Free business model for startups ideas SpokenTwice

There are several revenue models you can choose for your startup or consulting business, but nothing trumps “giving away your product for FREE” as a way to grow your market share.

It is important to understand that “Free” is not quite as simple — or as stupid — as it sounds. There is an engine of revenue that powers this business model and if implemented well can be the driver of growth and massive revenue for you.

For example, Google and Facebook are two of the most successful companies that practice this model to capture market shares, and they are worth $900 million.

One of the obvious “secret” of this business model is that when you give users A free things in exchange for their information, you can ask  users B to pay you huge sum of money in order to get the attention of users A. 

  1. Use “FREE” to create demand.

FREE is one of the most powerful trigger words.

According to Chris Anderson, former editor of WIRED Magazine who popularized the idea of the free economy model in 2008, he said “”Free” has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid”

The psychology of “free” is powerful indeed, as any marketer will tell you. It was used by Jeff Walker, a popular internet marketing consultant to build multimillion dollar campaign that turned freebies seekers to a $2000 buyers of his coaching program. The magic is that the free stuff he gave away was immediately useful, but it created a demand for a complementary service that users want to buy. (See how Bryan Harris explained it)

Another example is a platinum selling artist who gave away 2.8 million copies of his new CDs with a retail value of $19 each. The CDs were distributed as insertions in a major newspaper and cost the artiste a potential $5.6million in licencing fees as a result of giving away the CDs. However, the free music became publicity for a far more lucrative tour business that fetched him a gross earning of $23.4million from his music tour alone (source).

So, how do you do that?

For example, if you are at the early stages of your startup launch, “Free” can be used to drive product adoption while you strive to achieve product market fit. This way, you get users to get used to your product such that the “cost of migrating” to another platform is high to the user when you announce a paid version. A good example is Facebook: in its early days Facebook was free to use until it started charging brands for exposure via Facebook ads )

Below are five ideas that can be modified to your current business model.

 

  1. Use “FREEMIUM” to get more users to try your product.

Freemium is a combination of two words; “Free” and “Premium”.

With freemium, basic users use the services completely free while power users have access to more advanced tools at a cost. Several successful companies practice the freemium model, one of them is MailerLite; an email marketing app.

Affordable Email Marketing Software Prices MailerLite SpokenTwice

You can easily implement the freemium business model in your current business by following good practices used by other companies like offering a lot of incentives for free users to upgrade to paid plans.

Some people think that freemium is not good for all types of businesses, so it is important for you to check if using the freemium model is good for your type of business.

ADVERTISING

When your product is free, you can

One of the obvious “secret” of this business model is that when you give users A free things in exchange for their information, you can ask  users B to pay you huge sum of money in order to get the attention of users A. 

Google and Facebook are perfect examples of how advertising works when your product is free. On Facebook, brand that want to reach their audience pay since organic reach has reduced. The advert placement can be as low as $5 and can be bought for cheap.

Before advertising can become attractive brands must be guaranteed that they are reaching an engaged audience or a large database of their target market. That is why business directories like VConnect (which recently pivoted to an online mall) is free to use but offers featured listings (advertising) and other premium services to advertisers. Flobyt…..

  1. CROSS SUBSIDY

Cross subsidy is when you sell product A that is complementary to product B below market value (or give it away) in order to create demand for product B.

A good example was when Gillette gave away cheap blades to create demand for its premium blades. This led to a massive product sales for Gillette in the 1900s. Gillette sold more blades using this model than when it had an exclusive licence for razor blades production and sales in US.

Price Intelligently noted this idea has morphed into razor-razor blade pricing model. The article explained that offering your full product at its full price right up front can be exceptionally expensive to a consumer, especially if there’s no guarantee that they’re coming back to buy more. As such, with a razor-razor blade pricing structure you can utilize your “razor” as a loss leader or low margin product to get consumers over that initial price sensitivity hump, all knowing that they’ll be back for more “razors.”

Other examples include:

  • Give away the cell phone; sell the monthly plan – popular with telco carriers like Orange, AT&T etc.

  • Do a free CV evaluation and pay for custom CV makeover and interview placement
  • Make the video game console cheap and sell expensive games

  • Install fancy coffeemakers in offices at no charge so you can sell managers expensive coffee sachets.

  • Give away free stuff, charge for shipping and make more money from up sells.

  1. GIFT ECONOMY

There are several volumes of encyclopedia that it has become tedious to carry it around. Jimmy Wales founded WikiPedia with the goal to “gift” the website as the online version of the highly useful encyclopedia. It offers immense values to the users without asking for compensation for the businesses.

WikiPedia.org is a completely free product even though it could be remodelled to make a lot of money.

So, how does Wikipedia make money? Answer ranges from donations to fund raising events and anything in between. Other Open-source projects like FireFox, StackOverflow and Linux are backed by not-for-profit foundations (an example is FSF and Mozilla foundation) and they take donations to keep up the projects, sometimes, even profitably.

  1. OTHER “FREE” IDEA VAULT.

Many digital and SaaS businesses can adapt itself to several “free model” especially since the cost of distribution is marginally close to zero.

Here is a list of useful ideas that media entraprenuer can leverage to monitize their free model.

Also, the team at TrendWatching published a big list of Free ideas across telecoms, airline, car rentals, food & beverages and several other industries with examples of companies operating the model successfully (hint: it is a MUST read)

Also, big credit to Chris Anderson (author of LongTail) for many of his breakthrough thoughts on this business model. He wrote a book called “FREE: The future of a radical price” which is available for free download, of course 🙂

CONCLUSION.

A subtle application of any of these models to your startup can help you benefit from your customers’ innate desire to have something for free while you increase your ROI.

Finally, I think you need to understand that even though Free is a disruptive force, this does not mean that if you deploy a free business model you will be successful. In fact not everyone agreed with this model.

Is there any way you can implement the “Free Model” in your business? Feel free to share.

    2 replies to "How to generate more revenue by making your product FREE."

    • Oge Daniel

      Thanks so much for this wonderful post…This is what I am doing on my ICANEXAM.com forum to drive members and buyers of my accounting software training course. The forum is free to join with free ICAN packs and past questions to download which is visible to only registered members.

      Through this free stuff, I have grown the forum to over 1200 members and still growing every day.

      How I make money:

      I leverage on membership database to sell my accounting software course via my blog accountingsoftware.com.ng – This strategy works for my business.

      • oluwole

        Happy to hear that the strategy is working for your business. Thanks for sharing Oge.

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