[Case Study] How a Pay-What-You-Want Pricing Model Can Generate More Revenue

image of elizabethan pay-what-you-want audience

You probably know that finding the sweet spot in pricing the offer of your information product can make all the difference between generating substantial revenue and, well, running a promotion that bombs.

I’ve discovered something that adds a little icing to that sweet spot.

It all started when my husband mentioned a Kickstarter campaign for a boardgame where the designer let contributors pay what they wanted, with a minimum of $5, until a certain amount was reached. Then it turned to a pay-what-you-will model for everything over $10, and so on.

His campaign was a big success.

When my husband suggested I try this pricing strategy — pay-what-you-want, with a low initial requirement — to my Write for Magazines 8-week e-course, I told him he was nuts.

But then I started thinking about it …

I was charging $240 for the Premium level of my course, which includes 8 weeks of e-mail support, and $120 for a Basic version, which is basically the weekly lessons and assignments but no feedback. I always sold out the Premium level but would get only two or three Basic sign-ups.

Really, since I have to do nothing but send the lessons to the Basic students, it costs me zero to offer. Anything I earn over that is gravy.

Also, I was attracted to the idea of letting students place a value on what I was offering; this was a great way to see what people really thought of my course and also give me an idea of what the market will really bear.

So I decided to give it a try.

How I set up my revenue model

I planned to charge a $30 minimum for the Basic version of my e-course.

There were no scientific calculations involved here — I just made an intelligent guess at what price would attract students based on the market, while simultaneously not making me not feel resentful over charging too little.

Then I set up a PayPal button that let buyers enter whatever amount they were willing to pay.

I sent an e-mail to my mailing list of about 2,200 names … and waited.

I didn’t have to wait long.

The results of my experiment

I got my first sales almost immediately, and over the course of a few weeks I sold 128 Basic spots. Usually, I would sell a maximum of three (for total sales of $360). Instead, I made over 10 times that much.

And something funny happened: Many people paid $35 and $40. Several paid $50. One paid $75.

Then, I offered my next e-course session for a pay-what-you-want pricing model, and got similar results.

I’ve now offered the course with this payment model three times for a total of $10,134 from 228 students.

That’s an average of $44.45 per student. Which means students paid an average of $14.45 over the minimum asking price.

Now, if I actually charged $44.00 from the get-go, would I have gotten as many students as did? I don’t think so. I think people are intrigued and attracted by the idea of choosing what to pay. Even better, people feel good about themselves for offering an extra 5 or 10 bucks.

And, if you’ve spent months or years building an audience that knows, likes and trusts you, this model should work even better. Your audience wants to support you, why not let them?

Since then, Carol Tice of the Freelance Writers Den and I have used the pay-what-you-want pricing model for the Audit version of two e-courses we collaborate on, and the results have been similar.

It’s been thrilling to have actual proof that people value what I have to offer, and to have a mechanism by which they can reward me for that value, even if it’s more than my asking price!

A caveat

Now, it has to be said that I work damn hard to offer information of value to my readers and clients; I didn’t just pull an info product out of the air and hope to make it big.

I’ve spent years building trust, nurturing relationships, working in the trenches as a freelance writer, and sharing valuable, free information on my blog and through email and social networks.

To make pay-what-you-want pricing work, you have to start with an audience or readership that trusts you, and a product that’s the very best you can make it.

You also need to have a product that makes sense to sell at varying price points. Don’t implement pay-what-you-want for something like your consulting time, or a product with fixed costs.

Many entrepreneurs, writers, and bloggers offer e-books, special reports, and e-courses in addition to their main services. Could experimenting with a pay-what-you-want pricing model help them earn more? I’d love to hear your insights and experiences in the comments below …

About the Author: Linda Formichelli has written for over 150 magazines (like Redbook and Health), 30 corporate clients (like Sprint and OnStar), and she typically earns $250 per hour. Over at her Renegade Writer blog, you can join the email list to receive two free e-books for freelance writers as well as get her insightful and advice-packed Monday Motivations for Writers emails.

