Potluck Pricing: Letting Customers Choose What They Pay
Crystal posted this on June 4, 2008
Image credit: gabyjalbert
The Value of Value: Snippets on Pricing Our Services brought some great comments from consultants and service providers on how they set and stand by their rates. You Scratch My Back And I’ll Scratch Yours showed the benefits of client incentives, and the comments that followed touched on commissions and the beauty of barter.
With those in mind, let’s chew on a pricing method that’s the flipside of the first post and smells something like the second: letting customers choose what they pay. It’s value-based pricing, but the value is in the eye of the beholder. It’s a reciprocal back scratch, but who scratched first?
Letting customers choose their own price may sound a little crazy (and maybe it is), but crazy or not, folks are giving it a try. Here’s what I’ve seen so far—
Potluck Pricing for Online Content
Science of Getting Rich for Practical Geniuses (SOGR) is an online course and community that Rebecca Fine developed around Wallace Wattles’ public domain work The Science of Getting Rich.
After an 11 page sales letter with testimonials, course features, how much energy Rebecca put into creating it, and what we can get out of it, we’re invited to set our own “tuition” for the course.
Some observations about SOGR pricing:
- Purchase is prefaced by a lengthy value description
- There are no cues as to which price she would prefer
- We can pay less than the default tuition
- Tuition choices increase in $50 increments, but decrease in $10 and $20 increments
- The highest tuition is more than twice the base price
- The lowest tuition is around a tenth of the base price
Potluck Pricing for An Online Tool
Library Thing (LT) is a marvy personal library and social media tool for people who love to read. You can tag and sort your list of books, connect to others who have read them, and more.
It’s free to use, but a paid membership is required to include more than 200 books. Imagine my surprise that:
- I own over 200 books
- I typed in and tagged that many
- I could pay what I wanted (within a range)
Some things to note about Library Thing’s pricing:
- There’s no preface explaining how much the membership is worth
- Captions clue us in on how the folks at LT feel about each price
- We can pay less than the default fee
- Fee options increase and decrease in similar $1 and $2 increments
- The highest fee is twice the base price
- The lowest fee is a little over half the base price
Potluck Pricing for Services
In an earlier comment, Shawn of JV Blogger suggested setting a service base price and allowing the customer to set the amount (if any) of an additional payment after delivery. Here are versions of this I’ve seen/heard in practice:
Google Answers
The now defunct Google Answers was arranged so folks could buy answers from subject matter experts (SMEs). When submitting a question, Askers set their own price for the answer. An SME selected their question (or not, if the price was too low), researched and published the answer, and then Google and the SME shared the fee. Askers were encouraged to give the SME a tip (which wasn’t shared with Google) if they were super-satisfied with the answer.
Designer X
A (currently unnamed because I didn’t bookmark the post!) designer uses this system for his practice. His article was primarily about how hourly work is bad from both sides of the desk. Clients prefer a sure cost for the work, but a fixed project fee that satisfies the client encourages him to forsake quality for speed, in an understandable effort to maximize the value of his time.
As a happy medium, he quotes a project fee that’s the least he’ll accept, and after delivery the client is asked to make a final payment for how much more they feel the work is worth. In this way, he stays focused on client requirements and quality because how much more he makes is riding on them. From the client perspective, he’s a designer so confident in his work that he’s willing to, essentially, bet on it.
He went on to say that only one client has stiffed him since he started letting clients set the amount of that final payment, and many give him more than he would have asked. Most important for his argument, he delivers great work under this arrangement.
My wonderings…
Overall, I think letting the customer set their own price is a neat idea, and each of these examples demonstrates a checkpoint that ensures the vendor/consultant/service provider gets a minimum payment:
- Digital resources are accessed by paying a selected price (not one that’s typed in)
- Services have an initial fee or deposit that’s paid before work begins.
But I’m wondering…
For digital resources:
- Should we adjust the base price based on customer selections?
If there is a trend to select a higher price, should we raise the default price? What if customers regularly select a price lower than the default…what’s the best response for that feedback? - What’s the best way to present our perception of what the product is worth?
Library Thing offered little direction on the payment page, apparently depending on the tool to speak for itself via the user’s experience.
However, for Science of Getting Rich, getting the ideal price is likely dependent on Rebecca’s long and descriptive sell, because access to SOGR content is only available after payment. - What’s the best way to go about setting a default price, the highest and lowest prices, and the increments?
For services:
- What if the client isn’t able to pay more after the work is done?
Is there a way to screen clients to be sure we take on someone who can pay the additional bit?
Et tu? What do you think about letting customers choose their price? Do you have an example to share?
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Way back in the 1930s traveling vaudeville shows ran what were called “Ding Joints.” The “ding” came from the large glass bowl placed by the exit. Patrons could pay what they could afford, the depression was in full swing, and what they thought the show was worth.
Given your focus on small and medium sized businesses this is worth a try. Businesses this size have the flexibility to adjust payment to reflect perceived worth. And I expect you are also dealing with the owner. I would be concerned using this method for larger businesses. They have fixed budgets and politics / reputation is often involved. Nobody gets fired for paying a McKinsey consultant $3,000 or more a day.
