The Weird Economics of Selling Against a Free Competitor

Good Morning. Anthropic’s CEO is meeting with the US Defense Secretary today to try to save a $200 million Pentagon contract that's on the verge of falling apart. This is the B2B sales equivalent of your CEO flying across the country to meet with your biggest customer because you accidentally told them "no" to something they really wanted. Except in this case, the entire world is watching. Win or lose, it'll be covered by every major news outlet, analyzed by talking heads on cable news, and even mentioned in a really cool sales newsletter. Now, let's get into today's Follow Up. (:

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✅ "Let me ask you something directly: what would have to be true for this to get signed by the end of the month?"

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The Economics of Selling Against a Free Competitor

If you’ve tried selling anything to a business in the last 10 years, you definitely heard one of these:

"We just use a spreadsheet."
"Our dev team built something internally."
“We have a process that works fine."

You're losing to free. And free is one of the hardest things to compete against in sales, because the economics aren't rational.

There's actual science behind why $0 is so sticky, what it's really costing your prospect, and how to reframe the conversation so the math works in your favor.

Let’s talk about it.

The $0 to $1 Gap Is Bigger Than $1 to $100

Behavioral economist Dan Ariely ran a now-famous experiment.

He offered people a choice: a Lindt truffle for 15 cents or a Hershey Kiss for 1 cent. 73% chose the truffle. Better product, fair price, easy decision.

Then he dropped both prices by one cent. Truffle = 14 cents. Kiss = free.

69% switched to the Kiss. The inferior product won because zero has a psychological weight that no other number has. When something costs $0, people stop weighing tradeoffs entirely, and they forget the downsides.

This is why your prospect won't switch from their spreadsheet or tool that’s already freely available to them. The spreadsheet feels like zero risk simply because it's free.

And going from $0 to $500/month feels like a bigger leap than going from $500 to $5,000.

"Free" Has a Cost. They Just Can't See It.

Here's an example of what your prospect isn’t taking into account: 94% of business spreadsheets contain critical errors. Real errors that affect business decisions.

A single Excel typo at Crypto.com led to a $10.5 million accidental refund. Lazard made a $400 million computational error in a spreadsheet during Tesla's SolarCity deal. This is what happens when critical business data lives in a tool that wasn't built for it.

Then there's the time tax. Someone on your prospect's team is spending hours every week maintaining that spreadsheet. Updating rows. Fixing broken formulas. Chasing people for data. Reconciling versions. That person's salary isn't free. Their time isn't free. The opportunity cost of what they could be doing instead isn't free.

And this applies to way more than just spreadsheet alternatives. If your prospect uses a platform that handles HR, expenses, and performance reviews all in one, they're getting a "free" expense tool bundled in. It works. But it's probably not best in class for anything it does.

Your prospect's "free" solution could be costing them tens of thousands a year, and that's your in.

Make the Status Quo Feel Dangerous

Daniel Kahneman's research shows people are 2-3x more motivated to avoid a loss than to pursue a gain. This is the key to selling against free.

Most reps try to sell the upside. "Our platform will save you 10 hours a week." That's a gain. And as the research tells us, gains don't move people off $0.

Instead, if you flip it to: "Your team is spending 10 hours a week maintaining a spreadsheet that has a 94% chance of containing errors. What happens when one of those errors hits a client?"

Same facts, but completely different emotional weight. One promises something nice, and the other makes the status quo feel dangerous.

Slack did this perfectly when competing against email. Their pitch was simple: "If you work at a 10,000-person company using email, you have access to a couple hundredths of 1% of internal communications."

They made the invisible cost visible, and 80% of the Fortune 100 eventually switched.

Next time a prospect says "we just use a spreadsheet," Ask them three questions: 1) How many people touch that spreadsheet every week? 2) How many hours do they spend maintaining it? 3) And what happens when there's an error that nobody catches?

Attack the downside that free creates. When your prospect finally sees what their $0 solution is costing them, your price stops being the objection.