When free is not a good idea

17 Aug

Free is often good.

You can get instant Karma, publicity and customers by giving away something for free or a free dumbed down version of your product, but is it something that you want to do regularly, as core to your business?

A lot of businesses, on the web at least, have recently been following a “freemium” pricing model.

That is, they launch a product for free, get a bunch of customers and then try and up-sell them to a more advanced version of their product with more features or exclusive content or whatever.

Examples of this would be Skype, LinkedIn or Spotify.

This is great for users because they get to use cool products for free and only upgrade when they need to upgrade.

But, is this really a good business model for your small business?

Not really. It’s just not sustainable for a small business, startup or company with very little advertising budget. It needs a volume of customers. In a nutshell, Freemium sucks.

Plus, you’re a business. You need to treat your small businesses as a business and you need to be generating profit from day one. Don’t hang on to the grandiose illusion that someone will come and buy you out on day 751 or that you’ll figure out how to charge people later on. It just doesn’t work that way.

Why try and figure out down the road how to get money out of customers? Why not do it now. Start charging for something today and get into the habit of charging for things often. It becomes easier.

Business = profit

Can you imagine going into the supermarket and the manager says to you at checkout “hey, thanks for coming today and filling your basket full of our products. We really appreciate you dropping by. Say, why don’t you take them all home, use them, enjoy them, come back and get some more, tell your friends about us and then we’ll think about charging you for stuff in the future. How does that sound? Enjoy the noodles by the way, they’re our specialty and the best in the area!”

Good for us. But, this supermarket will be closed in a week.

And, so will your business if you act like this.

If you are running a service and have different service levels for example (bronze, silver, gold packages for your services or product bundles) then it is OK to have a “free” one sitting underneath that to tempt customers in and try your products. It’s OK to use this a a fishing hook to get ‘em in the door. Many businesses have had success this way.

But, ensure to make it compelling enough and desirable to upgrade from these free versions and actually start paying for it. Make them really have to upgrade to keep on using your stuff (if they really want to). For example with software, really limit the features available in this free version so that it’s not really usable except from a demo standpoint.

In the software world, there are far too many great products out there with a free version that is more than enough for most users so they never need to upgrade and actually end up paying for the service.

It’s about all small businesses.

With Accounting, don’t solve all their accounting issues in that free consultation hour. With design, don’t design all their printable materials in one go. With your market stall, don’t give them a whole case of jam – just a little mouthful on a spoon.

Don’t offer too much.

Offer just enough to show your expertise and make them feel that something was solved and improved on, and they’ll come back for more or continue your service.

Maybe you could limit the free version of your software to 14 – 30 days to force the issue with customers to address if they really need the product or not and make a purchase decision. Not just giving it way for free forever. Just like you could give the first massage for free or colouring of hair for free or gym membership for the first week for free.

Or, just sell your “free” version for only a few dollars, much less than your entry product, but still sell it for something.

None of these things are free forever and neither should your products. That just doesn’t make sense.

You only want serious customers anyway, and not time wasters or spammers and this will sieve out a lot of those.

Another thing is that a non-freemium model also increases your conversion rate and profit (or revenue) per user of your site (buyer of stuff on your site etc). You’ll also be maximising your time and not supporting “free” customers with support issues for example.

This doesn’t mean free can’t be good of course.

Free has a time and a place. The last post talked about this. Free conferences, free ebooks, free samples, free workshops, free 1 hour consultations… these are all great ways to get your small business out there and in front of potential customers, raise your profile and perceived expertise in the marketplace and also start to build your audience. These listeners may come back down the road and purchase from you or this could be a way to pull them into your sales funnel by introducing them to your other products and services.

Giving away something for free is a great idea and should lead to more customers and business leads. But, remember you gotta have a product at the end to back it up. You need a core product and business model at the heart of your business. If you are attracting people in for free, you then need something to sell them to make it all worthwhile. Yes you probably love what you do and love your business, but business is all about profit and not giving away “free”.

Remember: no profit = no business.

That’s the bottom line.