App Monetization Strategy: How Free Apps Make Money
May 2025
The mobile app economy continues its remarkable growth trajectory, presenting unprecedented opportunities for developers and businesses. By the numbers:
In 2024, mobile app revenues reached $522.7 billion globally, with projections to climb to $673.8 billion by 2027.
iOS app developers are seeing substantial growth, with the App Store consistently generating higher overall revenue compared to Google Play.
By 2026, the overall global mobile app market size is forecast to surpass $1 trillion.
However, with approximately 98% of all mobile apps being free to download, many developers and entrepreneurs are left wondering: How do free apps make money? More importantly, how can you generate sustainable revenue from your mobile application?
This definitive guide for 2025 will answer those questions by exploring:
The current market landscape for free mobile apps.
Key factors to consider before selecting your app monetization strategy.
Dominant monetization models include in-app advertising (IAA), in-app purchases (IAP), subscription models, and the freemium approach.
Effective alternative strategies for monetizing apps without relying on ads.
Platform-specific considerations for iOS and Android app monetization.
Actionable best practices and a comprehensive checklist to help you succeed.
What Is App Monetization?
App monetization refers to the comprehensive process through which developers generate revenue from their mobile applications. In its 2025 context, it encompasses a diverse array of methods for converting user engagement into financial returns, whether the app is offered as a paid download or, more commonly, as a free-to-use platform.
The app monetization landscape has evolved significantly; it’s no longer merely about converting downloads into immediate dollars. Instead, the emphasis has shifted towards cultivating a resilient and sustainable app ecosystem that can support long-term business viability. For today’s successful developers, monetization is not an afterthought but an integral part of product strategy from “day zero.“
Free apps dominate both the Apple App Store (95-97% of apps) and Google Play Store (approximately 96% of apps).
Approximately 98% of all mobile app revenue worldwide is generated by apps that are free to install.
Global app downloads are expected to reach 299 billion in 2025, with the vast majority being free apps.
These statistics highlight a fundamental reality: while users overwhelmingly prefer free apps, this model still has enormous revenue potential. The key is implementing the right monetization strategies.
Factors To Consider When Selecting a Monetization Strategy
Before choosing a monetization approach, developers should evaluate several key factors:
How do users’ spending behaviors differ across platforms?
Timing Considerations
What is your development, launch, marketing, and maintenance timeline?
When do you need to show a profit?
How might your monetization strategy evolve?
How Do Free Apps Generate Revenue? The Dominant Monetization Models
1. In-App Advertising (IAA)
In-app advertising remains a cornerstone of mobile app monetization. It enables developers to offer their apps for free while generating revenue from ad placements.
How it works:
Developers incorporate various ad formats into their applications and earn revenue based on impressions, clicks, views, or user actions.
Rewarded video ads: Users receive in-app rewards for watching video advertisements. These have the highest engagement rates and eCPMs, often 4.5x higher than other formats.
Interstitial ads: Full-screen ads displayed at natural transition points in the app experience.
Instagram leverages user data to serve highly targeted, native ads that blend seamlessly with organic content.
Duolingo incorporates rewarded video ads that offer users in-game currency for watching.
Google Maps allows businesses to place ads and promote locations, generating substantial ad revenue.
Best practices:
Focus on non-intrusive ad formats that enhance rather than disrupt the user experience
Implement AI-assisted ad personalization to improve relevance and performance
Strategically place ads at natural breakpoints in the user journey
Consider offering an “ad-free“ premium option for users who prefer uninterrupted experiences
2. In-App Purchases (IAP)
In-app purchases allow users to buy digital goods, features, or content directly within the application, transforming free apps into revenue generators through microtransactions.
How it works:
Users download the app for free but can purchase digital items or unlock premium features through IAP via in-app payment collection options.
Consumables: Items that can be used once and then repurchased (e.g., in-game currency, extra lives, power-ups).
Non-consumables: One-time purchases that provide permanent benefits (e.g., ad removal, unlocking premium features, game levels).
