I've mused aloud on this before. It's an intriguing concept to me.
Letting our customers set the prices.
Mack Collier from Viral Garden reported on a band (Radiohead) that allowed fans to download their CD and determine what they were willing to pay for it. Interestingly, not only did their traffic have a huge spike, but they sold more of their boxed sets (at full price) than the downloads at any price.
The Springwise newsletter also reported on this trend by pointing to several restaurants like Melbourne's Lentil As Anything which also lets customers pay what they can afford or what they think the meal was worth.
Here in the states, we could visit the One World Café in Salt Lake City or the SAME Café (So All Might Eat) in Denver. An interesting note about these two restaurants. They've added some cause marketing to the mix, stating that the reason they're doing this is so they can feed those in need as well.
Does this idea only work with products that have a relatively flat price point? We all know CDs (or downloads of CDs) range from $10 – 20, usually. And dinner for 2 at an average casual restaurant is going to be somewhere around $25-40.
Does this concept hold as well for service-based businesses? Do I really have any concept of what it takes for an attorney to review a contract or for an ad agency to create a brochure? Would I have any idea what to pay an architect for drawing some blueprints of a new house?
What do you think? Would this work in your industry? Without a doubt, it is risky in any arena but it sure has a lot of buzzability around it.
Pricing strategy says quite a bit about your brand. What would this say?
Anyone willing to try it and be our case study?
Ohh…that’s a tough one. One I’ve wondered about a few times myself.
I do think there’s something to be said for using this on lower-priced commodities rather than on higher-end service based businesses. As you said, most people just don’t have any idea of what some services cost.
I’ve had quite a few instances where I quoted someone a price for my services and they absolutely balked. It was so far outside of the range of what they imagined it would cost (and I’m not even on the expensive end for my industry, lol) that they could hardly stomach it.
Now once we sat down and talked it over and they started to see results, few would argue that it was money well spent. That said, the more expensive the service and price tag, the less most people are willing to pay what it’s “worth.”
If a lawyer told me to simply pay “what I thought it was worth” after preparing a will for me, I might say “$250 sounds right.” That may seem like a lot to me for a simple document. Reality could be vastly different though. No one wants to be underpaid and no one wants to overpay.
That said, I do know more than one person in the service based industry that accepts a profit share instead of charging a flat fee. That fits in with the “pay what it’s worth” concept…but offers up its own pitfalls.
I’ll be curious to see if anyone bites. I will say you’re tempting me. I’d be really curious to see what someone would pay after the fact if I offered up an hour of phone consulting about their business and their online marketing…
I don’t exactly let the customer set the rates, but I have been subscribing to a similar theory for years.
I can charge fees, collect commissions, or both. During the first meeting with a prospective client I talk about how I get paid. Despite the trend in much of the financial literature in favor of a fee-only planning, I explain the difference between fees and commissions this way:
In a fee-only arrangement, we agree on a scope of service and a fee. You write the check and I do what I promised. You have to trust that my work will be worth the agreed payment. Often, at the end of our planning, the client finds that they need specific products to accomplish their plan. They are welcome to buy these products from whomever they wish and pay them the commission.
In a commission based arrangement, I do all the planning work without charge. All I ask in return is that IF they need to purchase financial products, they do so through me so I can be compensated via commission. I have to trust that they will not take my planning elsewhere to purchase their products. If they find no value to my work, they can walk away without regret or charge.
Personally, I would rather place my trust in the client rather than require the client place their trust in me. It makes for a client who is more comfortable, relaxed, and easy to work with.
The best part is, in 17 years of practice I can not remember more than a couple clients who did not live up to their end.
Without a doubt, this idea is fraught with peril. But, would people pay more than your usual fee?
Let’s say you charge $200/hour. If you charge a client for $1,000 they might feel it’s a little high. But at the end of the job, if they determined they should pay you $1,000 — would they feel very differently about basically the same transaction?
It is an interesting idea, isn’t it?
So would you ever say to a client…”we’ll do the fee-based arrangement. How much do you think is fair? I’ll accept whatever you decide, as long as you agree to be fair.”
Or do you think they’d always under pay?