Dec

01

Should I Use “Pay What It’s Worth” Pricing?

December 1st, 2010 by Larry Keltto | Posted in Pricing

On my plane flight to Ohio on Thanksgiving Day, I was reading Seth Godin’s book “Tribes,” which encourages change and breaking from the status quo. Somewhere over Wisconsin while reading, I had an epiphany: remove price tags from my products and services and establish “pay what it’s worth” pricing.

As I continued to read “Tribes,” I pulled out my notebook and began writing the reasons why I would want to eliminate prices:

• I trust people to do the right thing.

• People are fair, if given the opportunity.

• I want to help as many aspiring and new solopreneurs as I can, and many don’t have money at this stage of their businesses to hire me. When they’re able to pay me for what my services were worth, they can pay me.

• It’s a way to show support for—and invest in—other people’s ideas.

• I don’t want to horde my best ideas. I want them “out there.”

• Price can be a barrier to business relationships.

• I sometimes find myself in situations where I don’t know if a product or service of mine was priced correctly.

This morning, while looking for support for this idea, I remembered a column written by Walt Kania titled, “The scariest pricing idea ever. That Works.” Walt calls it “fill-in-the-blank” invoicing, and he says:

I can guarantee you that it will shake up your thinking about fees and pricing. It will un-stick some old notions. And heaven knows we need that; most of us are way too myopic, constipated and chickenshit about fees.

As an added bonus, you will most likely do the best work of your life, and deliver obscenely wonderful service to your clients at the same time. (Mainly because you’ll be too scared not to.)

One thought: I could try it from now through the end of the year and see what happens, then reevaluate.

What do you think about “pay what it’s worth”? Is it insane? Have you ever tried it? What happened?


23

Comments

  1. David Wang says:

    I think it’s a pretty interesting experiment. As a consumer though, I would prefer to know exactly what I’m getting before deciding what to pay for it. The worst thing is to regret paying $25 and after using the product, realizing that it was probably only worth $5. Make sure to factor that in somehow into your pricing!

  2. Larry Keltto says:

    @David, thanks for your reply!

    I should clarify: clients would decide the “worth” after they’ve received the service, and/or after they’ve used the product. So maybe it should be called pay-what-it’s-worth invoicing.

  3. I don’t have any real experience with this approach, but I am a consumer of a number of services from small providers. I’d personally find it awkward to not have a reference point on pricing expectations. I don’t want to have to guess at what a service is worth. I trust a good service provider to price things intelligently taking many factors into consideration: the market, the level of their expertise, etc. To me, having a quality relationship with a provider I can trust is the most important thing – I’d hate to damage that relationship by inadvertently paying them less than what they’re “secretly” expecting. For a really great provider, I’d rather delight them with an extra bonus above and beyond their up front price.

    One additional point: I like things simple. I’ve got enough decisions to make, and don’t want to burn mental cycles thinking about what a fair price is for something I’m not an expert on (that’s why I outsourced it in the first place).

    Short answer: maybe try a hybrid – supplying a reference price but allowing people to pay what they think it’s worth.

  4. Rob Place says:

    Great article Larry. I would safeguard myself by seeing a mixed model (flat fee and then whatever they want to put in). Clearly a different industry, but didn’t Radiohead release an album with this pay what you wanted? I don’t think they continued it very long b/c no one paid. But very interesting experiment if you could do it for a service that is quick and not tying up all your time (and risk).

  5. Tori Deaux says:

    I’ve been seeing a lot of experiments like this lately and it’s pretty darn interesting! A few quick thoughts (quick considering this is me, at least)

    As a client, “pay what it’s worth” would make me uncomfortable, especially with something that puts me in personal contact with you like consulting. It puts me in a place of assessing your value and somehow grading you. Yipes.

    Something like “Pay what you can reasonably afford” is one alternative I’ve seen, and it was so well presented that I did, indeed, pay what I could afford for the package.

    Another set up I’ve seen was 3 different Paypal buttons – like $75, $180, and “Somewhere In Between”. The customer got to pick the price that was comfortable to them, knew what the reasonable price range was, knew that weren’t overpaying, and weren’t insulting anyone with their offer, either.

