Your organization undoubtedly offers programs and services to one or more audience or constituency. You’re likely quite proud of your services, and your team strives to improve quality and impact.
Here’s a question for you: Have you ever considered how well you’re pricing those services? Or have you defaulted to “free”?
Default, of course, is not sound strategy. And free may or may not be sound strategy.
Sometimes organizations operate without an in-depth understanding of their business models. It’s easy to see how and why this happens. You know your strategy, you launch or perpetuate programs, and frankly you just don’t think about it. You’ve got a mission to fulfill.
Your business model is the underlying structure of your organization’s business operation and determines its primary drivers. Being conversant about the drivers of your business model allows you to identify a range of variables and implications about how you both generate revenue and invest resources. For example it tells you how your staff should spend its time, the activities that are crucial, and conversely, unnecessary behaviors that waste time and resources.
As you can imagine, defaulting to “free” can be problematic. In fact, allowing programs and services to be free can actually backfire.
5 Fallacies of Free
Here are five fallacies of free that you’ll want to consider.
Removing a barrier.
The first objection I hear from organizations when challenged to charge for a program or service is that the price tag will be a barrier for the audience.
Sometimes, however, there’s no proof that that’s the case. We think money is an obstacle because we hear lines, like “It’s not in the budget.” Or we tell ourselves excuses, like “That audience/person/group of people cannot afford it.”
The real issue is about value and how yours is regarded. Very often people do not value what they receive for free. (Of course, even when it’s free, sometimes you simply cannot make a client accept a service or program until he or she is ready.) At the other end of the spectrum, when your customers perceive great value and assuming they face no financial crisis, customers prioritize the resources to make an investment, knowing their lives will be improved.
Free is not a business model.
Or is it? After all, you’re reading a free blog.
Indeed there can be free (or very low cost) elements of a business model. Think about all the SaaS (service as a software) sites you or your organization uses — have you done any online searches lately? Even newspapers or magazines, which charge peanuts for their subscriptions or individual issues, use this model.
Revenue comes from somewhere, such as through sales of advertising and mined data.
The internet has changed our expectations about what’s free, and for some has had a deleterious effect for creators. How much music is pirated? How much content, especially images, are consumed or used without payment or royalties?
We all enjoy lots of seemingly free amenities — our parks, public art, roadways and bridges. But revenue comes from somewhere in the form of tax dollars, donations, fees, and tolls.
The key is to be intentional and strategic about the use of free in your business model.
Free converts.
Giving something away for free, doesn’t always translate to the intended outcome.
The consumer mindset around free is curious. I’ve seen people stand in lines for hours at festivals to get free gifts from sponsors. One year our airline sponsor gave away stickers made to look like pilot wings and nearly caused a stampede. You’d have thought they were giving away free flights.
These people seemed panicked as they raced to get their stickers. They became entitled and belligerent if something impeded their goal.
We give free stuff to celebrities, for example at the Oscars. Does it pay off? Is this distribution of stuff having the right impact for a sponsor’s business?
During the first year of a festival I produced, we issued free tickets to a series of talks so we could safely accommodate people and control capacity. But something interesting happened. The majority of ticketholders were no shows — who cares, they likely thought. The tickets are free! — and thousands of others waited in long lines hoping to be seated. Needless to say, we abandoned the ticket system.
I’ve seen nonprofits thrilled that an honoree or sponsor for its event is bringing a throng, using their complimentary tickets. However, the thrill is gone when these guests fail to open their wallets at the silent auction tables or fund-a-cause auctions.
Ditto for attendees of free events or festivals. They are not there to spend money. Don’t fool yourself and think you’re going to make it up on the merchandise, food, and sponsorship. I’ve worked with corporations who refuse to sponsor free events.
Who doesn’t love a free gift?
That leads us to the other side of free. Free gifts sometimes begin to cross over into the territory of bate-and-switch. Have you ever bought the inexpensive razor or laser printer and then paid endlessly for razor blades and toner cartridges?
Have you ever accepted the free vacation invitation to Florida or Arizona with one hitch — sitting through the sales pitch about a vacation home?
And don’t confuse a sponsor’s “gift” as payment for rights to sponsor your organization. To be an inkind payment it has to substantially relieve your budget.
The future of free.
You may know that I am trained as a futurist. Besides my daily environmental scans to see what’s changing and how these changes impact my clients’ businesses, I attend conferences and events to stay current.
Last year at a conference, I attended a session on the future of pro bono service. The speaker essentially told us that pro bono is really just a way to get in the door. In other words, he expects a transaction, quid pro quo, for work his company donates in-kind.
Really?
You may want to stay on the alert for this expectation.
As you can see making assumptions and hitting the default button to “free” is unwise. Free is complex. It can be a wise approach with tremendous leverage. Or it can backfire.
Start by understanding the drivers of your business model to determine the best approach.