How to Make Money Giving Away a Product for Free

Posted by Jim Belosic on 10 Nov 2014 / 0 Comment

For the last decade or so, “freemium” plans have become a popular way for tech start-ups and app developers to recruit new users. The thinking is that when people try a bare-bones version of your service for free, or if they use a free version until they reach a certain number of users, they’ll realize how amazing it is and throw money at you in order to use the version that has all the bells and whistles.

The strategy has its detractors. The criticism generally goes that you can’t make money by giving away products for free, which sounds like a no-brainer. Free plans also have their cheerleaders. Dropbox and MailChimp come to mind. MailChimp currently offers a free plan but they didn’t start out with one. Instead, they spent seven years building a great product that was used by 85,000 paying customers and only then did they offer a free version. Once they added a free plan, the horse was really out of the barn: MailChimp grew to 450,000 users during that first year and now they’ve more than tripled that number.

My company offers our software both ways: free and paid. We’ve tried a few options, including free plans with limited features, 30-day free trials, and our current offering: a free plan that gives users access to everything we have to offer with some restrictions (e.g., whether campaigns are white-labeled or how much data we’ll store).

I’m convinced, for now, anyway, that offering a free plan, one that allows users access to the soup and the nuts, gives us the best exposure. We’re also more likely to convert free users to paid if we take the time to show our free users how to use our product in a smart way.

Here’s a look at how a free plan can make you money:

1. Free users are ripe for conversion

Support is costly, it’s true, and some free users will sap support resources. But if you make a focused effort to build loyalty via support — offering it for free and paid users alike — it becomes a natural place to convert. Many companies don’t offer support to free users and this is a mistake. If a user needs help using your product, and you’re not willing to give it, how will you ever convince them you’re worth paying for?

2. Free offers a competitive advantage

If you happen to be the first, or one of a few, who offers a free product in a niche market, you have a huge advantage. If I’m a small business owner with a limited budget who’s looking for products that will make my life easier, I’m more inclined to check out one that has a free Personally, I’m always scared away when I’m interested in a product, but the only way to test it is to “call for a quote” aka “super expensive.” Free versions allow me to explore the basic offerings, and I’m potentially upsold to a paid version. The advantage over the competition is that I’m able to convert more people via free plans than rely solely on “Call for a quote” and the sales team that goes with it.

3. Free users are free focus groups

You could pay lots of people to test your product, or let free users do it. The more people who use your product, the more feedback you will get on how to make it better. You will learn what people are willing to pay for, what they like and don’t like, which features they have trouble with, the kinds of features they wish you’d offer, the issues that plague your support desk, and so on. Of course you’d be wise to prioritize the demands of your paying users, but free users can certainly help you identify trends.

4. Free plans = massive PR opportunities

Companies, especially SaaS, that offer free plans are more likely to be listed in product-comparison “roundups” and mentioned in how-to blogs and articles.  Friends love to recommend free products to their friends just like bloggers love to recommend a free service to their readers, especially if the product comes with technical support (see #1). Free plans allow other types of exposure as well: Our logo also appears on all campaigns that are built on a free ShortStack plan and that logo is one of our top three referral sources.

5. Free plans reduce refund requests

Our free plan serves as a free trial that never expires. Users can test, build and explore on their own time. By the time they enter in a credit card number, they usually know how everything works and generally there aren’t surprises that lead to “I want my money back.”

 So there you have it, five ways a free plan can make you money. Do you have any experience with offering a free plan? Was it a boon for your business, or a bust? Let me know in the comments below.