    I love the idea of fill-in-the-blank invoicing, and would love to be *able* to pay people what their support is actually worth to me. Maybe that one works best with people who you know can afford the actual value?

    Just rambling. Because that’s what I do.

    P.S. – What’s my rambling worth? ;)

  6. Nicole Fende says:

    Larry I appreciate you sharing this concept, and have to say it created an explosion in my head :) On the positive side I can see the idea of supporting those just starting out. I do believe it is important to think beyond the almighty dollar and your bank balance.

    However the bottom line is that even if the recipient is well intentioned, they may not have a good understanding of a fair price. In fact, many small business owners and solopreneurs struggle with determining a price on their OWN services. How could they possible know what is appropriate for someone else?

    As others above have stated, I believe you fairly price your products and services then deliver the best you possible can. Offer a range of price points so that entry level products are affordable to everyone. Consider an ebook or email course you can offer for free that gives great value.

    Finally if they are truly strapped for cash offer a barter. Or at the beginning of the year budget x for pro-bono type work. Tell the recipients to pay you when they can or to pay it forward.

  7. Amy Harrison says:

    This is interesting!

    I’ve heard of restaurants who have done this with great success, but like the Radiohead example, in that situation it was abused somewhat by the consumer.

    I think if you do do it, it’s important for the customer to be able to interpret the value of your service though, and by offering no price range, you might attract people who cannot interpret that value.

    For example, if I’m writing a sales letter and the customer has no method or intention of getting traffic to it, they can’t see the value in what I’ve produced, compared to someone who has traffic and has planned marketing for their launch. The work and effort would be the same but the value to the customer would be widely different.

    Be very interesting to see how this would work in the service industry!

  8. Larry Keltto says:

    These are great comments. Thank you! I think it’s interesting that having to decide what a service is worth could be a negative for the client.

    The price-range idea is intriguing. Is there an example of someone who’s using it?

  9. Tori Deaux says:

    Here’s one example, from Lisa Baldwin: http://zenatplay.com/treasureproject

    And here’s another, from Pace & Kyeli, complete with an assessment of how it went:
    http://connection-revolution.com/nanowrimo-sale-on-the-wcww/
    http://connection-revolution.com/how-did-the-pay-what-you-can-sale-go/

    I forwarded this link on Twitter, I know a few other folks in my stream tried this approach – maybe they’ll hop into the convo :)

  10. Rachael says:

    I ran a PWYC sale last month, and it was a smashing success. I brought in substantially less, financially speaking, than I would have if I’d charged regular prices for the things I offered.

    I can’t see using a PWYC strategy to support my bottom line; but I love the way it allowed me to reach and work with people who usually couldn’t afford me.

    That being said, I’m still working through the queue of design requests from that sale, because I was overwhelmed (in a good way) with orders. :)

  11. Larry Keltto says:

    @Tori, thanks for those. Pace & Kyeli offered a neat twist on the “pay what you can” concept that I’ve never seen:

    “If you can pay full price for the Workshop ($297), you will sponsor a new writer for the 2011 World-Changing Writing Workshop. That means, if you pay $297 for the WCWW before the sale ends on Saturday night, we will give a full scholarship to someone in your name (or anonymously, if you prefer) for the next WCWW in 2011.”

  12. Larry Keltto says:

    @Amy, great point about being capable (or not) of interpreting value. It’s kind of like having a valuable painting in your possession, but not knowing that it’s valuable.

  13. Pace Smith says:

    Larry,

    We did a pay-what-you-can sale on our World-Changing Writing Workshop about a month ago. Here was our announcement: http://connection-revolution.com/nanowrimo-sale-on-the-wcww/

    and here was our wrap-up of how it went. http://connection-revolution.com/how-did-the-pay-what-you-can-sale-go/

    Also, Danielle LaPorte did something similar with her Fire Starter Sessions.

    I’m happy to talk about our experience with it if you have any questions. (:

    Good luck, whatever you decide!

  14. John Soares says:

    Larry, since your main product now is coaching, I would stick with your rates and have people pay you ahead of time for your services.

    A less-attractive alternative would be having a pay range as suggested by other commenters, but then you have to explain the pay range, and it’s one more thing a prospective customer has to decide before hiring you.

