I was thinking about offering free hosting to webmaster related sites if they put a banner/link to my hosting site. I seen a few people offer this before, to the hosts who have done this how did it work out? Did your sales increase?

It always depended on how well the hosted site developed.

I did have one problem:

1) Hosted sites consumed too much bandwidth.

Overall, it did not work too well for me. I think i'd rather spend the money on advertising.

Don't offer free hosting, offer hosting at a very cheap price with the placement of banner on the index page. It doesn't help much with multiple banners on different pages of the same site. Lots of ppl will still take up this offer. It will help out a little with your server bill.
Just my opinion..... :D

yeah
i would offer them a discount, maybe 50%, or whatever you feel comfortable with.
In exchange for a button or banner on their site.

But giving away something for free, is never usually a good idea.

Take Care.

i had a very bad experience with free hosting.
most of the people who signed up did so only to use the account for spamming.. i had to watch all the users very closely; and ended up just shutting it down.

& bandwidth can be a problem because depending on the script you're using there's really no way to limit how much they use..

if you have the time/resources & patience it can be a good idea.. especially if you offer a small discount for them to upgrade to a paying account.

if you decide to do it be very clear & very strict in your TOS. much scricter than for paid hosting..

Just offer them a discount even if it is a substantial one. Even though you have good intentions, you will get burned by unscrupulous clients that will take advantage of it.