MBA1341 How to Have a Free Plan Alternative That Won’t Cost You Money

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Hey oh. Welcome to the Hundred Dollar MBA Show Business Building goodness every day with our daily ten minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar mba, a complete business training and community online. And in today's lesson you will learn how to have a free plan alternative that won't cost you money. Some of us if we run a software company, a subscription based business, a membership, an online course, anything that has reoccurring payments, we consider the option of having a free plan to get people into the door to acquire more potential customers. The problem with that is you are paying money to service those customers whether it's your server power or your customer service team helping them out, using their hours on a free customer or the admin to serve them. Luckily, early this month I sat down with Patrick Campbell, the founder of ProfitWell. Patrick is the brightest and most experienced person I know when it comes to pricing, plans, packaging and he's helped us tremendously with our own company and I want to share with you some tips he shared with me on on that call in that conversation when it comes to creating an alternative plan. I love this idea so much I was like I got to mention it on the podcast and share it with our listeners. So let's get into it. Let's get down to business. I absolutely love Patrick Gamble. He's a great guy. I've been following him online for some time. I got to meet him recently at this year's microconf Conf conference. He gave a tremendous speech. And recently, this month, I was on a phone call with him to discuss our own business and our own pricing and plans. And he shared with me this strategy. For some of us, it's quite costly to offer a free plan. There are lots of costs involved for serving a customer, and if they're not paying you any money, it's sometimes hard to justify the cost. Now, I want to start with something that Patrick Campbell says over and over in all his videos, in his blog posts, if you ever follow him on Twitter, and he says free are an acquisition strategy, not a pricing strategy. It's an acquisition play. It's a way for you to acquire potential customers, right? They're not customers yet because they're not paying you anything and you're definitely not making a profit on them. You're actually spending money to get them. But it's a way to acquire potential customers. For some people, this cost of serving this customer on a free plan is lower than running ads, than marketing to that customer with marketing dollars, right? That makes total sense for that type of business. But if you can acquire customers via SEO or through your blog posts or through other mediums like your podcast or your YouTube channel, maybe acquisition, maybe acquiring potential customers is not your biggest challenge. Maybe your biggest challenge is profitability or closing the deals, converting them. So don't jump onto a free plan idea unless you have this problem and you can't solve it for cheaper than the cost of having a free plan. Let me say that again. Do not consider having a free plan unless you can't acquire a customer for less money than it costs you to have a free plan. Now, in our case, it's quite expensive to serve a free customer because it costs us quite a bit of money to stream webinars, use our streaming servers to save data, to save videos, videos or large files and things like that. So if we're going to offer a free plan, it's going to cost us a pretty penny. It's going to us a good amount of money for each customer. So it's actually cheaper for us to acquire customers outside of a free plan through marketing. Thanks to Patrick Campbell, we were able to discover that. But that doesn't mean you can't have an alternative strategy or an alternative to A free plan. Let's say, for example, you offer a product, it's a subscription product, and your starting subscription price is $50, okay? And you're profitable at that price point, $50. Whatever you offer them, it doesn't cost you that much. Let's say it costs you $20 to run. Now, instead of just adding a free plan, what you can do is you can create a plan that covers your costs. So say, for example, that plan that costs you $20 and you charge people 54. What if you cut that plan in half in terms of what it actually offers and make that your very low cost plan, like your basic plan, it's going to cost you $10 to serve that customer, all up, whatever those costs are to serve that customer. So why don't you charge that customer $10? If you want, you can charge them a little bit more, just in case your estimates are wrong. Right. Or your math was wrong. If you want, you can charge them a couple bucks more, charge them $12, just in case you want to leave a room for buffer. So say, for example, you have a basic plan for. For $12. So now your entry point for your product is $12 versus 50. This is gonna attract a lot of people to come to your product. Now, obviously it's not free, but it's pretty low cost. It. It's actually a price that's very low. And in a lot of cases, you're probably going to be offering a price that is unheard of in your marketplace, in your niche, and this would differentiate you, and it'll allow you to acquire customers, and we should actually call them potential profitable customers because you're not profitable yet. Your whole point of this plan is just like a free plan, is to get them to upgrade it to a profitable plan, which in this case would be the $50 plan, where you're making $30 on each plan because it costs you 20. What this does is it lowers the barrier of entry and it opens, I wouldn't say the floodgates, but it opens the gates to people to subscribe and give your product a try. That's what free plans are all about. Give your product a try, win them over with the experience, and then because they need more to actually grow with your product, they will upgrade to that profitable plan. I really like this idea, and it's the reason why I wanted to share it on the show, because Patrick really nailed something here. And basically he's saying, you don't have to throw the baby out with the bathwater. You don't have to just say all or nothing. You can offer something that's attractive to your customers, Acquire them and don't be out of pocket. You're not out of pocket. You're still breaking even. And you have somebody enjoying your product somewhere. You can nurture somebody that you can upgrade later, or in many cases, upgrade very soon, immediately, even after they've tried your product for a few minutes. They parted with, you know, $12 in this example. They're going to be like, hey, cool, this is really good, actually, I need a higher plan. Let's go with the higher plan now. Because they're technically a paying user, this creates a dynamic in your business with your customer service team, with every aspect of your business, really, that treats them like a full fledged customer. A lot of businesses see their free users as sort of a lower class citizen. Maybe they don't get to them as quickly as possible. Maybe they don't serve them as a high priority because, hey, they're not paying. So they'll serve paying customers first. So by making sure that they're a paying customer and their costs are covered, they're going to get a brilliant experience. And therefore it's a lot easier to convert them. A lot of people drop the ball with free plans because they don't treat their customers the way they should be treated. So they can feel like this is a great experience and upgrade. Got to give it up to Patrick Campbell. That was a great, great little tip. I got a bit more about today's topic, but before that, let me give love to today's sponsor.

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Wrap up today's lesson, you don't have to go all or nothing. You can have a free plan if the cost of acquiring that customer and serving that customer via the free plan is cheaper than acquiring customer via marketing or through ads. Or you can cover your costs with a very low inexpensive, lowing that barrier of entry plan. Give them just enough to experience your product, get a win and feel like yes, this is for me and they can upgrade to your level of profitability, your next level or your next plan in your product, in your business that allows you to be profitable. Thanks Patrick Campbell for the amazing tip. I highly recommend you check out ProfitWell, a very easy to use tool to track your metrics, your SaaS metrics. If you have any kind of reoccurring payment system or reoccurring business, a membership, a SaaS product, it's absolutely free to see your metrics, your MRR, your churn. Check them out@profitwell.com I love their blog. I love their YouTube channel. They got a great series on that YouTube channel called Pricing Page Teardowns where they tear big SaaS companies pricing pages and critique them. And of course if you want to follow Patrick Campbell on Twitter, his handle is Patacus. He's always tweeting something brilliant. Thank you so much for listening to the $100 NBA show. If you love what you hear, hit subscribe right now. That way as soon as we release a new episode, we make sure it's right on your device so it's ready for you to listen when you're ready to listen. Before I go, I want to leave you with this. We all need some sort of strategy to acquire new customers. Our job as the business owner is to find out the most cost effective way to do this. To find the most targeted leads, the people that would convert the highest at the lowest price possible. For some businesses, a free plan is just that in addition to marketing, to running ads, to doing social media, doing all the other stuff, partnerships and webinars. And for some people a free plan is just not cost effective just like us. And that's okay. One size does not fit all. And of course you can go down the middle road and go with a suggestion of a low cost plan that covers your cost like we mentioned today. Thank you so much for listening. I'll check you in tomorrow's episode, free ride Friday. I'll see you then. Take care. Of.

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