Trust your customers, and tell them just to pay whatever they want.
Here's a crazy idea. Imagine if the customer were really always right.
Almost two years ago, I started talking with Tom Morkes, an entrepreneur and expert on the Pay What You Want (PWYW) pricing model, under which you let them decide what to pay.
I'm both intrigued by this model and skeptical of it. If you tell people they can have your product at whatever price they want, won't Economics 101 suggest they'd say, "Thanks--I'll take it for free, please!"
Not so, says Morkes, who runs a free course on the PWYW model, and who can rattle off examples of people and companies that have made more with a PWYW model than they think they would have if they'd simply set a price. I asked him to explain the whole concept and summarize what he's found.
More From Inc.com: Inside the World's Most Dog-Friendly Office
Bonus free infographic: How to Put a Price on Anything (6 Simple Steps--Even When There's No Market)
Here's what Tom had to say:
In 2007, the prolific indie rock band, Radiohead decided to give away their latest album, In Rainbows, to millions of avid fans all around the world for free--or more accurately on a Pay What You Want model. Instead of setting a price, they asked listeners simply to contribute whatever they felt they could in exchange for their creative work.
"In terms of digital income, we've made more money out of this record than out of all the other Radiohead albums put together, forever," lead singer Thom Yorke told Wired in 2008.
How to Make More Money Without Charging
Pay What You Want pricing can effectively increase your reach, revenue, and impact. Here are just a few successful examples of the hundreds I came across during my three years of research:
HumbleBundle.com raises millions for charity and for video game creators through their Pay What You Want video game bundles
In 2008, Paste Magazine used a Pay What You Want pricing campaign that rescued their magazine from the brink of bankruptcy--and let them turn a profit.
Bridge Hotel uses Pay What You Want pricing for their "Karma Kegs" that routinely bring in 10-25% more than their fixed-price kegs
Panera Bread started a line of restaurants, Panera Cares Cafes, that run exclusively on Pay What You Want pricing
Perlin Winery in Germany run entirely on PWYW, and has done so for the past 10 years
Little Bay restaurant in London ran an experiment and made 20% more revenue using Pay What You Want than through their fixed price menu
In 2000, Steven King essentially pioneered Pay What You Want pricing online with a serialized novel, The Plant, that he never finished, but still grossed over half a million dollars
Granted, that last example is not a great way to treat your readers--but it demonstrates that people will pay even if they don't have to.
Pay What You Want: Making the Pricing Technique Work
From self-published books, to consulting services, to software, the Pay What You Want pricing technique is a viable option. But to make it work, you need to adhere to some guidelines. Here are 5 important points:
More From Inc.com: Complaining Rewires Your Brain for Negativity, Science Says
1. Clarify Your Offer
Pay What You Want can be an intimidating experience for the uninitiated. If people don't understand the value of what you're offering, you can't expect them to contribute. Make sure your offer and value proposition is clear (this is true for fixed price goods and services too).
2. Show Your Humanity
People don't give to corporations, they give to people. If McDonald's rolled out a Pay What You Want Big Mac, why would you pay more than the minimum? On the contrary, if your neighbor, Nancy, who runs a boutique bakery you patron daily, offers her pastries as Pay What You Want, there's a reason for you to contribute (and generously).
3. Appeal to Idealism
Pay What You Want pricing is all about giving people a reason to contribute generously. You can do this by appealing to virtue, generosity, karma, and any other ideal that encourages giving. Remember: people buy the story around the product or service; make sure to give them a story that makes them eager to contribute and spread the word.
4. Anchor the Value
No matter what you're selling as Pay What You Want, you need to make sure people understand the value of what you're offering, and have a clear idea of what a reasonable price would be. Price anchoring works by linking your product with a more expensive variation or competitor.
This could be as simple as referencing comparable products or services that are comparatively expensive, or by offering tiered versions of your own product, giving away bonuses for people who contribute over certain amounts, thus increasing contributions.
5. Direct Your Customer
Once you have anchored the price of your product in your potential customers mind, you need to actually steer the customer to the right choice. Pay What You Want pricing can be ambiguous, and ambiguity can scare away prospective customers. Assuming the previous four steps have been followed, make sure to share what other people have contribute in such circumstances. Humblebundle.com does this transparently on their website, encouraging potential customers to contribute like their peers. You can apply the same strategy in person or online by sharing recent contribution levels or what the overall average contribution is.
More From Inc.com: 8 Frugal Habits That Will Make You a Millionaire
Is it Time to Stop Putting a Price on Your Work?
Pay What You Want pricing, while unconventional, can work for those who follow these steps and are bold enough to try. Before removing prices from your entire line of goods or services, consider testing out Pay What You Want pricing with just one item, and see how it measures up.
For more detailed instructions, including sales copy, checklists, templates, and more, check out Tom's free Pay What You Want Crash Course--and don't forget about the free bonus infographic: How to Put a Price on Anything (6 Simple Steps--Even When There's No Market).
More from Inc.com:
The 13 best apps to maximize your business productivity
What it's like to run a company in the most dangerous places on Earth
Science says this surprising lifestyle change can boost your creativity