Merchant Advance Blog

Blog Article: Pay What You Want: A Model For Small Businesses?

In October of 2007, the British rock band Radiohead made headlines with the release of their album In Rainbows. It was a stellar collection of music, but its promotional strategy garnered an even more staggering amount of attention: rather than pricing the record at a standard rate and shipping it to retailers, the band offered it up online to fans with the caveat that they could pay what they felt was fair – even nothing at all. News outlets and music journalists churned out a frenzy of think-pieces. It was a move that caused ripples in the music industry that persist to this day.

In_Rainbows_Official_Cover

But did it work? Here’s something to consider: Radiohead frontman Thom Yorke stated that the band had made more money from digital sales of In Rainbows than the digital sales of all their previous albums combined.

Could a pay what you want (PWYW) model work for a small business?

Though it may sound a bit farfetched, putting the power of choice into the hands of the customer (or allowing payment on a preset sliding scale) has in fact been tested in the small business world. The main potential advantage of this method is that it compensates for itself by drawing in new customers. Some of these customers might have been unable to afford certain products, and others might be enticed by the relative novelty of the idea. High volume, in theory, offsets lower pricing, and in the case of a sliding scale model, the business owner retains some control.

Not every business is well-suited to begin offering PWYW to its customers. This comes down to the margins of the business: manufacturers or sellers of physical products, for example, as well as restauranteurs, may feel a bite into their profitability more severely than service-based businesses.

PWYW may be able to form a component (if not the bedrock) of your business strategy depending on your business’ needs. If you decide to try it, here are a few guidelines:

  • Create Urgency by trialling the method as a limited time promotion, and gauge its effectiveness based on the results.
  • Suggest a Price in order to keep customers from feeling awkward or hesitant about their contribution.
  • Go Social – as with almost anything tied to your small business, this could make for great social media content to raise awareness.
  • Be Careful with overhead and margins. Rather than opening up your whole business to PWYW pricing, try selecting certain products or services that won’t hurt your bottom line if you make their pricing variable.

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