Recent blog post from James Hipkin: The Hidden Dangers in Cereal Advertising
I often do that. Somebody calls with a tech question, I give them a quick and helpful answer, they say “Wow, that’s great - what do I owe you?”
I say “Whatever you want”. If it really was that quick, what the heck: I’m out 30 seconds of time and usually I get $10, $20, $30, sometimes more.. one time (only once) someone sent me $500.00. I’ve had quite a few $100’s, too.
It works.. I don’t do it for more complicated or lengthy stuff, but for the quickies, it’s definitely to my advantage.
Recent blog post from Anthony Lawrence: It is going to get better, right? by Anthony Lawrence
Jeez, I can’t imagine how this would work with my 10-year-old (process-oriented) consultancy in which I charge by-the-hour (up front, so the client controls the costs.) All the posted rates, all the past clients who’ve paid my $100-$150/hr rate, and all the cheapie semi-competition out there that the novice client doesn’t understand isn’t my service or product…
MAYBE on just one type of ’special’ service — like an “Ask What You Like, Pay What You Like” 10-minute phoner option, similar to Anthony’s comment.
Hmm… lots of good stuff to think about here, fun post, thanks!
@James—Ding Joints? How cool is that?! And even riskier than these examples, since folks didn’t pay an entry fee, only an exit one. But the nonexistent barrier to entry simply had to be a good…no…the BEST thing for the times, yes? Hard times bring out a special kind of clever brilliance (or brilliant cleverness).
The things you know simply boggle me. Always a pleasure
And thanks for the feedback on the issue of business size/scale for this kind of thing. That’s not something I have experience with, and definitely something to keep in mind—another area where small can be a very good thing. Or at least, another way to leverage being small…
Particularly with the Anthony’s comment on pulling quite the happy dollars for those brief support calls…
@Anthony—Again: how cool is that?! I’ve been thinking of using the “whatever you want” pricing on a membership site, but wasn’t sure how it would/could work with a support-type scenario. What a fantastic experience for you, from $10 to $500, and what a perfect example for all of us. Big thanks!
@GirlPie—Howdy! Wasn’t it you who has an annual freebie call-in day as a client list builder? If so, this would be exactly that, just not (ideally) free.
But for your day-to-day work, I can’t begin to imagine how existing clients would react to a change from posted rates to something kin to “whatever”! Okay, not really that loose, but potluck pricing may seem that free-wheeling in comparison. Many thanks for your thoughts and another question: What’s the best way to transition from a fixed payment system to potluck payments?
Thanks tons for your ideas and feedback y’all. I thought this a bit mad, but from your input I see that it’s quite effective, and has a history of being so!
Blessings to you
Good memory, yes that was me — but until you mentioned it, I hadn’t thought of that (NEVER thought of what you’re discussing today ever.)
Funny how we see parts of our own business as separate or united in different ways than fresh eyes see it. You’ve got me seeing both ideas differently now — thanks.
@GirlPie–My pleasure, always. I’m seeing things differently also! I thought this method was kooky but clearly doable. I expected big-time skepticism, but instead y’all bolstered it up with history, experience, and a good chew
I think there are many ways to use this model wisely and/or well, and now I’m cool with trying it because I see how to manage the risk and y’all didn’t laugh me off the Internet
Here’s why it matters:
I have a decently-trafficked directory website that’s overdue for a redo and an expansion. I guesstimated a multi-featured premium listing would be worth $25-$45/year? Then I came to find a directory website for the same market, though different in implementation/execution, that has a fine collection of folks paying $695/year for a listing. Imagine my surprise that the market consider an online listing (at least on that site) to be that valuable?
Making the directory valuable is my job, but with those numbers in mind, maybe setting (or selecting) the price should be left up to the customers…
Tony’s right about this one - while not doing what he does full time, I’ve done it on the side and once in a while someone says, “what do I owe you?”
For 30 seconds work. And I’ll say, “nothing”.
And they still give me $20 or $40…
Recent blog post from Brett Legree: viking fridays - wake early.
Brett—Now how cool is that for you? Expecting nothing and getting a lot more than just a little bit of something.
Ya know, Microconsulting should have been free with a tip jar. I’d probably make more?
Thanks for checking in
Recent blog post from Crystal: Dear Santa: A New Design Wishlist for Big Bright Bulb
i bet most people will take advantage of this and use the lowest cost one -_-
Great article. This is an interesting idea that I actually have tried and you would be surprised at what people are willing pay.
Hi Papa Bear, and welcome
A very good point. Many people would likely take the lowest cost option when given the opportunity to select their own price.
I suspect the best way to manage that is to set that lower price just above the lowest we’re willing to accept and increase from there, putting our ideal price midway and having a dream price at the top.
That’s just a theory though. What do y’all think?
@Hello—Hello!
Thanks for your comment! I’m looking forward to trying it, and it’s good to hear that it’s worked for others.
@All! — From my friend Chris who thought the idea was insane, I have a news article
London restaurant to launch pay-as-much-as-you-like scheme
“The Soho restaurant is introducing a new tapas menu on 9 July and every Wednesday will forgo producing a bill asking diners instead to pay what they think their meal was worth.”