One of the more advanced ways you can create demand for your product or service is to create a free tool. However, most free tools developed by marketers were probably not worth the investment.
In this edition of the GrowthSwipeFile, we're going to talk about all things free tools. What kind of free tools can marketing develop to improve their metrics, when does it make sense to develop a free tool, and should you build or buy?
How can marketers leverage free tools for growth?
There are opportunities for marketers to develop free tools to help with metrics across their entire funnel:
1. Demand Gen Free Tools: You can develop a free tool to generate demand for your product or service in the form of leads or free users.
2. Conversion Rate Free Tools: You can develop a free tool to help improve your traffic to lead or free user conversion rate. It typically involves improving the user experience of your forms, signup flow, and auto-filling data.
3. Sales Enablement Free Tools: You can develop a sales enablement tool to help your sales reps close more MQLs or PQLs into customers.
In this post, we're going to focus on demand gen free tools, developed by marketers as standalone tools to generate demand. That's different from companies that extend their product to capture demand.
For example, Canva extended its product to build an entire template directory that was indexable by Google and optimized for search. It helps them to generate thousands of free users every month. That's a product-led free tool.
A marketing-led free tool is more like HubSpot's website grader, CoSchedule's headline analyzer. What we mean by product or marketing-led isn't who developed the product, it refers to the fact the tools are separate from the core product.
When should you invest in a free tool for demand gen?
A great way to approach developing free tools for demand gen is to realize it's nearly always the wrong option. Adopting this mentality with free tools will save you a lot of wasted time and resources on the results, not being worth the investment.
A lot of free tools developed for demand gen could have easily been some form of content; a blog post, a guide, an interactive web page.
The following scorecard is useful to determine if there is an opportunity worth pursuing with a free tool.
There are four rules that we will cover below
- The problem has inputs and outputs
- The tool has product/channel fit (ie recurring traffic)
- The Goldilocks rule of competition
- You can monetize the traffic
1. The problem needs inputs and outputs:
When building a lightweight tool to generate demand, you need to ask could we fill this need with a blog post, an in-depth guide, an interactive webpage, anything but a free tool.
A free tool is almost always the most expensive way to address that need because it requires developers and requires ongoing maintenance, which people rarely account for in the costs.
A free tool usually makes sense where you input some information; the tool is processes that information and gives outputs based on those inputs.
One way to TEST if you should develop a free tool is to first drive traffic to a blog post. Why do you need a landing page template library when you can create an article on the 50 best landing page templates and drive traffic/leads to that first?
2. The problem has product-channel fit
We've talked about the concept of product-channel fit on this podcast before, but it's critical to consider when developing a standalone free tool for demand gen.
A common error marketers make is to develop and launch a free tool that needs continual marketing efforts to generate demand for it. It means you've launched a free product, that requires a bunch of marketing effort, to create demand for the thing you want people to sign up for.
The reason to launch a free tool is that there is an opportunity it will generate a recurring traffic stream. Maybe there is a lot of search traffic for the problem it solves, and a free tool will mean you'll outrank the competition. Perhaps there is an opportunity to create a viral loop via the free tool, or it will work great on social or will monetize your paid ads better (although that is more in the conversion rate free tools bucket).
If you don't know how it will create a recurring traffic stream, you probably shouldn't launch it.
3. How much competition should the free tool have?
Another extremely tricky thing about building a free tool is you have the goldilocks problem. You need the competition to be "just right" for it to make sense for you to build a free tool.
As we mentioned in the product-channel fit, you want to solve a problem that has a recurring traffic stream. But, it's a free tool you've developed for demand gen, it's not the focus of your business. That means you can't compete with companies whose sole business is on solving that problem.
Let's assume my paid product helped people to conduct more efficient meetings. It added agendas, made note-taking easy, auto-forwarded those notes afterward, and provided all participants with a clear and concise meeting summary.
An excellent tool for me to develop would be helping people to book meetings with each other efficiently. However, a company like Calendly has built an entire business on solving that problem. You can't compete with them; your tool will fail.
For a marketing-led free tool to be successful, you need to develop a use case with beatable competition on the channel you're optimizing for.
4. Will the tool generate demand I can monetize?
Of course, there is little point in building a free tool that generates leads and users if that demand doesn't monetize into customers.
It's hard to know how the demand for a free tool will convert into a customer until the tool is live. Because marketing-led free tools are often lightweight tools, it's hard to build a minimal viable version.
The best way we've found to have some benchmark data for the conversion rate is to look at content for topics related to the free tool, and see how they convert. If we're building a free tool like our Website grader that helps people to optimize their website, we can look at content on the same topic and see how that converted into customers. It gives you something to work off.
The above scorecard helps to set a very high bar for when it's appropriate to create a free tool for demand gen. It doesn't mean there would never be an opportunity to create a free tool, but it does set a high bar, so the risk to rewards makes sense.
Should you build or acquire your free tool
Buying for distribution is always a fantastic way to spend your investment dollars if you have some.
You can buy an existing tool that has incredible reach in a marketing channel you're already doing well in, for example, Uber Eats wanting to buy Grubhub or Facebook buying Instagram. Adding that tool to your existing assets only helps to increases your dominance.
You can also attempt to buy a free tool that is dominant in a channel where you've struggled to be successful.
It is even better if you can purchase an existing tool with a paid option, and you have the means to acquire it and give it away for free. A great example of this is Neil Patel's purchase of UberSuggest. Giving it away for free only increases the demand for it, of course, you need to be able to monetize that demand into something else. And that's tough. Neil wrote about his struggles trying to monetize demand for UbberSuggest into clients with large budgets.
Finding an opportunity worth building a free tool for, and an existing tool you can purchase in that space is the holy grail. It isn't easy to find.
You'll usually be developing the free tool yourself. If it's met the above criteria on the scorecard, that's ok, because you've determined it's an investment-worthy opportunity. As part of the plan for the free tool, you'll want to know how long before you break even and what the initiative's ongoing upside is.
A simple way to do this is to model it against your paid advertising costs. Let's say it costs you $50 to acquire a lead. Each lead is worth $30 in MRR, $200 in customer LTV.
The free tool will cost you $50k to develop, which is the cost of human capital to build and launch the tool. So, the tool needs to generate 1000 leads before you've broken even e.g., the equivalent return you would have gotten from spending that money on paid advertising. You can also base the payback figure on the MRR amount or the LTV amount. I prefer basing it on the cost of the lead.
The upside of a free tool is if you've optimized it for a recurring traffic stream, after the initial 1000 leads, you're in profit, and there isn't an ongoing cost like there is with paid advertising.
A couple of things to be aware off
- Although you can base it off the unit economics from paid ads, the tool could monetize better or worse than paid ads. Once you've generated some customers from the free tool, you'll want to get the real dollar value of those leads.
- It's worth factoring in both your ongoing promotion costs e.g. building links to the tool so it ranks on google, fixing bugs, etc, so you can get a true cost to return model for year one, year two and year three of the tool.
We hoped you enjoyed the episode about growth from free tools, and make sure you listen to the full episode!