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It’s not just for ribbon dancers in the desert anymore. The Gift Economy is for writers, designers, lawyers, restauranteurs, consultants, artists, etc. etc. etc. Everyone seems to be getting on board, but is it for you? We talked to author and publisher Tom Morkes about his experience with Pay What You Want pricing. Tom wrote a definitive guide after interviewing hundreds of individuals and businesses on the unsettling-to-some business/pricing model.

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You surveyed hundreds of creators about PWYW pricing. The number one concern you found was that people are most afraid of not making enough money from their PWYW product or service to cover overhead and other basic expenses and that they believe customers will undervalue their work and pay very little or nothing. What has been your experience?

In my experience - and based on the research and analysis of dozens of other individuals and businesses that use Pay What You Want pricing – not only do the majority of people contribute when it’s optional, but they often contribute so generously that it’s quite common for PWYW pricing to bring in 60%-200% more revenue than fixed pricing. I know, sounds crazy, but it’s true. I started my blog Tommorkes.com a little over a year ago. For months, I wrote on the topics of creative entrepreneurship, unconventional business strategies, and starting, finishing and shipping creative projects. I also started a podcast and wrote several books and guides in and around these topics.

I did it all for free.

In April of 2012, I had a new book I was getting ready to release called 2 Days With Seth Godin.  I planned to give it away for free to my readers (all 166 of them) like I had done with all my other products up to this point, but I wanted something in return:

Validation.

I wanted to know if people actually care about the work I was doing. Of course, the only way to validate work is through an exchange of money (anyone will take a free sample – but how many people buy the $10 smoothie?). This put me at a crossroads – how could I validate my work without charging money?

That’s when I remembered an interview I had heard a month prior on the topic of Pay What You Want pricing. According to the interview, Anthony and Joe Vennare of TheHybridAthlete.com were selling fitness programs but with a catch: they let their customers choose their price. Interesting, but not necessarily remarkable, right? Until you find out they were making $400 - $600 per day using this technique. Think about that for a second. By giving their stuff away for free, while at the same time giving their loyal readers, followers, and customers the chance to contribute any amount they liked, they were making $146,000 - $219,000 per year.

Mind = blown.

That’s when it clicked for me: I didn’t have to charge to validate my book. Instead, I could give it away but with one subtle difference: I’d give my readers the opportunity to contribute back (as much or as little as they’d like). So I released the book as Pay What You Want, letting my readers know the book was free, but if they liked my work, they could buy me coffee (or maybe a nice steak dinner). In the first month, I made close to $500 from a free eBook (with a subscriber list of only 166 happy readers).

What’s more remarkable is that the average purchase price of the ebook (of the people who chose to contribute) was close to $15. If, at the time, you had asked me what I would have set the fixed-price of the book at, I would have said $3 - $5. In other words, I was making anywhere from 3 to 5x more by allowing my customers to choose their price than by setting a fixed price. *For proof, check out my Amazon Self-Publishing Experiment where I tested a fixed price version of the book through Amazon to see if a fixed price would bring in more or fewer sales (and more or less revenue).

Since releasing 2 Days With Seth Godin, I’ve experimented with Pay What You Want on a number of other ebooks and guides. My most recent PWYW book, The Complete Guide to Pay What You Want Pricing (meta, I know), brought in $963 in the first 10 days of release (including pre-orders).

More recently, my publishing company, Insurgent Publishing, just shipped the first issue of our brand new business and arts journal called The Creative Entrepreneur. The journal is a semi-annual, donation-based publication with a portion of all proceeds going to charity. Readers can contribute whatever they want over $1 / issue (with bonuses for those who contribute over a certain amount). We officially launched the journal on 1 January (although we did allow pre-orders). As of 8 January, we have 57 annual subscribers who have contributed $1,688 (and counting). 

Okay, so these are all digital publishing endeavors, what about physical products and services? No way Pay What You Want could work for that… Until you take a look at some of the success stories from people who have bought my guide and applied PWYW to their businesses:

Mick H. does part time consulting.  Normally he charges $200 / month. After reading the guide, he applied The 6 Step Perfect Pitch Framework to his consulting offer. He had a client immediately sign up for consulting at $500 / month. Mick more than doubled his revenue simply by letting his clients choose their price.

