The most basic principle of business is that you should make more money than you spend. This usually involves buying a product and selling it for a higher price or offering a service and charging more than the cost of the time you spent working on it.
Without a surplus of cash (a profit), you won’t be able to pay your bills, taxes, or staff, and you’ll be quickly driven out of business.
Therefore, the concept of giving away things for free runs completely contrary to this basic business concept. Yet, it’s a common practice found in almost every industry and many of the businesses that engage in giving away freebies manage to benefit from it.
Why is this and what can other business owners learn from them?
Gaming
The gaming industry is huge. Many of the largest companies in the sector generate billions of dollars in revenue each year, despite giving away a lot of their content for free. Many of today’s most popular titles, including Fortnite, Call of Duty: Mobile, and League of Legends are all free-to-play, meaning gamers can download, install, and play them without having to hand over a single penny.
They can, if they choose, continue playing forever without having to put their hand in their pocket. However, they do also have the option to buy in-game items like new character outfits, weapon skins, and upgrades. These items have proven to be incredibly popular and generate huge sums for the companies each year.
Similarly, online casinos offer free versions of their games to customers who may wish to play them without making any wagers. Like with other free-to-play games, these free games can be used indefinitely, though many players use them to practice before they make their first real-money deposit. Many online casinos also offer free spins as part of challenges and promotions, often as part of a larger welcome bonus. These free spins are part of the casino’s marketing activities and work in a similar way to the free trials you may find in other industries.
Retailers
Retailers of all types often give products away. One of the most common ways is through a “Buy One Get One Free” (BOGOF) promotion, where the customer receives an additional unit of a product for each one that they pay for.
BOGOF promotions have been criticised by some experts for encouraging waste, especially when it involves perishable food products that will often get thrown away because the customer never actually wanted them, so it may be best to avoid this method in your own business.
If you’ve ever been to Costco, you’ll have almost certainly taken advantage of the free samples that the company offers to its customers. The rationale behind these is that it wants you to try and product and hopes that you’ll like it enough to buy more.
It’s also built its brand around these freebies. Customers don’t just go to Costco to buy a pallet load of toilet paper and a crate of bottled water, they also visit for the experience. Part of this comes from trying the free samples, buying a hot dog from the cafe, and checking out the new products in the technology section.
Software Companies
You’ve almost definitely used a piece of software at some point in the past that has offered a free trial before you’ve had to pay. They’ve been used for decades on everything from WinRAR to Adobe Creative Cloud and are designed to give you an opportunity to try the application out before you commit to handing over any cash.
It doesn’t always work for the business though. If you only need to edit one photograph, a 30-day trial of Photoshop will be enough and Adobe won’t get any money from you. Similarly, the WinRAR free trial never actually expires (you just get nagged whenever you open it).
However, the companies behind these trials as loss leaders. They know the value of their software and that their core customers will be willing to pay for it and they understand that some savvy and cheeky users will take advantage of their generosity, but it’s not something the companies need to fight.
Free trials of software work best for applications when the user will need it over a long period, such as an accounting package or email marketing platform. However, they’re less useful for businesses that sell programs that only need to be used once, such as an image resizer or a file transfer tool for migrating from one computer to another.