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Comments

  1. I really like this post. I’ve thought about the model but not implemented yet – mainly because I wasn’t sure how to set up the shopping cart to accept those pay what you want payments. Now that is a pathetic excuse! You’ve inspired me to go beyond that and find the solution so that I can try this fo rmyself.

    thanks Linda :)

  2. Super Interesting, I really liked this post. Especially for sharing the results with us. I believe this model was successful because it focused on the volume aspect of getting learners not the the cost per student. So even though you had a lower price you pulled in more students and and get more profit than you would of if you just stuck to your price. :)

    Nice one Linda

  3. This makes a lot of sense. It shows that people are willing to pay good money for a product they think deserves it

  4. Really interesting! Thank´s alot for sharing! I must try this for my next product – perfect timing! =)

  5. AMAZING!! And thank you for the brilliant idea! Question–what service do you use for your shopping cart? I have been using PayPal, but they don’t have a button where people can pay what they want. I need to find a service like this so I can try this method for myself.

  6. Love this idea. I guess the next challenge could be ‘how to get repeat-customers to pay more in the future’ so they don’t associate you with a price and instead, continue to associate you with a level of value.

  7. I wonder how this approach would compare to just pricing low (but not so low that people suspect a cheap product). I think of CK Louis’ successful experiment–he made one million I believe in 12 days. Of course he’s got a huge audience, and he did a lot of things right (AMA session on Reddit), too, that built trust. I think he’s since repeated the procedure, and there was at least one copycat. I wonder how he would have done if he would of used the pay-what-you-want pricing model. I don’t think the bands (Radiohead, NIN) who used that model have used it again. I think I know your answer, but would you do it again?

    • That’s a question I’d like answered myself. But I get the feeling that no matter where you eventually price your product, if it’s on the low end you can earn more by doing Pay What You Want on top of that — as long as you have a great product — because people tend to pay more than the minimum just to show you how much they value you.

  8. Linda,

    I’m one of your subscribers who took advantage of your pay what you can offer. The price point made my decision a no brainer. The first time was such a charm, that I took advantage of your offer with Carol Tice. You can break the bank purchasing information products only to find that most of it just doesn’t work for you. This is a great pricing model!

  9. I love this idea. I am just starting to rebuild my presence on the web after having been gone for awhile. When I have re-established myself I’m going to write and publish an ebook and I think your idea of having one product that is interactive and another that is just the basic ebook is a great idea. Thanks so much for sharing this with us.

  10. I’ve noticed this “pay what you want” is slowly turning into a quiet trend. I’ve seen several people do it: Dave Navarro, Naomi of IttyBiz, and a few others. I suppose it’s a variation of the e-book giveaways that people were doing a while back.

    I think even more important than bringing in revenue, the pay-what-you-can model builds a tremendous amount of loyalty. Your readers know this is a real product, since they’ve seen it on your blog and heard you pitch it in e-mails and posts. Many of them probably wanted to buy it, but couldn’t/didn’t buy it when it was last offered.

    So giving your readers a chance to buy it on the honor system is a win-win: your readers now trust you (because you trusted them) and on top of that they may even feel they owe you one. I’d be interested in seeing some numbers on whether those buyers were more likely to purchase products from you in the future, and if so, how much they were willing to spend.

    • So true. And I’d also like to know how using Pay What You Want impacts sales of additional products. As you can tell, I’m not super scientific about my testing for pricing. :)

      • Although I’m also not the one to ask (Kissmetrics are pretty good at this stuff), I would imagine that the purchases of people who use Pay What You Want could probably be tracked through their customer ID or through an auto-responder.

  11. What has intrigued me here is the idea of offering an additional product, such as an ebook, with this pricing model. As a content provider, it would be quite difficult to tell a magazine I write for to pay me what they want for it and still put in the hours of research and interviews to make it happen — or be motivated to do so. But an ebook of value that my clients would appreciate with the pay-what-you-want model is absolutely worth considering!

