For the last decade or so, "freemium" plans have become a popular way for tech start-ups and app developers to recruit new users. The thinking is that when people try a bare-bones version of your service for free, or if they use a free version until they reach a certain number of users, they'll realize how amazing it is and throw money at you in order to use the version that has all the bells and whistles.

The strategy has its detractors. The criticism generally goes that it's impossible to make money by giving away products for free, that free users aren't quality users and that they consume too many resources. All true. At least if free isn't part of a bigger strategy.

Free plans also have their cheerleaders. Dropbox and MailChimp come to mind. MailChimp currently offers a free plan, but they didn't start out with one. Instead, they spent seven years building a great product that was used by 85,000 paying customers and only then did they offer a free version. Once they added a free plan, the horse was really out of the barn: MailChimp grew to 450,000 users during that first year and now they've more than tripled that number.

My company offers our software both ways: free and paid. We've tried a few options, including free plans with limited features, 30-day free trials, and our current offering: a free plan that gives users access to everything we have to offer with some restrictions (e.g., whether campaigns are white-labeled or how much data we'll store).

I'm convinced, for now, anyway, that offering a free plan, one that allows users access to the soup and the nuts, provides the best exposure. We're also more likely to convert free users to paid if we take the time to show our free users how to use our product in a smart way.

Here's a look at how a free plan can make you money:

Use support to convert

Support is costly, it's true, and some free users will sap support resources. But if you make a focused effort to build loyalty via support--offering it for free and paid users alike--it becomes a natural place to convert. Many companies don't offer support to free users and this is a mistake. If a user needs help using your product, and you're not willing to give it, how will you ever convince them you're worth paying for?

Free offers a competitive advantage

When you allow people get their hands on your product with no obligation to buy, you have a huge opportunity to have people try your product who otherwise might not. I'm always put off by "call for a quote" messaging because it seems like code for "this product is super expensive." Free versions allow me to explore basic offerings, and make me ripe to be upsold to a paid version.

For example, I have a team member who used the free version of Buffer, the social media scheduling app, for six months. When she wanted to upgrade to the paid plan, it was because she already knew how helpful the product was and understood the paid version would be even better. What's more, if you have a free product you don't necessarily need a huge sales team.

Free users are free focus groups

You could pay lots of people to test your product, or let free users do it. The more people who use your product, the more feedback you will get on how to make it better. You will learn what people are willing to pay for, what they like and don't like, which features they have trouble with, the kinds of features they wish you'd offer, the issues that plague your support desk, and so on. Of course you'd be wise to prioritize the demands of your paying users, but free users can certainly help you identify trends.

Free plans = massive PR opportunities

Companies, especially SaaS, that offer free plans are more likely to be listed in product-comparison "roundups" and mentioned in how-to blogs and articles. Friends love to recommend free products to their friends just like bloggers love to recommend a free service to their readers, especially if the product comes with technical support (see #1). Free plans allow other types of exposure as well: Our logo also appears on all campaigns that are built on a free ShortStack plan and that logo is one of our top three referral sources.

Free plans reduce refund requests

Our free plan serves as a free trial that never expires. Users can test, build and explore on their own time. By the time they enter in a credit card number, they usually know how everything works and generally there aren't surprises that lead to "I want my money back."

So there you have it, five ways a free plan can make you money. Do you have any experience with offering a free plan? Was it a boon for your business, or a bust? Let me know in the comments below.

Published on: Oct 10, 2014