Virtual economy items: In gaming apps, these include character skins, special equipment, or other items that enhance the user experience without affecting core functionality.
Examples:
Gaming apps: Popular games like Royal Match and MONOPOLY GO! offer virtual currency packages, special items, and power-ups.
Productivity apps: Apps like ABBYY FineReader PDF offer feature unlocks for specialized capabilities.
Content apps: The Photo Cookbook allows users to unlock individual sets of recipes via in-app purchases.
Best practices:
Offer clear value that enhances the user experience
Provide a range of purchase options at different price points
Use limited-time offers to create urgency
Implement psychological triggers (e.g., social proof, scarcity, progression loops) ethically
Maintain transparency about what users get with each purchase
3. Subscription Models
Subscription-based monetization has surged in popularity, offering developers predictable recurring revenue while providing users with ongoing value.
How it works:
Users pay a recurring fee (monthly, annually, or custom period) to access premium content, features, or services.
Revenue metrics:
Global revenue from media and digital content subscriptions is forecast to reach $1.26 trillion by 2025.
In 2024, app subscription revenues touched $66.8 billion, with 73% generated via iOS.
Content subscription: Access to content libraries or premium content (e.g., news, educational material)
Examples:
Calm: Offers a freemium model with a 7-day free trial, after which users can choose from monthly, annual, or lifetime subscription options.
Asana: Provides a free tier with basic project management features and premium tiers for advanced capabilities.
Streaming services: Apps like Spotify offer ad-supported free tiers and premium subscription options for ad-free experiences.
Best practices:
Offer a compelling free tier that demonstrates value
Implement strategic trial periods (longer trials often convert better)
Provide multiple subscription durations with annual discounts
Focus on continuous value delivery to minimize churn
Use personalized offers based on user behavior
Emphasize the benefits of subscription vs. one-time purchases
4. The Freemium Model
The freemium model is an overarching strategy that combines free access with premium upsell opportunities. It allows users to experience core functionality before deciding to pay.
How it works:
The app is free to download and offers basic features to all users. Premium features, enhanced functionality, or an ad-free experience are available through payment (either via IAP or subscription).
Health & Fitness apps see higher conversion rates, around 9.4%.
Across all app categories, the average download-to-paying subscriber rate is approximately 1.7%.
Types of freemium implementations:
Feature-limited freemium: Core features free, advanced features paid
Capacity-limited freemium: Basic usage is free; higher usage limits are paid
Time-limited freemium: Full access for a limited time, then reversion to basic features
Free with ads, premium without: Basic version with ads, paid version ad-free
Examples:
Notion: Offers unlimited pages for individual users in the free tier, with collaborative features available in paid tiers.
Evernote: Provides basic note-taking capabilities for free, with premium tiers offering advanced search, more storage, and additional features.
Duolingo: Offers core language lessons for free with ads and limited “hearts“ (lives), while a premium subscription removes ads and provides unlimited hearts.
Best practices:
Ensure the free version provides genuine standalone value
Create clear upgrade paths that highlight additional benefits
Use contextual prompts at relevant moments in the user journey
Implement data-driven personalization for upgrade offers
Balance monetization with user experience to prevent frustration
How To Monetize Apps Without Ads: Alternative Strategies
While advertising remains popular, many developers seek alternative monetization methods to avoid potential user experience issues associated with ads.
1. Direct Sales of Products or Services
How it works:
The app functions as a direct channel for selling physical goods, digital products, or specialized services.
Examples:
E-commerce apps: Platforms like Amazon and Etsy sell physical products through their mobile applications.
Service marketplace apps: Uber, DoorDash, and Airbnb monetize by charging service fees or commissions on transactions facilitated through their platforms.
Fitness apps: Can sell digital workout plans, comprehensive nutritional guides, or virtual coaching sessions directly through the app.
2. White-Label & API Licensing
How it works:
Developers license their app’s technology to other businesses, who can rebrand it (white-labeling) or integrate its functionalities via API access.
Example:
A habit-tracking app could be free for personal use, while a corporate wellness provider pays a monthly fee to customize and offer it to their client companies.
