In 2021, a growing number of businesses and entrepreneurs are making money by giving away free products or services. Offering freebies can be an effective way to reduce customer acquisition costs, allowing bootstrapped companies to reach large audiences without spending millions of dollars on advertisements.
But it’s not just small companies that are taking this approach. Highly-recognized brands that use free products or services in their business model include:
These are just a few examples, but the list could go on and on.
One common approach to incorporating freebies into a business is the “freemium” model. It’s especially popular with software, web apps, and other digital products that don’t involve costs commonly associated with tangible, physical products. The freemium business model involves giving away a limited version of the product for free and offering an upgraded version for customers who choose to purchase.
In Wired’s article Free! Why $0.00 Is the Future of Business, Chris Anderson writes, “Technology is giving companies greater flexibility in how broadly they can define their markets, allowing them more freedom to give away products or services to one set of customers while selling to another set.”
Why Give Away Free Products or Services?
There are many reasons why a company may choose to offer free products or services. In an article published at Entrepreneur, Lucas Miller lists these five ways that businesses stand to benefit:
- Growing your leads list
- Helping others understand what you have to offer
- Generating buzz for your brand
- Collecting valuable market feedback
- Upselling purchases
Success Story: Building a Business on Freebies
While many businesses are using freebies today, this approach hasn’t always been as common or popular. In 2007, graphic designer Shawn Rubel was searching for free resources to use in his design work. He was able to find some quality freebies, but it took a lot of time and effort to track down resources scattered across several different websites. Rubel thought having one consolidated source of free design resources would be a huge time saver for himself and other designers.
This experience led to the birth of Vecteezy.com. Rubel contacted several designers who were giving away free vectors and illustrations on their own sites. He asked for permission to share their resources at Vecteezy to increase visibility and make the resources accessible to more people. The concept caught on quickly, and the audience of the site grew almost immediately. Soon, designers were submitting their resources to the site without any outreach from Rubel.
- Shawn Rubel
Thanks to the popularity of free creative resources, getting traffic to Vecteezy was the easy part. Designers told their friends, bloggers linked to the freebies, and existing users kept coming back since there was always new content on the site. Rubel monetized the site with ads and affiliate programs and turned it into a profitable business. In 2009, about two years after starting the site, he left his job to pursue the new business full-time.
Vecteezy, which now attracts millions of visitors each month, built its audience by giving first. Rubel said, “Vecteezy’s audience grew quickly right from the start, and I believe that’s because we were providing real value to our target audience of designers. Users knew they could visit our site and get high-quality resources to use in their design work, so they kept coming back, and they also spread the word for us.”
In 2010, Vecteezy began offering premium files for the first time, making the transition to the freemium business model. The resources that had been free to download remained free. Additional digital products were added and offered through a monthly or yearly Pro subscription that provides unlimited downloads of premium resources.
By analyzing sitewide search data, Rubel was able to identify specific resources that users were actively searching for but not finding among the freebies on the site. Then, he hired freelance designers to create vectors and illustrations that would fill in these gaps and provide users with what they needed.
By giving away free products for three years before offering a premium product, Vecteezy had established a loyal fan base. Many of those users were happy to be among the first paying customers. Rubel said, “When we first launched the Pro plans, we didn’t have nearly the quantity or quality of vectors and graphics that we have now. Many of our early customers had been using our site for a long time, and they chose to become paying members because we’d already earned their trust. They were confident that we’d continue to add more resources and prove the subscription to be valuable.”
Throughout most of the company’s history, Vecteezy offered only vectors and illustrations. In 2020, they expanded by introducing stock photos and stock videos on the site (both free and Pro). Adding photos and videos to the site contributed to a 79% year-over-year increase in paid subscribers from 2019 to 2020.
- Vecteezy Office
Today, Vecteezy (now a company with 70 team members) competes with leading microstock websites but manages to stand out because most content is still available for free. According to Rubel, “Vecteezy always has been and always will be committed to providing free resources for designers. Over the years, we’ve grown and added Pro content to give our users more options, but we’ll never abandon the free content. In fact, we’ll keep adding more free content. Most of our customers find us as a result of the free resources, so it’s proven to be an excellent business model for us, and our users also appreciate it.”
Tips for Using Free Resources in Your Business
If you’re looking to incorporate freebies into your own business, here are a few tips for success:
Don’t Hold Back
One of the temptations with free products is holding back and offering something minimal, so users will feel the need to upgrade to a paid product. However, your free version must provide real value to users. If it doesn’t, they’ll stop using it almost immediately, and they’ll be unlikely to upgrade.
Encourage Users to Spread the Word
Most people are much more likely to tell their friends about a free product or service, as compared to something their friend would need to buy. Encourage users to recommend you to others, and even consider a referral program that will reward users for successful referrals.
Make Your Premium Offer Clear
Customers won’t upgrade from a free plan to a paid plan unless they clearly understand the benefits of upgrading. So make sure your offer is clear and expresses the most important benefits of upgrading.
Building a business on freebies is not only possible, it’s a strategy that can open up major opportunities. There are many companies successfully using the freemium model or other methods of incorporating free products. For businesses that offer digital goods and services, this can be an excellent route to increased exposure and user adoption.