The concept of “free” as a business model, or at least a phase of a business model, is here to stay, but does it really work? The short answer is, yes and no.

One school of thought says to give your service away for free in order to get exposure and dominate the market, then find a way to monetize your service. There is some validity to this, but for most people/companies, it just won’t work. First, you have to have money to support yourself and/or your company during the free period, and this isn’t just a matter of providing the service because a large percentage of the people receiving your free service will expect you to provide free support as well. Another factor is that, quite often, the people interested in your free service won’t be willing to pay for it, so once you find a way to monetize it, you will lose them. Don’t get me wrong, that’s not a bad thing because it will filter out people who will waste your time. Just make sure that you don’t base your financial projections on your pre-monetization users.

Free can work to create exposure, reach new prospects and increase market share, but only if done correctly. Some of these approaches may work for your business model:

• Offer free content, but also offer premium content. A good example of this is Aaron Wall‘s SEO Book. He regularly posts useful and informative articles in his blog, but he also has a very active paid membership community where you can find some of the most up-to-date SEO information available anywhere. The free content helps to create exposure, draw in targeted traffic and give visitors a taste of what’s inside, while the premium content is where the real treasure is.
• Provide tools and resources that your visitors can use for free, making your website a valuable resource that others will want to talk about and link to. This helps you to increase your exposure and traffic, and to create a defensible website.
• Develop useful and original free content on your own website and guest-post on other popular, relevant websites. If the quality of your content is superior, it will show your visitors that you are the expert in your field, which you can then leverage to sell them your services.

From time to time, almost every business owner is forced to negotiate prices in order to close a deal; especially during a recession. If you’ve been through this before, you know that it can go down hill pretty quickly and end with both sides unhappy. The key to creating a win-win scenario is knowing how much wiggle room you have with your prices, and staying within that range.

Sometimes you may have to cut your prices just to keep revenue flowing, but you still need to make a reasonable profit. The problem is that if you spend much time working with an unprofitable client, it takes away from the time you could be spending with profitable clients, and you’ll most likely begin to become resentful and under-appreciated. Before long, you’ll find yourself looking for ways to cut corners on their project so that you can get it done and move on to more profitable ones.

Keep in mind that you are responsible for the perception of value with your clients – if you arbitrarily drop your prices without adjusting what they receive in return, you will diminish their perceived value of our products or services and they will come to expect discounts all the time. Your company will become a commodity and client loyalty will go to the lowest bidder. When you find yourself in a position where you have to provide a discount in order to make a deal work, you also have to adjust the products or services you are providing. Remember, your goal is to create a win-win scenario and if you’re handing out discounts just because clients asked for them, you’re not winning anything.

Some options, instead of offering discounts, are to:

• Add more value, such as adding additional products or services for the same price. This will give your clients more bang for their buck while helping you to keep your profit margin higher than if you simply gave them a discount.
• Offer in-house financing. If your client just doesn’t have the appropriate funds at the moment, but they are comfortable with the price, you may be able to finance a portion or all of the price. You will want to be very selective with this though, perhaps limiting it to existing clients with a solid track record.
• Create a referral program where clients earn credit toward purchases from your company by sending you qualified prospects who become clients. In their eyes, it’s free money for them, and for you, it can be a steady stream of business from a trusted source.