One of the widespread questions in subscription merchandise is, “Ought to I’ve a free product?”

Should you have a look at the present subscription firms price billions of {dollars}, some have big-free merchandise, like Spotify, NY Occasions, Trello or Slack. Others like Netflix, WSJ, Monetary Occasions, BarkBox, or Your Utility Firm don’t.

You can even level to bigger, extra enterprise-grade merchandise that didn’t begin with a free tier, similar to MongoDB, however later added one.

Different firms, similar to Palantir, by no means provided a free service tier.

So, in the event you’re a start-up founder or early-stage worker, how ought to you concentrate on whether or not to have a free product?

Should you’re going to have a free tier, how a lot do you have to give away?

To present a little bit of a background, most shopper subscription firms find yourself constructing a free product to assist gasoline their consumer acquisition.

The normal recommendation for investing in a free product is to “consider it like a advertising and marketing expense,” which is sound recommendation. Nevertheless, keep in mind that it’s nonetheless an expense.

For many early-stage firms, the query will not be “Ought to I construct a free product?” however “How ought to I purchase customers?”. Free merchandise are one of many methods.

It’s best to choose the one that isn’t solely the simplest but in addition matches the abilities of the crew that you simply at the moment have.

Early-stage firms are unlikely to have the ability to afford a number of acquisition strategies directly, and this must be based mostly extra on what is simple so that you can do.

In case your crew is:

• Principally product growth individuals — e.g., engineers, a PM, a robust designer — then constructing a free product is achievable.
• Principally go-to-market individuals — similar to product entrepreneurs, gross sales people, and paid media individuals — then adverts, direct outreach, and partnerships are going to be simpler.

The smaller your crew and the sooner your organization, the extra danger there can be in making an attempt to herald companies or workers with a skillset the crew doesn’t totally perceive.

The second determination is whether or not your product’s free tier can be a full-fledged product line or a trial in disguise.

I outline a “full product” as one thing a consumer can return and hold utilizing successfully without end.

It doesn’t imply it has all of the options they may need, however nothing prevents them from utilizing it for a very long time.

Spotify Free is an efficient instance of one thing you possibly can truly use without end. The adverts get annoying, however nothing actually prevents you from staying in that product.

A “Trial in Disguise” is a free tier that may’t be used without end due to utilization limits or comparable restrictions.

• ​DocuSign​ provides you as much as 5 docs you possibly can signal “without spending a dime,” however when that runs out, you must pay.
• ​MongoDB​ lets you create a free database of limitless measurement, however all the info is public. Personal information is a fairly laborious requirement for app growth, so that you realistically need to improve to make use of the product.

Many (however not all) of the next issues have to be true for a free product to work long-term:

1. You’ll be able to hold a high-quality bar

Even when your product doesn’t price cash, it nonetheless prices different issues (like time, friction to get began, and so on.). Your product have to be good and keep good for a very long time to work as an acquisition instrument.

After I was at Codecademy, we had hundreds of thousands of individuals join our free product yearly. They solely did this as a result of it was higher than programming at instructing you programming than the textbooks you might purchase.

2. You will have a big potential viewers of customers

To present you a way of the maths behind free to paid conversion in freemium merchandise, good is about 3%-5%. Nice is 5–7%.

For a free product to work, it’s essential be in an area with sufficient potential clients that you may develop a giant enterprise with 5

When you’ve got a cloud storage firm, similar to Dropbox, and the entire internet-connected world may very well be a buyer, you possibly can construct an enormous firm by attracting hundreds of thousands of individuals and changing 1000’s of individuals into paying clients.

In case you are constructing a product in a distinct segment area, as ​GeoScout​ does with making oil and gasoline exploration instruments, there are in all probability just a few thousand potential clients. They undoubtedly can’t construct a cloth enterprise by solely attracting 20–30 clients.

3. You’re giving one thing away without spending a dime that others cost for

On your free product to function an acquisition machine in the long run, it must be higher than what others are charging for. The higher it’s, the extra customers you’ll purchase.

It’s nice and free; individuals will speak about it, and that’s the very best acquisition supply.

4. Every free consumer is aware of a number of different potential free customers

You clearly can’t spend some huge cash to draw extra free customers to a product, so it must be pushed primarily by phrase of mouth.

For phrase of mouth to work, your customers should know different potential customers who could be .

The extra potential customers that every of your customers can speak to, the extra phrase of mouth will unfold.

Rising the potential quantity of people that can speak about a product is likely one of the predominant advantages of a free product.

Think about two firms with the identical variety of paying customers

• Firm A has 100 paying clients
• Firm B has 1,000 Free Clients and 100 paying clients

Firm B, whereas spending extra money to assist a free tier, has 10x the word-of-mouth potential (assuming their product is nice).

5. Zero (or close to zero marginal price of including extra free customers)

The ultimate level is that in the event you aren’t making any cash out of your free customers, you possibly can’t spend a lot cash to assist them.

The free product isn’t going to be free to construct or keep, however the incremental price of including yet another free consumer must be very cheap, if not free.

There are notable exceptions, particularly firms that need to pay licensing charges for content material (similar to Spotify). Most firms that fall into this tier find yourself monetizing the free viewers with adverts to get it to interrupt even.

Whereas it’s laborious to foretell when a free product will work, it’s simpler to see when one clearly received’t work.

I wouldn’t say you could go the entire above standards, however I might be very skeptical in the event you go lower than 50%.