Pay What You Want Pricing

Pricing models are often a delicate balancing act between market demand and the cost of goods and labor – but what happens when you leave it up to your customers? Some businesses use a “pay as you want” model, and it offers an array of potential benefits.

What is pay what you want pricing?

The term “pay what you want” or PWYW describes a pricing strategy similar to a sliding-scale model. With a sliding scale model, businesses charge a different amount depending on specific factors such as customer income. By contrast, the customer is completely in charge of paying what they wish with a PWYW model.

This comes with a natural element of risk because there’s always the chance that customers won’t pay anything. Yet real-world pay what you want pricing examples show that when left to their own devices, most customers will pay what they consider to be a fair value.

Pay what you want pricing examples

The pay what you want model works better for some business types than others. Typically, it’s most successful in marketplaces with low competition. In a saturated market, customers might feel like the product or service isn’t special, which leads to them paying less. Here are a few real-life pay what you want examples to better illustrate how it works.

• Media outlets and websites like Wikipedia use a pay what you want model, relying on reader donations for funding.

• The Metropolitan Museum of Art in New York City charged admissions on a pay what you want basis for decades, and many cultural institutions follow suit. The Met still uses a PWYW policy for residents of New York State and students from the surrounding area.

• Musical artists put their albums online with a request for fair payment. For example, Radiohead released its “In Rainbows” album in 2007 using a PWYW pricing model. While the majority of listeners did not immediately make an online payment, the publicity led to over two million downloads within the first month alone and went on to take the number one spot on both the Billboard and United World charts.

• Panera Bread opened several Panera Cares locations allowing customers to pay what they wished for any menu item. These were designated as nonprofit cafes to benefit the community, yet still brought in 70% of a regular Panera location’s revenue.

How does a pay what you want model work?

Why would a business decide to switch to PWYW? For artists or entertainers, it’s an easy way to stir up publicity. For museums, cultural institutions, and nonprofits, it provides a democratic way to ensure everyone has the chance to visit. But what about for-profit businesses?

One reason why this model can potentially work is that it makes the business look more confident. They’re so secure with the quality of their products, that they’re willing to take a gamble on profit. It also provides a way to create strong relationships with customers by extending trust.

Here are a few typical tactics to make this model more successful:

• Pay what you want pricing is best applied to SaaS businesses or products with low overhead costs, like digital goods and downloads.

• Partnering up with a charity or nonprofit organization often inspires customers to pay more, because it’s for a good cause.

• Make it a time-limited offer to drum up new business and attract new customers. Compared to a free giveaway or trial, it creates an impression of value yet serves the same purpose.

• Use suggested prices to give your customers some guidelines as to what the product should cost.

Is pay what you want pricing right for your business?

Naturally, pay what you want won’t be a good pricing strategy for every business. If you spend a great deal of time crafting one-of-a-kind products or have higher overhead costs, it will be difficult or even impossible to make ends meet. This type of strategy is also better suited to meeting short-term goals rather than producing long-term revenue. Yet to generate new sales leads, new publicity, or goodwill with the public, a pay what you want model could be a great way to gain visibility.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.