Don't give away your product for free...

…unless you plan to keep it free forever.

The Cost of Free Doughnuts, a story on NPR shows what happens when you make something paid that was once free. During WWII, the Red Cross, which used to give away free coffee and doughnuts started charging servicemen for doughnuts at the behest of the US Government.

Veterans still remember this 70 years later!

The reporter goes and finds some veterans and asks about the Red Cross and they go OFF about having to pay for doughnuts. Now, any time there is an event for veterans, the Red Cross brings free doughnuts but their reputation is still tarnished in the memories of these vets.

The reason that it sticks in someone’s mind is because going from free to paid is a “Categorical Change”. The audio describes it as being as though your parents starting to charge for you attending Thanksgiving dinner. Is that how you want your users to feel?

The psychological difference between $1 and $2 is minuscule compared to the difference between ZERO and $1.

Zero isn’t a pricing strategy, it’s a different category

A popular strategy for SaaS products is to be free until you figure out pricing. Until you have “customers” (people who pay you money), you have “users” and “users” and “customers” don’t see the world the same way. This is a mistake. IF you ever plan to charge people to use your product, charge them from Day 1.

Here’s why:

Charging money establishes the value of your product

When starting something new, you should try to find out if it’s valuable. Ask people for money. You’ll find out very quickly if your endeavor is worth pursuing.

With a free product, yes, more people will sign up. They’ll also tell you they plan to use your product. As soon as you ask them to put skin in the game, it flips a switch in their brain and they either pay you or they give you a reason why they wont. If nobody will pay you, you don’t have a viable product.

Charging money gets you higher quality people

Would you rather have 1000 free users or 20 people paying?

I’d take the paid users. 20 paid users are more invested in the success of your product. They’re willing to take the time to give feedback. They’ll devote team resources into making your product work for them.

Just think about your own behaviors? How many product betas have you signed up for and not given a crap about the product. Maybe the team has used that signup and the one time you’ve looked at the product to go raise more money. Hey VC, look at all of the users we have. Then soon enough they send increasingly desperate sounding emails from the marketing / community people. Please use the product and give us feedback!

Occasionally there are times when you shouldn’t charge money

Every rule has exceptions. If you’re building something with network effects, don’t charge money. You want your network to grow as large as possible and leverage that network. Facebook, Twitter, Tumblr are all examples of this.

For every successful network effect business, there are 100 examples of businesses who never charged money, got a lot of feedback from people who would never pay them and ended up building a product no one would ultimately want to pay for.

Honest question: Are there good examples of network effect businesses that have charged money and had customers from day 1?