Or take Leah Hynes and Nazrin Murphie, founders of RYPL.net and The Circuit Breakers Series conference. They launched their first conference toward the end of 2013. At first, they sold tickets at the incredibly discounted rate of $49 (comparable conferences sell from $100 - $300 per ticket). In their own words:

“We had 3 weeks to organize it, promote it and fill the 64 person theatre. After two weeks of minimal movement on registrations we decided to use a Pay What You Want ticketing option. In 10 days we went from 3 registrations to 47. Over those 10 days we saw significant results: 

  • An 1466% increase in registrations from 3 to 47 registrations 
  • 22 Early Bird registrations (56% of tickets) 
  • 19 Pay What You Want registrations from $5 - $49 with an average ticket price of $20 paid (23% of tickets) 
  • 9 full price tickets sold (19% of tickets)” 

Not only did they sell a bunch of tickets using Pay What You Want, but by offering PWYW tickets, they increases sales of their full priced tickets as well.

While these two case studies demonstrate the power of Pay What You Want, there are literally hundreds of examples of successful PWYW offers, including:

  • Bridge Hotel’s Pay What You Want Karma Keg that brings in 10-25% more than their fixed-price kegs
  • Linda Formichelli’s Pay What You Want eCourse experiment that brought in 10 times more than her fixed price eCourse (and is now a permanent option on her site)
  • Larian Studios PWYW video game compilation experiment that backfiredand brought in more money than they ever expected
  • Panera Bread’s group of Panera Cares Cafe’s that are entirely Pay What You Want based
  • Humble Bundle that raises millions for charity and for video game publishers through their PWYW video game bundles
  • Joost van Dongen’s hobby project Proun that brought in over $20,000 using Pay What You Want pricing
  • Chris Bennet’s Dock Cafe in Belfast that’s run entirely on an honesty-box system
  • Libboo, Zoho, Propellerhead and BinaryNowall software companies that have used Pay What You Want to sell their products
  • Perlin Winery in Germany that’s run entirely on PWYW… for the past 10 years
  • Little Bay restaurant in London that’s made 20% more revenue using Pay What You Want than their fixed price menu
  • And many, many more…

This is the power of Pay What You Want. Instead of customers undervaluing your work, they are much more likely to contribute generously. And in the process, it’s not uncommon to more than double your revenue.

Well, this could be a one-question interview. But let’s go further. We did a post a few months ago on psychological pricing that focused on prices ending in 99 cents. A major part of giving a product a price ending in 99 cents is the implied value. PWYW almost flips that on its head. Do you think people more often feel like they’re paying too little when they’re purchasing a PWYW product and then increase their contribution?

There is a lot of truth to this, and it’s definitely one of the powerful, underlying psychological principles involved in Pay What You WantWalt Kania is a freelance writer and consultant who has used PWYW extensively for his work (and has extensive documentation to show it’s helped him make more than double his fixed price consulting and freelance rate), and this is what he’s witnessed when it comes to offering services as Pay What You Want:

“Sometimes (as one client confessed to me) they’ll reflexively crank up the fee when filling in the blank. Sort of like the way we reflexively and fearfully crank down the price when the client says ‘How much will it cost?”

Source: The Scariest Pricing Idea Ever. That Works.

But there’s more to Pay What You Want than making people rethink what they contribute for fear of looking cheap. Pay What You Want actually inspires generosity. This Harvard Business Review headline says it best:

When The Rule is: Pay What You Want, Almost Everyone Pays Something.

The article goes onto explain: 

“During two years of observation, only 0.5% of patrons took advantage of the opportunity to eat free at the pay-what-you-want Wiener Deewan self-service Pakistani restaurant in Vienna, say Gerhard Riener, of the University of Jena, and Christian Traxler, of the University of Marburg, both in Germany. By the end of that period, payments for meals had stabilized at an average of €5—more than enough to cover costs—and the number of daily customers had increased by more than 50%.”

In my own experience, I’ve had several people contribute $50 - $100 for one of my ebooks (and these outliers more than make up for those who contribute little or nothing).  

I’ve also had other people come back and contribute more after they used one of my guides and got results. But the best aspect of Pay What You Want is that it’s helped me develop a relationship with my readers (which, in turn, has helped me buil trust and brand). Oh, and I never have to hard sell anything either – which is priceless. 

There’s a lot of anger/hesitation/backlash, mostly in the design/illustration world, about working for “exposure”. While increased exposure is a major benefit to PWYW pricing, do you think there’s a point where one should decide that the cost of entry should be raised? That exposure isn’t as much of a factor as, say, getting a 60-foot yacht instead of a 48-foot yacht? 

