If you own a business, chances are you’ve been hit up for freebies by friends and family. Though giving away a few free items or smaller services may not break the bank, over time they could end up costing your business. So why is giving friends and family products and services for free a bad thing?
In business, everything has a cost. If you’re a restaurant owner, you had to pay for the ingredients as well as the salary of your cook. If you’re in construction, materials for the project as well as paying the staff come into play. Not to mention the effort spent providing free service is effort that could have been spent on paying customers. As the owner, these costs have to be covered before you’re able to take your salary.
Of course, one or two freebies isn’t likely to send your profit margin into the red. However, if you multiply those by everyone seeking free products and services, your business can quickly be in jeopardy. Instead, consider offering a small discount. Your friends and family feel as though they’ve been taken care of and your bottom line doesn’t feel the pinch as much.
Regardless of if money is exchanged, your business could still be legally and financially liable for any damage caused as the result of a mistake. Most liability insurance plans do not cover professional mistakes, and furthermore are unable to offer coverage when a job is being performed unofficially.
Not only could you find yourself out the money spent on materials, salaries, and other costs to perform the job, you may find yourself in legally obligated to pay for damages done as a result of a mistake. Of course, you could always ask for a signature on a release of liability form, but that could lead to a much more awkward conversation than simply asking them to pay upfront.
The reputation of your business is its most valuable asset. When building up your brand, one small shift in the way your company is perceived can easily skew public opinion. Also, everyone likes to feel they are being treated fairly. By giving free services or product - even to friends and family - other customers may perceive this as favoritism, leaving a bad taste in their mouth.
According to the Huffington Post, it takes 12 positive experiences to make up for just one negative, and customers with a negative experience spread that news twice as fast as those who have a positive. Risking the hit to your reputation just isn’t worth it, and true friends and loyal family members will understand when you ask them to pay up.
The ugly truth is that when something falls short of our expectations, it brings out the worst in us. You can never predict when something may not go according to plan in business. Whether there is a delay in ordering materials, or a mistake was made during the project, your friend or family member isn’t really concerned that the job was performed free, just that their expectations were not met.
Since the service was provided for free, your friend or family member may accuse you of not putting forth your best effort. You may feel defensive at a complaint since you were doing them a favor by not charging them. In both cases, the brief disagreement that comes after denying free service could have likely saved a more heated argument over unmet expectations.
Even if you were clear that this free service was a one time deal, your friends and family may not see it that way. In many cases, people feel entitled to free products and services just for knowing the business owner. Drawing the line early on will help your friends and family to understand you do have expenses to run your business and offering free products and services is not part of those expenses.
Now, offering thing for free isn’t always a bad thing. If you’re launching a new product, it may be advantageous to allow your close friends and family to try it out and give product feedback. Or invite them to the grand opening of your shop and offer up something free for inviting more friends.
Ultimately, the decision on whether or not to offer free services to your friends and family boils down to if your business can afford it. These costs quickly add up, so if you choose to provide free services, make sure your profit margin can take the ongoing hit before offering.