The Real Cost of Free Stuff
Why doing something for free can cost you more than just your time.
By Marc Gordon
At one time or another we have all been inclined to toss a freebie into the
list of products or services that a customer has agreed to purchase. It's
seems so easy that sometimes we don't even think about it.
For many businesses, giving free 'stuff" is a common part of their daily
business routine. Whether it's as a bargaining tool to close the sale, a
goodwill gesture, or just because they can't be bothered rewriting the
invoice, free stuff almost becomes a normal part of doing business.
And while every customer loves to get additional products or services thrown
in at no charge, the fact is that most of the time they do not actually
appreciate them. It's true. As much as your customers may thank you for the
extra time you've taken to complete a job or the extra item you included in
the order, because they did not actually pay for them, they place no real
value on them.
Think of it this way. If you were to lose fifty dollars from your wallet,
you would probably be pretty annoyed, if not upset. After all, that fifty
dollars could have been a portion of a payment someone owed you. Now lets
say that you find a fifty dollar bill on the street. You put it in your
jacket only to discover later that it fell out through a hole in the pocket.
There's a good chance that you will not be as upset as when you lost your
own fifty dollars. After all, losing found money simply means you didn't
gain or lose anything. The fifty you found did not have as much value as the
fifty you had to work for.
The same goes for what you provide to your clients. Regardless of whether
you're a painter who paints an additional room at no charge, or a caterer
that includes an extra dessert tray, you are in fact inadvertently doing
three things that will hurt your business in the long run.
First, you are devaluing your products and services. After all, if you can
so easily include some free stuff with your order, then is all the other
stuff really worth paying for? Could a lawyer really ask $300 or more per
hour if they were willing to include a few extra free hours here or there?
Second, raising prices becomes a challenge. Although no one likes to raise
their prices, it's sometimes a fact of life. How can a baker raise the price
of a dozen bagels when last week he gave them to a customer for free?
Third, it becomes expected. This is especially true for businesses that
depend on referrals. A landscaper who planted shrubs at no charge for a
specific customer may be expected to do the same by others who were
referred. The fact that the original customer spent three times that of the
people she referred will not matter. By no choice of his own, that
landscaper will become known as the guy who will plant shrubs for free.
So what can you do to ensure your products and services keep their
monetary value, your customers feel like they're getting a deal, and you
don't become the local freebie guy?
Simply apply these simple rules:
Discount the invoice, not the products. Start by including everything
on the invoice with prices for each item. And I mean everything. Start with
the originally agreed upon products or tasks, then make any additions as the
customer requests. Even if the product or service has been agreed upon to be
'no charge", include it in the invoice with a real dollar value. When the
entire job is done, include a line that reads 'preferred customer promotion"
with a discount amount.
Create product packages. A kitchen cabinet builder may be asked by
the customer to include premium knobs and handles at no charge. Instead of
saying yes or no, he could say 'While I can't include them at no charge,
they are included with the premium hardware package. This will give you
better drawer tracks and hinges, plus your choice of any premium handle
selection." Make sure your price for a package is significantly less than
buying everything separately.
Offer sales, not discounts. Avoid using price as a negotiating tool.
If you agree to lower your prices in order to make the sale, you will
inadvertently be committing to keeping those discounted prices available for
future orders. Instead offer limited time sales on a selection of products
or products packages. You can also offer various other financial incentives
such as rebates or deferred payments.
Remember, people never mind paying for something they feel is of value. They
will also never value something they didn't have to pay for.
About the Author:
Marc Gordon is a professional speaker and marketing consultant based in
Toronto, Ontario. His firm, Fourword Marketing, specializes in helping
businesses create a brand identity and developing effective marketing
campaigns. Marc can be reached at (416) 238-7811 or visit