I don’t think this has to be a mutually exclusive trade-off. Why not maximize exposure while maximizing your revenue? I listed dozens of examples above that shows PWYW being used to generate upwards of 200% more than fixed-price alternatives. Exposure is great – but getting paid is essential for any entrepreneur, artist or writer…which is why Pay What You Want can be so effective – it does both simultaneously if you do it right.

So how do you do it right?  It’s all about the pitch. I go into a lot more detail in my guide, but I’ll do a basic overview of The 6 Step Perfect Pitch Framework, which should be enough to get most people started on the right track to offering a PWYW product or service that actually makes money:

1. Clarify the Offer
Simple, but essential. If people don’t know what you’re offering, how can you expect them to contribute (let alone contribute generously).

2. Show the Customer You’re Human
We don’t give to corporations. We give to people. If McDonalds rolled out a Pay What You Want Big Mac, why would anyone contribute generously? But if the artisan baker down the street, who you’ve known personally for years, is offering his hand-crafted baked goods as Pay What You Want, now all of a sudden there’s a reason to contribute (and generously). A couple ways to show people you’re human online: add your picture to the website and sales page, and write in a casual but passionate voice (in other words: write like you talk).

3. Appeal to Idealism
PWYW is all about giving people a reason to contribute generously. We do this by appealing to virtue, generosity, karma, and any other ideal that encourages giving. Sometimes, just mentioning the word is good enough (think Karma Keg). Other times, we need to elaborate on what and why we’re using PWYW. Remember: people buy stories.  So give them a good story that appeals to their idealism (they’ll be more willing to contribute and to spread the word).

4. Anchor the Price
If you’re selling a premium product as PWYW, you need to anchor a premium price in the buyers mind. This could be as simple as referencing comparable products or services that are extremely expensive, or offering multiple versions of your own product (and giving away bonuses for people who contribute over certain amounts).

5. Steer the Customer to the Right Choice
Once you’ve price anchored the product, you need to actually steer the customer to the right choice. PWYW is ambiguous in some ways, and ambiguity scares people.  We need to be clear not only with our offer (see above), but with what an average contribution would look like, and, even better, what a generous contribution would look like. HumbleBundle.com does an incredible job of this by (1) showing you the average people contribute and (2) pre-setting the amount you should contribute at the bottom of the sales page.

6. Add Charity to the Mix 
While it’s true that a simple PWYW offer can increase revenue compared to fixed-pricing, it’s much more effective when you add charity to the mix. This ties into the ‘appeal to idealism’ I mentioned earlier but creates an even greater incentive to give and to give generously. Of course, you need to integrate charity authentically, honestly, and congruently with your message, otherwise it comes off shady or forced and people won’t contribute. No, you can’t ‘game’ the system with charity, so only use it if it fits.

As your audience increases, has your contribution amount per customer average increased/decreased/maintained?

It depends on the product. If we look at just one product, like my book 2 Days With Seth Godin, the average contribution price of those who contribute something ($.01 or more) has fallen to $9.75 (during its first month of release the average was $14.51). But the average contribution for The Complete Guide to Pay What You Want Pricing has increased from $10.37 to $11.78. Of course, there are ways to keep contributions fairly consistent, and one of the best practices I’ve seen for this is offering bonuses or incentives for contributing at or above a certain price point (which is what I do for The Complete Guide to Pay What You Want Pricing, which keeps the average contribution steady).

What has been your biggest surprise about PWYW pricing?

That it works. And that it works consistently.

I didn’t expect to have much if any success with PWYW when I started.  I just wanted to try it out and maybe make enough for a cup of coffee in the process.

Since the release of my first Pay What You Want product, I’ve steadily improved and perfected my pitch, and found ways to make my PWYW offer irresistible, to the point where I’m confident I’ll make money from my Pay What You Want products and services. All in all, I’ve made thousands from giving away my products and letting my customers choose their price. And I’m not alone.

I think the best advice I could give to any creator (especially if you have a small but passionate audience like I did when I started) is to at least experiment with Pay What You Want. Who knows, you may never go back to fixed pricing.

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Tom Morkes is an author, publisher and all around instigator.  Tom graduated from The United States Military Academy at West Point, spent 5 years as a commissioned officer in the U.S. Army, and even got paid to jump out of helicopters for a while.

If you want to get inside his brain, check out his blog at www.tommorkes.com/gumroad, where he applies what he’s learned leading troops in combat to starting, finishing and shipping creative projects.