    There’s a statement in marketing: “A confused mind always says no.”

  15. What I like most about this is messing with the stuckiness of “how things are done”. Questioning assumptions and strategies is good for us.

    I have a variety of responses based on my own experiences and the experiences of working with other coaches who have done this in different ways.

    I have maintained pretty standard ways of pricing my coaching services over the last ten years. Where I have been more flexible with pricing is by offering some scholarships and sliding scale rates- in the past. What worked best for me and my clients was establishing a range of set prices and a few scholarship slots- where they chose their price within a range of options.

    I am saying this in past tense because a few weeks ago I eliminated my scholarships and sliding scale entirely. Now I offer the same kinds of services and rates I did previously and offer a discounted price for purchasing a bundle of sessions at once, or to coaches in a certification program. For a variety of reasons, this works best for me and the clients I am interested in working with.

    I have worked with clients over the years who have allowed their clients to choose their own price for a variety of reasons. Quite often there were underlying reasons for this like:
    1. Not feeling comfortable asking for money- perceived lack.
    2. Not valuing their services enough to ask for what they were worth.
    3. Limiting thinking about the value of their time, vs the value of the service and impact in the life or business of the client buying the service.

    I have not seen the method you are presenting really work well for anyone I’ve known. In reality it has been pretty weak and ineffective and usually a strategy to avoid dealing with something else- usually masking a story about money or worth.

    I do think we create an expectation through pricing and people show up very differently according to that expectation- both the person providing the service and the person buying. There have to be goods to justify price no matter what, but once someone has established real value the “right” price establishes an expectation of value and an agreement that that value be delivered.

    I do think that what you are suggesting is an interesting experiment, busting our paradigms frees us to be really creative thinkers and designers. I also think it in reality is very helpful to many people to have a suggested price or at least a price range- or other options for pricing.

    I do think paying up front is useful in the kind of work I do- we do. Paying after has a lot of potential problems. One thing I have learned over time is that I do not have a customer no matter what value they see or how “committed” they say they are until they have paid. After they pay they are now actually committed to get the value they are promised and have already invested in. They show up powerfully and come seeking value. I like to exceed their expectations of value- not through lower prices, but through valuable and often unforeseen results.

    I’m reminded of a quote: “If I had asked my customers what they wanted, they would have said a faster horse.” Henry Ford

    One thing I know, that my clients may not know prior to our work together is that they may show up because they think they need a faster horse, but after we have worked together that is rarely what they depart on. I know that will be true without knowing before hand what it will be specifically. Sure, we improve on what they have and meet some perceived expectations that may actually seem worth whatever the price of my services is. So they may say to themselves if I had a faster horse I could get where I want to go faster and as a result serve more people and make more money. Pretty linear. But since what we do at best has little to do with predictable linear improvements, I am creating an expectation from the start that we can exceed their expectations. That is actually predictable even though “how” is not yet revealed precisely.

    If they pay for what they expect- a faster horse lets say, but they leave with a jet plane or maybe they find they don’t need a faster means of transport at all, but ________, then they are unlikely to really pay for anything close to what is possible. And, if they are paying me for better oats or hay to give them speed then we have limited what is possible before we start.

    If they leave with something far beyond the horse will they pay for that after the work is completed. I think it is a bit slippery and creates a burden for them. I’d rather they pay for what I know the process is worth and leave delighted with what they have and what they invested financially.

  16. Ron Moen says:

    Hi,Larry. The High School kids at our church figured this out 10 years ago – when they started having “Free Car Wash (donations accepted if we do a great job)” They washed more cars, made more money, and had more fun than they every had in the years prior. The tradition continues every summer. :-)

  17. I wouldn’t particularly call it a bad idea, because it’s a great one.
    I am a firm believer of not doing business as usual. If truly you want your business to fly, you should adopt strategies as this because they naturally create word of mouth advertising for your business. Go on Larry, Im sure you would be surprised at the end of the year ..:)

  18. Naomi Niles says:

    I think this is an interesting idea.

