Is giving something for free a good strategic?

I was looking for some inspiration for a new idea I want to start working next year. To be more precise I was looking for some designs in the elearning field.

Search for “elerning” on Dribbble, one of my favorite sites to inspire myself, and filtering by recent I found a free PSD template by an agency for an elerning landing page.

It was great to see an agency or studio, like Themeies, having such a free and great content. They offered a paid version in HTML or React format in the biggest marketplace to sell and buy this kind of stuff.

This is a good proof that they know the topic and they should be a good option if you are looking to hire a designer/developer your project.

I think for most of the companies it is always a good idea to have a free layer for their services products, it could be a free version of a design like this case, a 30 days free trial or a lifetime free product with restrictions.

Let’s try to think about a case that is not a good idea to offer something for free to a new customer or anyone. If you are offering a tangible good, like clothing or something physical, I would say do not do that. Instead, you can do a better offer by adding something free in exchange for a purchase, like get a free t-shirt in your first order.

But, how about software and digital services? From my point of view, if you are selling enterprise-level software or any digital good, you should have different case-studies and testimonial about other people/companies using your services. That should be a good proof that you are an expert on the topic you are trying to sell.

How to make a decision about it is good or not giving something for free? Here my advice is to use data to make a good decision. First, you need to know the life-time-value or LTV, customer-acquisition-cost or CAC, and the actual cost of giving that for free.

Here you have some examples. Let’s say you are selling a subscription for your SaaS company, your current LTV is $1960 per customer in 2.5 years, and the current CAC (assuming you are not offering something for free at this moment) is $200. Here is easy to see that if you give a one month free, for a $49 monthly plan, you still have a positive gross margin.

Now let’s say you are selling t-shirts online, here the LTV is $125 per customer in 3 years. And your CAC is $40. If you give a free t-shirt, without any condition like a minimum purchase of $100, you are at risk of add increase your CAC and reduce the LTV.

You should be careful about giving a product or service for free, before taking any decision, think what is best for your customers and company in monetary terms in the short and long term. Sometimes is better to lose a few bucks in order to earn a loyal customer.

What do you think? Are you offering something for free in your business? Let’s discuss it!