5 Reasons Why Every Startup Should Offer a Free Tier, and One Big Reason Why They Shouldn’t

Your product offering needs to be able to take a fair bit of abuse

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A well-thought out free-tier strategy can be incredibly effective for bringing in new or “on-the-fence” customers. A poorly executed free-tier strategy can damage your brand forever.

A friend of mine is the owner of a minor league baseball team. He once told me that he had one rule for the promotions he ran. He would discount — or even give away — food, drinks, souvenirs, anything associated with the ballpark experience.

Except for one thing: The game tickets themselves.

“The minute you do that,” he said, “you devalue the product on the field.”

He’s right, of course, and that’s the one big reason you should never give away the “product on the field” for free. Yet startups, especially tech startups, give away their product all the time in the form of a free tier. They let you use their product as much as you like for as long as you like, within certain limits.

Here’s the thing. Those free tiers work. Unquestionably, but within certain limits.

Ultimately, no matter how small the discount or how short the trial, the product will always take a perceived value hit. At some point, that hit to the brand is no longer worth the additional conversion rate. When you think of market leaders — Disney for park tickets, Apple for hardware, Netflix for streaming — you realize that the category winners don’t discount their product, or at least they make it really difficult.

So why am I telling you your startup needs a free tier? Because in this case, devaluing your product is exactly what I want you to do. I’ve learned that when you lower the value of the product, within certain limits, you gain the knowledge and the power to prevent both you and your customers from falling into some bad habits.

Bad Habit #1: Your free-tier customers don’t use your product

Once you take away the “pain” of a product’s cost, you remove any artificial necessity to engage with it. When that happens, you immediately realize how much…