A 3 Step Process To Justify ‘FREE’ To Your Shareholders
For sometime now Ben Young aka Bwagy has been prompting me
to think about the how exactly you would go about justifying ‘Free’ to your shareholders. I can honestly say that I struggled with this idea, so to put this post together I’ve collaborate with Phil Osborne – enjoy.
What do shareholders want?
Excitement , a ridiculous return on investment and absolutely no risk….
Pretty reasonable, but maybe just a tad unrealistic. In my past role at a financial planning company it was self-evident that all investors really want is ‘peace of mind‘. They want to know that they’ve backed a winning horse and that everything is going to be all right.
So how do you give them this peace of mind?
It all depends on the business model…
If you were pitching ‘Free’ to Google shareholder you’d have a simple 3 step process:
- The more free products/services we make that enable people to generate content
- The more advertising space we have/the more adwords get clicked
- You’ll get more $$$ + a more stable your investment.
For a traditional business selling widgets it’s generally a be trickier, however the same 3 step process can still be applied:
- We’ll give away something (a platform) that results in enhancing the consumers experience in your industry
- We’ll set up a process to make sure that you are able to collect revenue (directly or indirectly) as a result of this increased user experience/involvement in your product area
- You’ll get more $$$ + a more stable your investment.
But we’re not Google, we can’t afford to give our products away…
For most small business (esp. service business) the marginal cost of an additional client = $0.00, therefore by judicious use of ‘free’ you can tempt new clients to try your service.
So let’s say you’re a hairdresser….
- Assuming your salon is open six days a week
- Costs are pretty much fixed, wage, rent etc
- So even if no hairdressing done costs stay pretty much the same
- Therefore having a day when appointments are free, adds little cost to the business – especially if it’s the traditional ‘quiet day’
- This allows the barriers to entry to be lowered and supercharges Viral Buzz
While obviously there will be ‘product’ costs, this could very well be offset as marketing expense – consider what an ad in your local paper costs. Best of all ROI can easily measured by the conversion rate of free trails that convert into paying customers.
Ok, so not everyone can give away free haircuts, some products are just a bit more expensive. In such cases it might help to…
- Work out where you really make your money
- Separate your service into high and low profit areas
- Then think about giving away a portion of the low profit part of the service, in order to encourage people to start using the high profit product or service
Telco’s understand Free very well – giving away mobiles so that you sign up to a 24month contract is absolute genius – I know it’s sucked me in at least twice!
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