As iPhone developers, we get asked this a lot. So here it is, plain and simple. Apps make money in 3 ways:

1. The Sale Price
Apple gets 30% you get 70% of all sales through the App store

2. In-App Advertising (eg Apple iAds Network)
You may have noticed a lot of apps (especially free ones) show an advert as part of the loading screen, or as a banner somewhere within the App. Each time a user sees the ad, the company who owns the ad pays you a small fee. iAd Network is Apple’s own in-app advertising program. The beauty is that Apple source the ads, so for you it’s pretty much a set and forget thing. You get 40% of income generated from the ads, Apple gets the remaining 60%.

*Sidenote:  There are in-app advertising services other than iAds… Google’s AdMob is worth checking out as an alternative.

3. In-App Purchases and Upgrades
Now this has proven a very effective model for apps (sometimes known as Freemium Model). The idea is you offer the app for free and thus get a huge number of take ups… then you make money by locking out certain ‘premium’ features which a percentage of enthusiastic users will pay a small fee to activate. A variation on this model is to run ads, and encourage users to ‘go pro’ (disable the ads) for a small fee.

4. Increased Market Awareness & Value Adding
The App forms part of a company’s broader marketing campaign and/or value adds to services they offer. For example I might choose to bank with ANZ because they have an app. ANZ is not making money by selling me an app, but by securing my business long term.

5. 3rd Party Payments, Sponsorship or Investment
If your app benefits a 3rd party then there could be an opportunity to monetize. An example would be a Directory listings app. Let’s say I create a directory app called ‘Find My Coffee’ where users enter their location  and the app outputs a list of local coffee shops. As the app creator there is now an opportunity for me to offer certain coffee outlets a ‘Premium’ listing space in my app – they pay me a fee (one-time, monthly, annually – whatever) and in return I send business their way by featuring their listing in my app.  The directory app is just an example of this model in action – think outside the box and see if you can find a way to commercialise your app idea through 3rd party investment.

Once you combine all 5 points it really adds up. So if you’re looking to make money with iPhone and iPad Apps, come up with an App concept that hits as many of these commercialisation avenues as possible.