The ROI Of Free

Ben Lee

Ben Lee

CEO and Co-founder of Neon Roots

Ben Lee is the co-founder and CEO of Neon Roots, a digital development agency with a mission to destroy the development model and rebuild it from the ground up. After a brief correspondence with Fidel Castro at age nine, Ben decided to start doing things his own way, going from busboy to club manager at a world-class nightclub before he turned 18. Since then, Ben has founded or taken a leading role in 5 businesses in everything from software development to food and entertainment.

We live in a world obsessed with margins. Obsessed with ROI, measurable returns, and maximizing efficiency. With cutting costs, making more while producing less, and squeezing the highest possible monetary value out of every venture. We live in a world dominated by a paradigm of efficiency.

Given the economic history of the past century, this makes sense. The efficiency paradigm is a child of the industrial revolution and a hallmark of the age of mass production. The defining business model of the 20th century was the assembly line: it was an age where standardized production was a recent development and where economies of scale could be realized for the first time in history. In such an environment, a paradigm of efficiency makes a lot of sense.Car assembly line

If your business works by creating many identical things and scraping a thin margin of profit off each unit, efficiency becomes king. A 1% increase in efficiency can generate hundreds of thousands, even millions of dollars, in added profits. In the age of mass production, efficiency was a highly effective way to look at a business.

Why Business Today Is About More Than Efficiency

But in today’s environment, efficiency is no longer the only game in town. The modern working world is radically different from that of the 20th century, different in ways that are hard to fully understand and appreciate. And in today’s world, pure efficiency doesn’t cut it anymore.

Businesses today – particularly those working in the startup or mobile app spaces – can’t focus purely on efficiency like they could in the past. The end-all, be-all of modern business is generating value. And the curve of value to returns isn’t as linear as it used to be.

In the clutter of today’s digital space, generating massive value is the only way to cut through the noise. If a business or product doesn’t create enough value for users, it won’t just see fewer users and lower profits – it will see no users and no profits. Conversely, if it does create enough value for users, it will see a large number of users and a large number of profits.

A New Paradigm

In the past, it didn’t necessarily work like this. One could start a business with a mediocre product and mediocre service and probably expect to skate by as a mildly profitable, marginally successful business. One could put more work in, improve the value proposition, and see higher returns, but overall the curve of generated value to returns looked pretty linear – we might expect it to look like this:

Graph y=x

Today, though, there are simply too many businesses and too many products for the world to work like this. A mediocre business in today’s online, integrated competitive environment doesn’t generate mediocre returns: it generates no returns. Today, it takes massive value to generate returns. Until that threshold is reached, there’s no payoff – but once it is reached, the payoff is huge. In effect, we’re working with a different value-returns curve. One closer to this:

Graph of value to returns

Understanding the Value of Free

This new paradigm in value and returns has implications for you and your business, particularly if you operate in mobile app development or as a startup. Working in this environment means you can’t focus on maximizing your efficiency and blowing up your margins as fast as possible – it means that before all else, you have to generate value. And in all likelihood, you have to give it away.

For free.

To the 20th century businessperson, this sounds like insanity. Free? What on earth is the ROI of free?

But in today’s world, it’s the way things work. And if you’re willing to work hard and have a little faith, the ROI of free ends up looking pretty good.

Giving away free value to consumers ends up being profitable in the long run. It reinforces your brand, it instills loyalty into users and potential customers, and it gives you the sharpest knife available to cut through the clutter of the modern digital space. Free value is a reliable way to attract attention, create trust, and sell your brand to consumers. It’s like a marketing team, a sales team, and a customer service team – all rolled into one.

Applying the ROI of FreeArbor app development tool

We’re learning this lesson right now with the rollout of Arbor, our product roadmapping and backlog management tool. Arbor has been in the works for a while, and we’re excited for its full release, but we’ve gone through a number of phases with both the function and the business model behind Arbor.

Arbor started as an internal tool for us: something to help us in our Rootstrap workshops. It made our Rootstraps so much more efficient that we realized it could work as a standalone product.

Originally, we thought it could work as a subscription-based model and create a revenue source for the business – we figured that people could join Arbor and pay a monthly fee to use the product.

This might have worked well, but people didn’t immediately understand the value behind Arbor. Unless you’re a veteran of agile mobile app development, the concept of a “backlog management” tool can be confusing or even alienating.

Instead, we gave trial memberships as part of the Mastering Project Roadmaps package we created in partnership with Brennan Dunn of Double Your Freelancing. There, we saw freelancers and agencies alike getting their hands dirty with Arbor, learning how it works, and understanding how to implement it in their own businesses, and we sold a few hundred licenses of Arbor through the program.

We also started to see leads for Rootstrap.

Independent of our marketing or outreach efforts, people who used the Arbor tool got curious about the team that created it. That led them to our website and to learning about Rootstrap. Some of the people who learned about Rootstrap had great ideas of their own, so they submitted to the workshop. Those leads are so valuable to us that they generated more revenue than launching Arbor as a paid, subscription-based model.

That’s the ROI of free.

Creating Free Value to Reap Profitable Returns

With that lesson in mind, we decided to launch the full version of Arbor completely free. Does that mean we don’t expect to profit from a tool that we worked hard to create? No. It just means we understand that we’ll see the profits in another place.

That’s the ROI of free, and it’s a lesson in the new paradigm of how businesses need to operate. As a mobile app developer, startup, or business owner, your job is no longer to worry about your margins or stress over how to make your operation more efficient. Your job is to create value for people, plain and simple. And, more often than not, you’ll probably have to give away that value for free.

That may seem scary, but the way that the digital world works means you’ll inevitably be rewarded for that value. You will see an ROI on free, it will just come in a different form. Free value is the loss leader for your brand, your product, and your profits.

More Value Means a Better World

In the end, we all profit from this. More valuable tools and products available to more people for free makes everyone more efficient, and it ends up incentivizing businesses to be more helpful to the world. It gives more consumers a chance to try different brands, generating more revenue for businesses. And it even makes the people working happier, more creative, and more productive.

Google’s famous policy of allowing employees 20% of their time to work on whatever they’d like is a perfect example of this: they understand that giving their employees a weekday to do what they want, for free, ends up making the other 4 days more creative and more productive workdays. Before them, 3M used the same concept to create one of the most innovative corporations of the 20th century. HP did the same thing. Within a corporation, creating free value – even for internal employees – generates ROI.

It also makes those employees happier people. Creative hobbies or side projects help employees stay more motivated, creative, and uplifted. Placing the focus on generating value, instead of maximizing efficiency from day one, helps to keep the working environment and company mindset more open and innovative.

So tell us – how do you create value at your business? Is it a regular practice for you to make something valuable, then give it away for free? Where have you done that, and how has it worked for you in the past? If you haven’t yet, it may just be time to give the ROI of free a try.

We bet you’ll like what you find.

 

 

Our thanks to Alden Jewell and Rawpixel for the photos.