When you give your product or service for free to your customers, is it really free? The following model will help you to understand what your customers are really paying.
Your customers pay you in two ways: tangible and intangible.
Tangible payment is the dollar they pay you. It is the amount showing up in the invoice. Easy to understand.
Intangible payment is difficult to see and quantify. It is the risk your customer takes by using your product, being fully aware that your product may be unstable, lacking features, impact their revenue, etc. As your product is used by more and more customers, you discover real life use cases. You get to iterate and improve your product through the valuable feedback you receive from them.
Trying any product involves setting up and training cost, however small it is. This can be significant if they are already using a competing product and switching to you.
Depending on how big your customer’s organization is, they may have to exercise their power to influence people to try your product.
For an early stage startup, intangible payment is very high. Hopefully you do a good job of building a great product and over time the intangible price goes down.
So when you are giving your product for free, remember that it is not truly free. Only the tangible payment is zero.