The cost difference of 1$ vs. 0$

time to read 2 min | 400 words

Hadi’s had an interesting Tweet:

This sounds reasonable on the surface, but it runs into hard issues with the vast differences between any amount of money vs. free. There have been quite a few studies on this. A good reading on the subject can be found here. Take a note of the Amazon experience. Shipping that is free increases sales. Shipping that is 0.2$ does not increase sales. Note that from a practical standpoint, there is no real difference between the prices, but it matters, quite a lot.

Leaving aside the psychology of free, there are also other issues. Let’s say that there is a tool that can save someone on my team 10 minutes a day, it is priced at 1$ / year. By any measure you care to name, that is more than worth it.

But the process of actually getting this purchased is likely to be more expensive than the actual cost of the tool. In my case, the process is “go talk to Oren”. In other environments, that may involve “talk to your boss, that will submit it to accounts payable, which will pay it in 60 days”.

And at that point, charging 1$ just doesn’t matter. You could charge 50$, and the “cost” for the person making the purchase would be pretty much the same. Note that this is for corporate environment, the situation is (slightly) different for sales directly to consumers, but not significantly so. Free stills trumps everything.

When talking about freemium models, you hear quotes that are bad. For example, Evernote had a < 2% conversion rate, and that is a wildly successful example. Dropbox has a rate of about 4%, and the average seems to be 1%. And that is for businesses who are focused on optimizing the freemium funnel. That takes a lot of time and effort, mind you.

I don’t think that there is a practical option for turning this around, and I say that as someone who would love it if that were at all possible.