  12. This concept is illustrated beautifully in the short book, “A Slice of Trust” (http://www.amazon.com/Slice-Trust-Leadership-Secret-Filling/dp/1423621182/ref=sr_1_1?ie=UTF8&qid=1348070745&sr=8-1&keywords=a+slice+of+trust). You may want to check it out!

  13. My business partner has had great success with pay-what-you-want pricing. As you said, I think it is important to establish a loyal audience before you try it.

  14. I’ve seen some bloggers who are in very small niches do this, but never saw anyone blog on the results. The only problem I would have with this is that there is very little data on pricing. So how do you upsell, create downsells and price out the rest of your analytic s? I would rather spend money and test out 3 price points….

    • Yes, that’s a good question. It’s so hard to know what a good price point is for various products. I use a lot of trial and error. $120 hardly sold any. $30 sold tons. Would something in between do better? Someday maybe I’ll try that out.

  15. I’ve tried this model once myself and did see that it generated more sales on the front end. BUT how many of them actually finish the work and implement? I saw less accountability and action from those who paid less. Wondering what your experience was?

    • That’s a really good question. I don’t have much luck tracking completion rates because with the Basic version of my course, there’s no email support — students get 8 weekly lessons plus twice-weekly motivational/informational emails. I often get students emailing me after the 8 weeks to let me know they finished the course, but other than that it’s hard to know. Also, there are no time limits since there’s no email support and I never change the passwords to the lessons, so some students go back to the lessons weeks or months after the course has ended.

      It would also be hard to extrapolate because before I would get only like 2-3 Basic signups and now I get more like 30-40.

      In short…that’s something I’d like to know!

  16. This is really amazing post Linda. I really like the idea with shopping carts agreement with pay what you want payment; sounds so interesting stuff; sounds such a crucial implementation. I can’t wait to give a trial on such. I really loved this and it is an attention-grabbing idea many bloggers has given back on without their knowledge. Thanks that you have opened the eyes of many where I’m first included. Waiting for the next shout out, keep up Linda!

  17. I like the model. This seems interesting. I am thinking of trying this out myself!

  18. Hi Linda, I am strategized by your post. I have to admit it is a piece full of logic and the ideas are worth a try.

  19. This sounds really interesting – something that many of us should test, for sure. I’m wondering about the technical side of it though…

  20. Hey Linda, I’ve been thinking about this – and hearing about it – a lot recently, so it’s timely I came across this via Twitter this morning :-)

    I know the stats are all based on virtual products, but I’ve been thinking for some time that I might try this for a “physical” product – I have some handpainted silk scarves that are end-of-season, and I often get emails from a small number of subscribers saying they love my work but can’t afford my prices.
    Your article today has me thinking even more about setting a minimum price for these scarves, and seeing what people will pay above that.
    You’ve definitely given me food for thought :-)
    Have a gorgous day!

    • It would be really interesting to see how this works with your product! The Kickstarter project I mentioned that did Pay What You Want was for an actual board game, so it seems it should work!

      • Hey Linda, I’ll keep you posted when I’m ready to test this out, and glad to hear it worked for the board game – gives me new hope :-)

  21. I’m going to try this pricing model… It sounds like a fantastic way to find out what people are prepared to pay. It would be interesting to do a survey at the end and find out if people would have paid more (or less) after consuming the content.

    Cheers
    Ian McConnell
    Western Australia

  22. Hi Linda. Great case study. One question:

    Did you post anywhere near the buy button a “suggested” or “minimum” or “valued at” price for guidance? Or did you just leave it blank and let them decide ANY number to pay? (Including one dollar if they wanted.)

    Just trying to figure out if they had guidance from you on what they “should” pay.

    Thanks Linda… Eric

    • I let potential students know on the website that it’s Pay What You Want with a minimum of $30. PayPal doesn’t have a way to set a minimum, so I just trust that people will do it right…and out of the 200+ students who have used this, I’ve never had a problem with anyone paying less than $30.

  23. Great example of another model. Inspire me to test for my new products.