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It'll Cost Ya

Why giving something away for free isn't such a good idea.

Recently, I asked a group of high-level managers what more we could do for our customers. Their idea was to offer a free this and a free that. Obviously, this prompted a long discussion about the word free. As you have probably experienced, one of the challenges inherent in today's web environment is that everyone expects things to be free. Why buy music, newspapers or an encyclopedia when you can get all that online for free?

So how do you make money when people expect things to be free? I offer three answers:

1. Teach managers to sell. Require that your managers take ongoing sales training. One of the reasons many small businesses struggle is that even though their managers may have gone to good schools, they lack professional sales skills. If your employees can't sell, then free sounds like a very good word.

2. The trouble with offering something for free is that it draws cheap customers. My rich dad said, "If you use the word free, you attract freeloaders, not customers. Customers have money they want to give you. Freeloaders want a free lunch, and a free lunch is not free--it costs your business money."

3. Instead of focusing on what's free, focus on unique features only you, your business or your products offer. If you don't have distinctly unique advantages, start developing some and let your customers know about them. For example, in my business, we've created a private global network of entrepreneurs and investors. Instead of giving away access to this network for free, as some of my managers wanted to do, I suggested we showcase and sell the unique features and benefits of the network--and raise the price. By charging more money, we attract a higher quality of customer. Then I focused on the fact that charging more money requires a higher degree of sales and marketing skill, so some of the managers needed to step up their game--or step out.

A final word: It's easy to verify the strength of your team's sales communication skills. Their sales abilities are proven on 1) the top line--the business's gross income, 2) the bottom line--the business's net profit, 3) the number of happy employees, and 4) the number of loyal customers happy to give you more money.

Robert Kiyosaki, author ofthe Rich Dad seriesof books, is an investor, entrepreneur and educator whose perspectives have changed the way people think about money and investing.

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This article was originally published in the December 2007 print edition of Entrepreneur with the headline: It'll Cost Ya.

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