When starting a business online, one of the toughest questions entrepreneurs face is, “what should I charge?” It is so difficult today because no matter where you turn someone is offering a similar product or service for less or free. So how do we compete with free and still be profitable?
“Back in the day,” entrepreneurs only had to worry about what the guy down the street was charging. It was a bigger world then and you’d physically have to walk down the street to compare prices, and therefore the race to the bottom not as fierce. But with the Internet, we have access to the competition at our fingertips, and more and more of the competition are just giving stuff away. So again, how do we decide on prices and compete with free?
FREE IS NOT THE ENEMY
First, we have to stop seeing free as the enemy. In many cases it is unfortunate, but however you look at it, free stuff is inevitable in the online marketplace. If it is inevitable then, you have a choice to either adapt and change with the times or struggle to keep your doors open. Mind you that I’m not saying ‘everything’ should free, but entrepreneurs need to be aware of it, recognize it as a tool, and incorporate it into their strategy.
DON’T BE FOOLED: FREE HAS A PRICE
Free Costs Time
In reality, Free is not free. Free comes with its own price. The price of free however, is measured by the span of our attention, in time. I’m not spending dollars and cents every time I log into my Mint account or read an article from Hubspot, but I am spending my precious time. It’s ironic, but in reality our TIME is much more valuable than money. Time is a finite resource. Time is what you spend every moment you’re logged into that free service.
The new question then, isn’t how do I compete with free, but how do I use Free and monetize the ‘time’ of our audience?
HOW TO USE FREE
Seth Godin, master marketer, writes high-quality articles everyday on his blog. Doesn’t charge anyone to read it, even though he probably could. But he still manages to sell thousands of copies of his book, ‘Small is the New Big‘ at $26 apiece, which…is merely a collection of some of these same Free articles. Mint.com provides an incredibly valuable personal finance tool for millions of people, but doesn’t charge a cent to its users. It does however make money on advertising and connecting its users to credit card offers and such. Hubspot.com is an awesome Internet marketing business that offers tons of free tools, info and articles to their audience. This draws in prospects, and they then convert these prospects into clients.
Again, I am not saying that you shouldn’t charge people for your service and give everything away for free. But unfortunately the online consumer expects a lot from businesses these days. If you keep everything behind lock and key, it will hurt your business.
What you need is a balance of both. Offer some free advice, blog about your topic, connect with your community, and show your target audience that you know what you’re talking about and can provide value to them. This builds trust and loyalty. As with the examples above, by balancing the scales of what you charge for with what you give away, you can create a natural draw on your audience and monetize their time.
LESSON LEARNED: Free does not come without cost and is therefore not FREE. Free costs time to produce, and also to consume.
Update: This article by Chris Anderson, entitled “Free! Why $0.00 Is the Future of Business” is an awesome resource for those that may be interested in ‘Freeconomics’…enjoy.