    On the consumer end, I echo the sentiments others have made. I think I’d feel uncomfortable with it. Even if I paid what I thought it was worth at the time, later I’d wonder if I paid too much or too little or if it was fair. If you set a price and I agree to it, it seems more equally sided to me.

    Beyond that, the one thing that I think would be the biggest danger if you are doing it for coaching/consulting is that the client may be less likely to move into action.

    I think people are more likely to act when they’ve made a commitment first. And investing a significant amount of money in something is a way of demonstrating that commitment.

    I’m not saying it’s that way 100% of the time. We’ve had clients invest a whole lot of money in a new website and then never touch it again. I’ve never understood that. But, I think it helps reduce the chances of that happening.

    All that said, I think the pay what it’s worth model as a sale can work really well for a product. People already know what the starting price was and it gives more chances for people to get it/spread the word. It’s a great marketing technique.

    And since if it’s a digital product, it costs nothing to reproduce. So, it’s not like you are really losing sales in a way since the people who are buying it cheaper might not have been able to buy it in the first place anyway.

  19. Larry Keltto says:

    Hi everyone: I really appreciate your advice. I haven’t made a decision yet, but using what-it’s-worth pricing in limited, “sale” situations makes a lot of sense to me.

  20. @TheGirlPie says:

    Wow Larry — what a swell question and a great bunch of thoughtful comments… I’m so glad @Tzaddi intro’d me to you via this post. I wish your comments had reply buttons so I could thank some of your commenters and annotate these swell comments, but I’ll just say that I was nodding and thinking most avidly as I read:
    >David Wang — ‘after the fact’ pricing (pay what it’s worth invoicing, Larry called it) seems vital for services;
    >Bill, >Nicole, and >Amy spoke for me too —
    And comments from >Tori, >Elizabeth, and >Naomi were very helpful.

    I price my consulting/production/speaking at an hourly rate paid in advance to book the gig, but have a few fixed package rates for tools and workshops. But non-pros come to me wanting that faster horse, and they don’t know what that should cost. But I wouldn’t sell that to them because the needed a car. It turns out that my trying to talk them out of spending a few hundred with me helps them trust me (and they get actionable advice in just that prelim phoner) enough to spend much, much more. But it’s tricky because my services, like therapy, can go on and on and on, there is rarely a fixed end point.

    In all the fuss over hourly pricing, I stick to it adamantly — I think about it like this:

    I have an endless supply of creativity, advice, insight, ideas, talent and skill to give my clients. I do NOT have an endless supply of time. In fact, time is the one and only thing we can never replenish, get back, do over, extend, etc. It moves on whether we do or not. That rarity of the only finite, non-renewable thing that I trade for money is why I change per hour/day.

    But I’ve learned from this post and comments, and may actively offer scholarships (I do so much pro bono, I might as well look good for it!), and will explore how I might use that range-pricing that Tori reminded me I’d see at those links and elsewhere… THANKS~!

    Your new pal,
    ~GirlPie

  21. Angelique says:

    You’ve started a great discussion here, Larry. Wow!

    I have to echo the sentiments of so many others… as a customer/client i would not want the responsibility/pressure of having to think about what it’s worth and come up with the price. It would make me feel like I’m having to do part of your job for you – pricing your services.

    The other challenge is that it can’t REALLY be “pay what it’s worth” or it then becomes an illogical purchase. For example, I do a lot of copywriting for folks. If I write a sales page for a client and that sales page brings in $25,000, then my services were worth $25,000. If they pay me the entire $25,000, then why bother?

    Really they would need to first figure out how much my services were worth (say $25,000) and THEN determine what percentage of that value I’m entitled to.

    And I’m not sure as a customer/client where or how I’d begin to do that.

    Just my two cents!
    Angelique

  22. Tara Joyce says:

    Hi Larry, I’m a little late to this conversation but I’ve been running my design business with PWIW pricing since it’s inception almost 3 years ago. Currently I’m writing a book about my exploration and findings using this pricing system. If you have any questions about the strategy or just feel like saying hi, feel free to contact me. I love discussing the nuances of it!

    Tara Joyce

  23. Larry Keltto says:

    Hi Tara:

    I’m glad to hear that PWIW is working for you. Let us know when your book is available!

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