We have a product that is comparable in features and user experience to several competitors, however we are unable to gain any real market share, because the target market is relatively hard to reach, and usually requires a large in person sales effort to get any attention.
Our competitors are doing this, and without hiring a massive salesforce, we don't think we could compete with them. However, sales is 99% of the cost of doing business. If we were able to get significant market share, I'm sure that we could get enough revenue to make the business profitable.
Is simply making our product completely free and doing some marketing a valid sales strategy against competitors who charge $10,000 - $15,000 a year and have a huge sales force?
We use the freemium model with success in the enterprise IT software space.
Even though we target companies there are still people making the decision to try our software. All people like free stuff. The freemium model allows them to try the software easily and risk free.
Giving something away for free makes it easier to generate word of mouth and buzz too. People will appreciate it.
One tricky thing is figuring out which features to make free and which to charge for. If you provide too few features for free then it won't be useful to people. If you provide too many features for free it will hurt sales.
If your product is complicated to use make sure to have plenty of documentation and quick start guides to help new users get going. Many times users don't have a lot of patience for something new, and getting started with your product needs to be extremely easy. This is especially important if you don't have the resources to offer new users "hand holding."
Really depends on the product and market itself. @ 10/15K annual it sounds like an enterprise app: Many enterprise SaaS products are not so price sensitive and require long sales cycles. Free likely won't win you anything here - the target market may wonder about the quality of your offering @ free.
What does your customer development effort reveal?
There will always be someone who wants to pay zero. But they are not customers - they are users: with limited commitment and endless support questions. The challenge is to figure out how your offering makes your target market money, then get them thinking how it will save/produce money for them VS how much it costs.
Offer "show me the money" type trials (free for a finite time) - all geared towards proving the value proposition. Stipulate that after a trial you would like to feature them in a testimonial or case study. Leverage these trials to hone your value pitch, and find more prospects.
Some moment in the future you will want to get a profit from them, I'd suggest a freemium model (limiting some features or the number of users they can use for an extra cost).
Additionally, focus yourself in one client at the same time. they could have an awesome salesforce, but you're a founder, your knowledge and attention should be more persuasive. get one client at the same time.
After getting some traction your sales will increase, if your product is better, cheaper or offers something important that the competitor can't.
Listen your clients. improve. iterate.
It's easier to come down then it is to go up. Giving the product away will diminish it's value. Keep the pricing where it is. Offer to come down on pricing and offer something that others can't. In SMB's this might be as simple as a direct line to the CEO. This way they can talk tot he head guy and let things role down from there. If you give your product away for free and people bite. They will always want it for free.