Pricing Pictures

Today is the one year anniversary of Fixed to Flexible. There have been almost 17,000 reads of the ebook and I have been contacted by people all over the world who were helped.

I launch a new project today called Pricing Pictures. What I wanted to do was show in a very simple way that pricing has a multitude of dimensions and those dimensions create opportunities for new business models, continuing the message I started in Fixed to Flexible. And I do it all in ten pages.

Hope you enjoy Pricing Pictures and share it with others.

P.S. Happy Groundhog’s Day!

Update (Feb 3 6:30AM PT): Pricing Pictures is being featured on the homepage of Slideshare as the Top Presentation of The Day. We just past 2600 views.

#YearInReview

My year started with some big questions about what was next and in May, a trip to Oregon answered many of those questions.

Seth started a shipping meme yesterday. Here is a list of what I shipped, a list I am very proud of.

Happy New Year!

PageTurnAn Event About The Future of Publishing December 14th, 2010 – Portland, Oregon

On December 14th, Dave Weich from Sheepscot Creative and I will be hosting an event in Portland we are calling PageTurn: A Set of Ideas Around the Future of Publishing.

Dave and I both think that Portland has a rich publishing community and that many in the community actively creating the future. We wanted to create an event that highlighted some of those experiments and projects, giving a reason for publishers, authors, booksellers, and readers to gather.

For the format, we will have between eight and ten speakers who each will be using a modified version of the Pecha Kucha presentation style. Each presenter will have seven minutes and 21 slides to tell their story with the slides automatically advancing every 20 seconds.

The details about PageTurn are below. We are still looking to fill a couple of slots, so if you have an interesting story to share, we’d love to hear about it. Drop me a note at todd@astroprojects.com.

******

Page Turn: A Set of Ideas Around the Future of Publishing


Photo by Mike McCune

Presented by Astronaut Projects and Sheepscot Creative

Location: The Cleaners at The Ace Hotel – 403 SW 10th, Portland

Date: December 14th, 2010

Time: Doors Open at 7PM. Talks run from 7:30PM to 9:30PM with beer break

Admission: Free with Cash Beer

Event Format: 7x21x20 (7 minutes, 21 slides, 20 seconds per slide)

Featured speakers include:
Victoria Blake, Underland Press
Aaron Colter, Dark Horse Comics
Melissa Delzio, Our Portland Story Project
Tim Grahl, Out:think Group
Justin Hocking, Independent Publishing Resource Center
Greg Netzer, Wordstock
Josh Kenyon and Colby Nichols, Jolby
Matthew Stadler, Publication Studio
Tim Sullivan, Harvard Business Publishing
Joshua Tallent, eBook Architects

Questions? Contact Todd Sattersten (todd@astroprojects.com) or Dave Weich (dave@sheepscotcreative.com)

Want to receive updates? Click here and sign up on our email list. We’ll send you the speaker line-up for the December event and you’ll get notices of future PageTurn events.

Now, Even Consultants Are Doing It.

Giving things away for free, that is.

The Economist reports that consulting firms are have quintupled the number of free reports they are producing and giving away for free, according to UK-based SourceforConsulting.com. A second source, Tom Rodenhauser of Kennedy Information, estimates these giveaways costs as much as 5% of gross revenues.

And the nameless reporter goes onto question the value of this growing practice:

Ironically, given how much grief they would give a client who failed to answer such a question precisely, the consultancies cannot prove they are. Clients rarely say they hire a firm on the strength of its free publications. But the firms nonetheless defend the growing practice as a form of marketing. Costly consultancies like BCG and McKinsey are hired by chief executives or those near that rank. Their reports (and, increasingly, their webinars and podcasts) are an excuse to contact potential clients and a way of boasting about the brainpower they can apply to problems.

I could ask the question from the other side. “What benefit is there for knowledge-based organizations not to share their best ideas with the marketplace.”

Let me just evoke Seth Godin’s line: “The ideas that spread the furtherest win.”

Bilton’s Rules For Digital Media Sales

Nick Bilton’s I Live In the Future & Here’s How It Work was released yesterday. In the book, Bilton discusses the media from multiple vantage points ranging from why surgeons should play video games to why the porn industry is a model for what media companies need to do in the future.

He also discusses what the four factors he thinks people consider when purchasing digital content: price, quality, timelessness, and experience. Bilton combines those factor like this:

  • People will pay for some experiences around the content. But people will pay.
  • They will pay for quality, whether it’s high-level graphics, a beautiful design, or graceful language.
  • They will pay for timeliness if the experience of having something first or before it perishes is worth paying for–if they can purchase it immediately.
  • They will pay if the price matches the experience. Just as with porn subscriptions, in which the sales drop off once the price hits a certain point, there will be a limit to what people pay for content. The amount may be below the seller’s hopes–but there is a price people will pay.

(Source: Page 176)

Panera Tries Pay-What-You-Want

Panera Bread is trying the Pay-What-You-Want method at one of their outlets in St. Louis, Missouri. Patrons are asked to leave money in lockboxes in lieu of paying cashiers.

The New York Times reports that the same experiment is being tried be around a dozen companies around the country. Their reporting shows quite a bit of difficulty when the concept is put into practice.

Related:

Matt Homann of LexThink and his experiences with Pay-What-You-Want

Fixed to Flexible – My ebook on pricing where we talk a bit about PWYW.

“You-Decide” Invoicing

Matt Homann of LexThink lets his customers decide how much to pay him. He calls it "You-Decide" invoicing and it is another real world example of pay-what-you-want pricing. In Matt's case, he found out he wasn't charging enough.

