“Why would we pay for that? There’s a free version.”

I hear this from small business owners constantly. And look, I get it. When you’re running a 10-person business and every dollar counts, free software is incredibly tempting. Google Docs instead of Microsoft 365. Trello’s free tier instead of Monday.com. Canva’s free plan instead of Adobe Creative Suite. Free CRM instead of HubSpot’s paid tier.

But after a decade of watching small businesses make these choices, I can tell you: free software is rarely actually free. The costs are just hidden, and they tend to show up at the worst possible time.

The Data Privacy Problem

Let’s start with the biggest hidden cost, because it’s the one most small businesses don’t think about until it’s too late.

If you’re not paying for a product, you’re the product. This isn’t a cliché — it’s a business model. Free software providers need revenue from somewhere, and for many, that revenue comes from your data.

This manifests in different ways. Some free tools aggregate and anonymise your usage data to sell to third parties. Others train AI models on your content. Some display targeted advertising based on what you’re working on. A few do things that would make your privacy officer faint, if you had a privacy officer.

Under the Australian Privacy Act reforms, businesses with over $3 million in turnover have obligations around how customer data is handled by third-party processors. If your free CRM is storing customer contact details on servers in a jurisdiction without adequate privacy protections, and that data gets breached, you’re the one facing regulatory scrutiny — not the free tool provider.

Read the terms of service. I know nobody does, but for business tools handling customer data, it matters. Look specifically for: where data is stored, who has access to it, whether it’s used for purposes beyond your direct use of the service, and what happens to your data if the service shuts down.

The Support Black Hole

Here’s a scenario that plays out with depressing regularity. It’s 2pm on a Thursday. Your free project management tool stops working. Client deliverables are due by end of business. You submit a support ticket.

The response? An automated email saying they’ll get back to you within 72 hours. If you’re lucky.

Free tiers almost universally come with minimal or zero customer support. Some offer community forums where other users might help. Some offer a knowledge base that may or may not address your specific issue. Most offer nothing at all beyond “upgrade to our paid plan for priority support.”

When your business depends on a tool, and that tool breaks, the cost of waiting 72 hours for a response isn’t just inconvenience — it’s lost productivity, missed deadlines, and potentially lost clients.

I’ve seen businesses lose $5,000-$10,000 in billable hours during a single outage of a free tool that they could have replaced with a paid alternative costing $50 per month. The maths isn’t complicated.

Feature Roulette

Free software features aren’t permanent. They’re marketing tools — a way to get you hooked before the provider starts charging for the functionality you’ve come to depend on.

The pattern is predictable:

1. Launch with generous free tier to build user base
2. Get acquired or reach growth targets
3. Reduce free tier features, move them to paid plans
4. Existing free users either pay up or scramble for alternatives

Evernote did this. Trello did this. Slack did this. Notion’s pricing evolution is a textbook example of gradually constraining what the free tier includes.

It’s rational business behaviour. But if you’ve built your workflows around features that were free last month and aren’t free this month, the disruption is real.

The Migration Nightmare

This is the cost that nobody calculates upfront. When you eventually need to move from a free tool to a paid alternative — and you almost always will — the migration cost can be shocking.

Free tools often make it easy to get data in and hard to get data out. Export functionality is limited or non-existent. Data formats may be proprietary. Integrations that only work with the premium version suddenly become critical when you’re trying to migrate.

A small accounting firm I worked with spent three years on a free project management platform. When they outgrew it and needed to move to something more capable, they spent over $8,000 in staff time manually migrating project data, recreating templates, and reconfiguring workflows. That’s $8,000 they could have avoided by choosing the right paid tool from the start.

Even worse is the disruption cost. Staff who’ve spent years learning one tool’s interface and shortcuts now have to learn a new one. Productivity drops for weeks or months during the transition. Client-facing processes hiccup during the changeover.

The Security Gap

Free software typically receives slower security updates, less rigorous vulnerability testing, and fewer compliance certifications than paid alternatives. This is simply a resource allocation reality — the provider’s security budget prioritises paying customers.

For tools that handle sensitive business data, this matters. A vulnerability in your free email marketing tool could expose your entire customer list. A security flaw in your free file-sharing platform could leak confidential business documents.

The Australian Cyber Security Centre recommends that businesses use software that receives regular security patches and is supported by the vendor. Many free tools don’t meet this basic standard.

The Integration Tax

Modern business software needs to work together. Your CRM talks to your email marketing platform. Your accounting software connects to your invoicing tool. Your project management system integrates with your time tracking.

Free tiers consistently restrict integrations. Zapier connections limited to 100 tasks per month. API access reserved for premium plans. Webhooks disabled. Direct integrations only available at higher pricing tiers.

So you end up with a collection of free tools that don’t talk to each other, and your staff become the integration layer — manually copying data between systems, re-entering information, and maintaining spreadsheets to bridge the gaps.

That manual overhead has a cost. If your team spends 5 hours per week on manual data transfer between disconnected free tools, and your average loaded labour cost is $50 per hour, that’s $13,000 per year in hidden integration costs. A suite of paid tools that actually integrate would likely cost less.

When Free Actually Makes Sense

I’m not saying never use free software. There are legitimate scenarios where free tiers make sense:

Short-term trials. Using a free tier to evaluate a tool for 30-60 days before committing to a paid plan is smart purchasing behaviour. Just don’t let the trial become permanent.

Personal productivity tools. If an individual team member uses a free note-taking app for their own organisation, and no business data is involved, the risk is low.

Non-critical functions. A free tool for your team’s Friday social planning? Sure. A free tool for managing your client billing? No.

Open-source alternatives. Genuinely open-source software — where you host it yourself and control the data — is different from “free tier” commercial software. Tools like Nextcloud, Odoo, and PostHog can be excellent choices for businesses willing to manage their own hosting.

The Right-Sized Alternative

The sweet spot for most small businesses isn’t free, and it isn’t enterprise. It’s the $20-100 per month per tool range, where you get reliable support, regular updates, proper security, good integrations, and clear data ownership.

For a typical 10-person business, a properly right-sized paid software stack — covering email, project management, CRM, file storage, and accounting — costs $500-$1,500 per month. That’s not nothing, but it’s a fraction of the hidden costs that free tools accumulate over time.

Pay for tools that matter to your business. Use free tools for things that don’t. And before you commit to any free tool for a business-critical function, ask yourself: what happens when this stops being free?

If you don’t have a good answer, it’s not really free.