Phone application’s hit a record 1 billion downloads in the week following Christmas, but with so many out there how do you earn money with apps?

Well there are four ways you can earn money with apps, create and sell an app, create an app and attach adverts, create a free app and charge for extras or download an app that pays you.

All four can be very lucrative so long as you know the key behind how and why companies are making significant amounts of money from phone apps.

Create and Sell an app

This is the most obvious way but potentially not the highest return. The apps that you want to create and sell are the ones where you have pretty much reached the limit of what you can offer. This could be a Sat Nav application where there isn’t a lot more to give or a game that you are not planning on developing further. The key here is to offer users a chance to use the app a certain amount of times or for a certain amount of time which will hopefully get them hooked. Then block further usage without a purchase.

Create a free app with adverts

As you will have no doubt seen on your smart phones the majority of apps that are free are covered in adverts. This is the most common way to earn money with apps but again the potential return isn’t too high. As you will have no doubt noticed all of these apps offer a chance to upgrade to a premium account (or Gold account, or full version) where adverts are not included. This is where the developers make their money, not in the actual adverts.

Create a free app but charge for extras

I'm presuming most of you have heard of the game Farmville? If not it is a game on facebook that is highly addictive. Farmville is free to join however features within the game cost money. People who are addicted to games are much much much more likely to pay for extras within a game. If you can create an addictive app and market it well, then this method will earn you the most money.

Download an app that pays you

You might think I'm crazy but this looks like its going to be the next step. There is an application called Qustodian that actually pays you to use it. You can find more information if you google "Qustodian" or the actual website has a great FAQ. Simply download the app, tell them what your interests are and they will send adverts directly to your phone from companies that match your interests. You will then be paid just to read them. What's more for every person you invite you will receive half the amount that they receive, meaning if they receive 10p to read a message, you get 5p for doing nothing. Think how many facebook friends you have, the numbers quickly add up.

All in all it depends how good you are at creating apps for Smart Phones. The easiest way to earn money with apps is to download an app that pays you but to earn the most money you may want to try the alternatives above.