which Free App Monetization Strategies Are Right for You in 2020?

“Free app monetization strategies must employ clearly defined revenue models that are transparent to users of your app and are defined upfront before any engagement or download.”
- Bryan Osima, CEO, Uvietech Software Solutions Inc.

In order to maximize monetization from your app, it is important to comprehend the analytics of user behavior. An ideal strategy is one that prioritizes the user experience while generating revenues.

Since each app has a different set of features and aspects to it, choosing the right model can be tricky. However, the following few points will help you get a clearer idea.

Business Goals

An application is launched by keeping in mind the business goals of the company associated with it. Some apps aim at making profits right from the beginning while others concentrate on increasing their user base first and think about monetizing at a later stage.

Outlining a clear business goal helps in identifying the most appropriate approach for your business.

Understand Your Target Users

As mentioned before, getting familiar with your users is an important step in determining the monetization strategy for your app. You can learn about the demographics and app usage patterns and strive to give the best user experience to your users while looking out for yourself.

Free App Monetization Strategies in 2020: The Bottom Line

The mobile app monetization models discussed above are not exclusive; many apps use a combination of strategies. An example can be that of a free app with targeted ads. Currently, a large number of companies use a blend of strategies to monetize their apps. The key is to find out which combination works best for your app.