Free app can be great! They’re a big part of what makes the App Store and the whole app eco system a success. They’re very popular with users, and they can be great revenue generators for your business.
I’m going to take some time to share my thoughts on some of the ways app developers earn revenue from their free apps.
In-app banner ads
Should you use ads in my app? My answer to this question will always be no. I have a number of reasons why I think ads are a bad way to monetize your app…
I hate ads in general, but in software it’s particularly frustrating. I don’t ever want any one of my potential customers to feel this way when using any of my products.
Mobile ads look and feel terrible. Even Apple’s (now shutting down) iAd service, which promised attractive and engaging ads, was a horrible experience.
You can only ever make a tiny amount of money. There’s a choice of mobile ad networks that you can use to monetize your free app, and I’ve seen developers go to great lengths to cleverly program the most profitable program to serve ads at any given point. A typical eCPM for mobile in-app ads is between $0.30 to $2.50. This means you might earn $2.50 for every 1,000 views of your ads. If you want an eCPM closer to $5, you have to opt for intrusive interstitial ads.
Let me put these numbers into perspective… If I wanted to earn $1,000 per month from in-app banner ads, in the best case scenario my ads would need to be viewed at least 400,000 times. It’s more likely that my ads would need to be viewed over 1 million times to earn $1,000.
One million views of my app every month? I’d want more than $1,000. What would you do with one million pair of eyes looking at your app? Serve them an ad? No.
Voluntary patronage from users
This is a really interesting one… It’s something I’ve never tried myself, but I’ve seen it working well in Marco Arment’s Overcast app for iOS. Marco offers users 3-Month 6-Month or 12-Month optional ‘patronage’ for $2.99, $5.99 or $11.99.
I really like this idea, because it’s such an honest approach to monetizing your app and lets you offer everybody an excellent ad-free app, that’s supported by the voluntary patronage of a few paying users. Overcast even tells you “203 people became patrons today”, even assuming all 203 were paying the $2.99 3-Month patronage, that’s over $600 per day, or $16,800 per month.
I’d be willing to bet that revenue per user from a voluntary patronage model will be higher than revenue per user from ads. $16,800 per month from in-app banner ads would require 6.7 million views if you were lucky enough to earn an eCPM of $2.50.
Charging your users by offering an ‘upgrade’ to buy
This is the approach I always take. I really like this approach to monetizing an app, especially if you’re offering a good incentive to buy, and you’re not crippling your free product so much that your users can’t use it.
With Teleprompter Premium, I have a free ‘Lite’ version and a paid ‘Premium’ version for $9.99. Looking at the number of free downloads vs. paid upgrades, Teleprompter Premium actually earns $0.83 per free download. That’s more revenue per download than a $0.99 app.
If you want to get ahead, you need to discover what your users are willing to pay for. You should be creating a product that is the “no-brainer” solution to a specific problem. I have a specific process I use to discover what my users are willing to pay for, I go into detail about it here.
Recurring subscriptions can be a very big revenue earner for your app, but it has its own challenges. Firstly, Apple has a set of rules covering what kind of products it will allow you to charge a renewing subscription for, and these have been changing a lot recently. Right now, Apple’s App Store Review Guidelines say:
Apps may only use auto-renewing subscriptions for periodicals (newspapers, magazines), business Apps (enterprise, productivity, professional creative, cloud storage), and media Apps (video, audio, voice), or the App will be rejected
Additionally, it can be very difficult to sell the idea of signing up to an auto-renewing subscription unless you have a very compelling product like Spotify, or provide a great service like Dropbox.
Selling products outside of your app
Another great idea is to use your app to build an audience that might be interested in a product you have outside of your app, this could be a digital or physical product.
If you’re not already building an audience, you need to start now, even if you’re not planning on selling anything yet.
The best way to build your audience is to offer your users an incentive for signing up to your email list. You can offer some extra feature, or offer to automatically send them something valuable that relates to your app. Make it worth their time and make it relate to your product.