3. Lead Generation for High-Ticket Services
How it works:
The free app serves as a tool to attract and qualify leads for more expensive backend products or services.
Example:
A financial health calculator app for small business owners might, after presenting an analysis, offer an upsell: “Want a CFO to help you optimize these numbers? Book a call with one of our partners.“
4. Affiliate Marketing
How it works:
App developers earn commissions by promoting relevant third-party products, services, or other apps within their application.
Benefits:
Can provide passive income if implemented well
Offers flexibility in partner selection
When done right, it can enhance user experience by providing relevant recommendations
Examples:
Travel apps like Booking.com partner with airlines and hotels, earning commissions on bookings.
Fitness apps promote complementary nutrition products or equipment.
Apple’s affiliate program allows publishers to earn commissions on App Store purchases made through referral links.
5. Sponsorship Models
How it works:
Brands pay to be featured or integrated within a mobile app, gaining exposure to the app’s user base.
Integration methods:
Prominent logo placement within the app
Sponsored features or sections
Exclusive offers for app users
Branded in-app events or challenges
Examples:
Mobile event apps like EventMobi enable event planners to offer exclusive sponsorship on the app or tiered visibility for sponsor listings.
Fitness apps may feature sponsored workout programs from athletic brands.
Gaming apps might incorporate sponsored characters or limited-time events.
6. Data Monetization (Ethical Frameworks)
How it works:
Leveraging aggregated and anonymized user data to derive insights that can be sold to third parties or used to enhance the app’s offerings.
Ethical considerations:
Transparency and explicit user consent are non-negotiable
Enhanced personalization for users based on their data
Actionable insights that benefit users (e.g., fitness apps providing health insights)
Improved app functionality based on aggregated data analytics
iOS vs. Android App Monetization: Platform-Specific Considerations
Monetization strategies often need to be tailored to the platform, as iOS and Android users exhibit different behaviors and spending patterns.
iOS App Monetization
Market characteristics:
Higher revenue per user (ARPU around $92 in 2025)
Users are more likely to make in-app purchases and subscribe to services
More substantial presence in high-spending markets (US, Japan)
Effective strategies:
Emphasis on premium experiences and quality design
Subscription models perform exceptionally well
Well-designed IAPs with clear value propositions
Freemium models with sophisticated conversion funnels
Platform policies (2025):
For US apps, external payment links are now allowed for digital goods (as of May 2025). Apple’s standard commission is 30%, though developers may qualify for a reduced rate of 15% through programs like the App Store Small Business Program or for subscriptions after the first year. Developers must adhere to the App Tracking Transparency (ATT) framework, which requires obtaining explicit user consent before tracking them or accessing their device's advertising identifier.
Hybrid monetization approaches combining ads and IAP
Platform policies (2025):
Google Play’s User Choice Billing programs, available in select regions, allow developers to offer alternative payment systems alongside Google Play’s own. Google Play’s standard service fee is 30%, with a reduction to 15% for the first $1M in annual revenue earned by the developer, and for subscriptions after 12 months, as detailed in their service fee policy. The Privacy Sandbox on Android initiatives aim to introduce new, more private advertising solutions by replacing traditional tracking methods with new APIs.
