How to monetise a free product you can't charge for

1Form had real users for about two years before it turned over a dollar. Tenants were filling out rental applications, property managers were accepting them, and the founders, Chad Stephens and Chris Koch, still had no idea how the business would make money.

The original plan was banner ads. With more than 100 data points on every user, they could target advertising precisely. They sold Optus a one-year package for $40,000, and a few smaller advertisers came on for a couple of thousand dollars each. Then the GFC hit. Every marketing budget was being accounted for down to the dollar, and nobody wanted to spend it on a small site with modest traffic. Their investors, meeting with them monthly, made it clear there would be no more money. 1Form had to start earning.

Work out who you can't charge

The constraints ruled out the obvious options. Chad says they couldn't charge tenants to apply for a rental in Australia, which companies in the US and the UK could do through non-refundable application fees. Charging property managers would have slowed the growth that everything depended on, because 1Form still needed agents to accept it and actively push tenants towards it.

Find the convenience inside the free product

So they asked what value they were actually giving the tenant. The answer was time. A rental application could take an hour to fill in, and 1Form meant never starting from scratch again.

They built a pop-up that appeared after a tenant sent an application. It asked whether they wanted to start from scratch next time, or pay $5 to save their details so they would only need to enter the new property. The developer built it the same day they had the idea, and it went live on a Friday evening, around six or seven o'clock. The first payment arrived within about an hour. By the next morning there were two more.

Test until the number stops moving

Once they knew people would pay, they started testing. They varied how long details were saved for, from the next application to a week, a month, three months, a year and for life. They kept raising the price to find where people stopped paying. The sweet spot landed somewhere around $30 to $40.

The more useful discovery was that conversion hovered around 5 per cent almost regardless of what they changed. Five per cent of tenants valued their time enough to pay, and the other 95 per cent didn't at any price. That told them when to stop testing and lock the model in.

Add revenue that helps the user

The second stream came from the form itself. They added optional questions offering things a tenant might want during a move, such as three free moving quotes, a voucher for appliances or help connecting utilities. They set three rules. Every offer had to relate to the move, it had to give the applicant something of value, and no applicant would ever see more than three.

Each lead was worth somewhere between 50 cents and a dollar. By the time a tenant sent an application, 1Form had often earned a dollar or two, on top of the 5 per cent who paid to save their details.

What the model paid for

The revenue let them hire a full-time developer and a generalist to support Chad and Chris. The team never grew beyond five people, and because they had automated everything from the start, Chad recalls the business running at around a 50 per cent margin by the time REA Group bought it in 2014.