If You Gave It Away For Free, Would They Use It?
This hard-hitting question must be asked early and often during the product-market fit stage. If you can’t convince users it’s valuable enough to try, there’s little hope in generating revenue.
Let’s start off with an oversimplification.
Let’s say your new software startup needs 100 customers to break even.
Want 100 paying users? Then you need 1,000 free users.
Want 1,000 free users? Then you need the attention of 10,000 people.
I can already feel you laughing at me.
“Oh, Rick. That’s crazy! My product will be SO awesome that I’ll only need to show it to 100 people. And even if ONLY half of them buy it, they’ll love it so much they’ll tell at least two friends. I’ll be at 100 customers in no time!”
Tragically, I’ve seen an alternative version of this story dozens of times.
Steve has an idea.
Steve believes 50% of those who see it will buy it.
Steve empties his 401K for funding.
Steve gets an LLC, an office, and starts his new venture.
All the money goes into building the product.
The big launch day occurs! Celebration!
Steve tells everyone he knows, but…
Less than 1% convert.
Steve fiddles with the price point over and over.
The conversion rate barely moves.
Steve runs out of money, can’t continue, and abandons his idea.
True story
Steve (not his real name) was adamant his new app would sell 10,000+ subscriptions at launch. We sent an email to his list of 25k people, and waited eagerly to see how well the $10/month price point performed.
Less than 250 people subscribed. Oof.
We tried fiddling with the price for months, thinking that was the objection. Should we charge $8/month? What if we offered $50/year?
Unfortunately, all this price-point tweaking did little to change the number of paid members. Months later, the number of paid members spiked to 500, but kept returning to 250.
Not good.
The company was losing money and needed to validate that there was enough demand to continue.
So we sent a Hail Mary offer to the email list and offered a free 6-month trial (no credit card required). Surely, this would open up the floodgates!
Only 1,000 free trials kicked off (oof). Worse, 90% of these free trials stopped using the service within 1 week (double oof).
We didn’t we a price problem. We had a product problem.
People weren’t using the app, even when we gave it away for free.
Spoiler alert. There are times when this is a solvable problem, and other times when it isn’t. Sometimes a product just doesn’t have a market.
The latter can be a tough pill to swallow, but it’s better to acknowledge.
The “Happy Ending?”
After a 2-year grind we changed the product until it hit resonance. We ended up selling 2,500 subscriptions in a month and the business went from bankrupt to sustainable. From there, we knew that to grow the subscriptions we had to widen our funnel. For every 10K social media followers, we could expect another 1,000 free users and another 100 paid users. That’s why this exercise is so valuable to determine for your own product or service.
If You Gave It Away For Free, Would They Use It?
Given credit where it’s due, the exact phrasing of this question crossed my Twitter feed a few weeks ago. Thanks, Jen Abel!
https://twitter.com/jjen_abel/status/1643319202462289923
This is a powerful question to ask to gut-check yourself when starting your go-to-market strategy. Of course, getting revenue is important, but verifying that a person even wants the product or service is critical.
Conversion rates vary widely, but I always start with 10% to get your mental model going. Start with what you need and work backward.
Need 100 paying customers? Then you need 10X the number of free users.
Need 1,000 free users? Then you need 10X that as social media followers.
And if those numbers are unreachable, you must focus very hard on testing and validating your conversion rates. Maybe your product is so fantastic that you actually do hit 50%. Realistically, you’ll be at 5% or 1% out of the gates. But test early and often, and don’t bullshit yourself about how easy the first sales will be. They won’t be unless you happen to strike gold.