You probably use lots of free apps but a few paid apps. Most people will first look for free apps before considering a paid alternative. Some apps are really popular and addictive, but the creators are yet to make real money from what they have developed. It’s hard to make real money from mobile apps. If you get the business model right and your app is addictive enough, you will be able to reap the benefits of your creation soon enough.

Flappy Bird was free to download but it was still pulling in revenue of up to $50,000 a day. The game doesn’t depend on purchases of the app for revenue, but makes money through in-app advertising. Even after the developer, Dong Nguyen removed it from the app store for addictive reasons, the game is still making money from ad impressions.

Slotomania, a free slots app on the other hand, offer free bonus features and makes money from in- app purchases. Users also have the opportunity to win free prizes as the game progress. But the truth is you can only make significant money from advertising if you have huge number of users.

The three most widely used ways developers make money from apps

If you have a good idea for a mobile app, it’s important to think about the type of model you want to use right from the beginning. That way you will know what to concentrate on when you are ready to monetize. Even if you are offering your app for free, it’s worth your while to figure out the business models you can implement in the future.

1. Freemium apps

The free model is probably the most popular model for both web and mobile developers. It describes a business model where in you give away a core product for free and charge for proprietary features or more functionality. It’s the practice of giving your app or game away for free and making money via in-app purchases or ad impressions.

Freemium accounts for over 71% of Apple AppStore revenues in the US, up from around 50%. In Asia, freemium is 90% of App Store revenues. With a large user base you can always reply on in-app purchase or ads if you use the freemium model right from the beginning. When reach is important to you and you need large amount of users quickly to create network effects, you should opt for the freemium.

As annoying as they can be, free apps supported by ads are also popular with app developers. Ad supported apps typically include banner or video ad that runs during breaks or just below the app. Ads tend to have a negative impact on app retention because users tend to quit instead of watching an interruptive video.

2. Premium (or paid apps)

Premium apps can be downloaded at a minimal fee. Premium is used by some of the biggest names in the market. Some apps have always been premium but are still popular with a particular target audience. Future upgrades to the premium app on the other hand are free once purchased.

You should consider using the premium model if you have a huge demand for your app or if have a strong brand already and can establish trust with users where they are willing to pay before they download the app. If the cost of supporting a user is also high or difficult to maintain and you can convince your audience to commit a small fee upfront before downloading, the premium can work bets for you.

3. Subscription model

An assurance of future transactions is the holy grail. A subscription provides a guarantee of repeat transactions. It’s usually a minimal fee paid monthly or yearly. Long term commitments to your app by lots of users can create a good business for you. The problem has always been convincing users that the value they will get from your app is worth the price they will be paying on monthly basis.

What is an ideal model?

There is no right or wrong model. It depends on a lot of factors including vision, the type of app, industry, market and probably the competition. With millions of apps out there, unless you can offer something really valuable, it could take time to make a lot of money from your app.

A combination of different models is mostly ideal for most apps. The mobile app industry is already very large and still growing even bigger but there is still money to be made out there. If you are building something amazing, you won’t struggle to make money.