Best Practices for App Monetization in 2025
1. Hybrid Monetization Approaches
Combining multiple revenue streams within a single app can maximize profitability and cater to diverse user preferences:
Benefits:
Addresses different user preferences and willingness to pay
Provides resilience against market volatility and policy changes
Enhances overall lifetime value potential
Examples:
Spotify combines freemium, advertising, and subscription models
Mobile games often blend IAP, rewarded ads, and sometimes subscriptions
Productivity apps frequently offer freemium features with tiered subscriptions
2. User Experience-Centered Monetization
Monetization should enhance, not detract from, the user experience:
Integration of monetization elements should feel natural and non-disruptive
Value should be clearly communicated and delivered
Transparency builds trust and increases willingness to pay
Performance and simplicity in checkout flows are crucial
3. AI-Enhanced Personalization
Artificial intelligence is transforming app monetization through:
Personalized user experiences and offers based on behavior
Dynamic pricing optimized for conversion
More relevant advertising experiences
Enhanced fraud detection and prevention
Automated optimization of monetization strategies
4. Ethical Considerations
Building sustainable revenue requires maintaining user trust through ethical practices:
Transparent data policies and usage
Fair implementation of psychological triggers for IAP
Avoiding manipulative or predatory monetization tactics
Clear subscription terms and easy cancellation processes
Appropriate content and advertising for the target audience
How To Increase App Revenue From Existing Free Users
While various tactics can help convert free users to paying customers, it’s essential to remember that the most sustainable revenue growth comes from an app that users genuinely find valuable and delightful. The strategies below are most effective when built upon a foundation of a strong user experience, fostered by a cycle of continuous feedback and iterative improvement. Transforming non-paying users into paying customers then becomes a natural extension of the value you provide. Here are some strategic approaches:
1. Conversion Optimization
Improve onboarding to showcase value early
Optimize in-app messaging with contextual, timely prompts
Personalize offers based on user behavior and preferences
A/B test pricing and messaging continuously
2. Engagement Enhancement
Implement gamification elements (badges, challenges, streaks)
Create loyalty programs that reward continued usage
Use limited-time events to drive excitement and engagement
Offer rewarded actions beyond just watching ads
3. Value Demonstration
Provide “try before you buy“ experiences for premium features
Highlight user success stories and testimonials
Create comparison charts showing free vs. paid benefits
Offer personalized recommendations based on usage patterns
Comprehensive App Monetization Strategy Checklist for 2025+
To develop a successful monetization strategy for your app:
Define your audience and objectives. Understand user demographics, behaviors, and willingness to pay. Set clear revenue targets and KPIs. Consider what unique value your app offers to users.
Select appropriate monetization models. Consider hybrid approaches based on app category and user base. Ensure alignment with user expectations and platform policies.
Optimize the user experience. Integrate monetization seamlessly into the user journey. Ensure value is clearly communicated and delivered. Analyze how your approach will impact retention and engagement.
Consider platform-specific strategies. Tailor approaches to iOS vs. Android user behaviors. Tap into platform-specific tools and opportunities. Comply with platform policies and guidelines.
Implement data-driven personalization. Use AI for targeting and optimization. Personalize offers based on user behavior. Ensure all data practices are privacy-compliant and ethical.
Continuously test and iterate. A/B test pricing, messaging, and placement. Monitor key metrics and adapt strategies accordingly. Evaluate how your approach evolves over different stages of your app’s lifecycle.
Stay current with platform policies. Adapt to changing App Store and Google Play guidelines. Leverage new opportunities (e.g., external payment links on iOS). Monitor regulatory developments affecting data usage and privacy.
Prioritize ethical practices. Maintain transparency with users. Avoid dark patterns and manipulative tactics. Create clear value exchanges for any data usage.
Conclusion: The Future of App Monetization
The mobile app monetization landscape in 2025 is characterized by dynamic evolution, driven by technological advancements, shifting user expectations, and an increasingly complex regulatory environment. Success is no longer solely dependent on a single monetization lever but on a sophisticated, multi-faceted strategy that prioritizes user value, ethical practices, and adaptability.
For developers, the path forward involves deeply understanding users, embracing data-driven decision-making, and remaining agile in the face of change. Monetization should be an integral part of the app’s design from inception and should be aligned with its core value proposition.
By thoughtfully selecting and combining appropriate monetization models, prioritizing ethical practices, and continuously testing and optimizing, developers can navigate the complexities of the 2025 app economy and build sustainable, profitable mobile applications.
The future of app monetization lies in creating a fair value exchange that benefits both the user and the developer, fostering a healthy and thriving ecosystem.
Download our free eBook
InspiringApps: A Business Perspective on Building Mobile Apps was written to help you evaluate ideas and turn the best ones into a genuinely successful app for use within your company or for consumer sale.