In the Q&A below, Matt and I go back and forth about how it started, how he explains this method to clients, and what it has meant for his business.

Todd: Tell folks, what you do for a living.

Matt: I'm a speaker, facilitator and consultant. Much of my work is with lawyers and law firms, though I also design and facilitate meetings for companies like Microsoft. My blog, the [non]billable hour, focuses on innovative ways lawyers (and other professionals) can serve clients better and make more money.

T: When did you first get the idea for client-decided pricing?

M: I've always hated time sheets, and kept experimenting with ways to price my services that weren't tied to the time it took me to provide them. Since my clients regularly told me that my prices were too low, and that I was giving them a bargain (but one they only recognized once I'd completed the work), I thought I'd let them take the pricing dilemma out of my hands and pay me what they thought I was worth — after they'd received my services.

T: How specifically do you present it to the client (before and after the engagement)?

M: I always give clients the option to pay me what they think I'm worth at the conclusion of the engagement. I explain to them that once we've gotten to the pricing discussion, I trust them to treat me fairly. When they agree to my novel approach, they get my "You Decide" invoice that asks them to write in an amount for my fee and give me an explanation for why they paid what they did. And even when clients would rather pay me a quoted price, I still give them a money-back guarantee.

T: What benefit do you think you get for creating this kind of commercial relationship with your client?

M: I'm convinced that by trusting them first, they return the favor. I feel like I'm entering into a mutual trusting partnership with many of my clients very early into our relationship. And, because my price isn't set based upon anything other than the final result, we're both free to tweak the engagement (things like length of time, desired outcome, etc.) as we plan more. Finally, because I know the result is the ultimate measure of my compensation, I find myself motivated to deliver the best experience I can every time.

T: Can you give some quantitive indicator for how this fee structure has affected your business?

M: Since I've been doing this, my sense of the value I give my clients has increased. I've recognized that my clients don't care about the time I spend working for them, but rather the results they get from working with me. Quantitatively, my income has doubled in the past year, because clients pay me more on my blank invoices than I would have charged them. I've also increased my per-engagement price (when I'm asked to give one). I know charge roughly three times what I would have quoted before my pricing experiment began.

T: Most of the pay-what-you-want experiments have been in media specifically digital media. 60 to 80 percent of customer choose free in those cases. What do you think makes it work in a consulting services business.

M: My clients see me doing the work and they experience firsthand the fruits of my labor. In digital media, there's not such a direct correlation between the laborer and the final product. One other thing I've found is that because I often work with people who've put a value on their time (like lawyers, accountants, etc.), they're less apt to think my time has no worth.

For some more thoughts on pricing, check out the ebook Fixed to Flexible.

Costs Go Down Everywhere

Companies that grow achieve greater economies of scale. New, more efficient technologies are introduced. Lower-costs substitutes are found and integrated into the supply chain.

We can find similar examples in the non-profit world:

"We are much better at starting treatment projects for TB and HIV on the ground than we have ever been,” says Jim Yong Kim, a cofounder of the Bostin-based organization Partners in Health. “every time we do it, we’re more efficient and use resources much more effectively.” When Kim, Paul Farmer, and their colleguess at PIH’s Peruvian partner, Socios En Salud, began their first program attacking multi-drug resistant tuberculosis in Peru, the cost for just the medicines was roughly $25,000 per patient. By 2006, the organization had been able to cut the per-patient cost of medicines to as little as $1,500."1

The power of the experience curve comes in all shapes and size.

Notes:
1 – page 30 of The Breakthrough Imperative by Mark Gottfredson & Steve Schaubert

What Can I Charge?

Chris Brogan has a post today about his price points, after several commenters where surprised by his $22,000 a day consulting rate.

Chris lays out two points very clearly that perfectly to any discussion about pricing.

  1. Set your price based on the value you provide – Chris is very quick to point out that his consulting clients gain 10 times that amount in money saved on bad advice and new ideas for business expansion
  2. Create multiple price points for your customers – Versioning your intellectual property is the best way to appeal to the wide range of customers’ interest. You also spread the risk of the IP development over a variety of products. Chris’ versioning consists of:
    • Blog and Newsletter – Free
    • His books Trust Agents and Social Media 101 – Around $20
    • His new Third Tribe online community – $47/month
    • Live events where he speaks – $99-$500
    • Daily consulting rate – $22,000

And this doesn’t just apply to consultants. I think there is a whole line of thinking that The Creative Class should employ when commercializing their work, whether you make jewelery, make music, or make pictures,

Check out Will Chapman and his company BrickArms. He gets a huge shout-out in the cover story of Wired this month (not online yet). Will makes weaponry for Legos figures and while you can buy individual pieces for around $1, he has weapon bundles as well as special edition pieces that sell for as much as $30. The pinnacle piece is a custom Lego figure named Mr. White (or his media given name “Osama Bin Lego”) that goes for $70.

The natural reaction is to say, “Of course, those are toys. I have seen that before.” But when was the last time you saw an author (not a publisher) launch at five book boxed set and sell out 800 sets in hours.

Give your customers more options.

Print-On-Demand Rising

This week's Economist reports on the rising of print-on-demand technology:

About 6% of books in America are now printed on toner-based or inkjet machines—a rough proxy for print-on-demand (POD)—as opposed to on offset presses, estimates InterQuest, a market-research firm. Over the next five years, it predicts, this figure will increase to 15%. In 2008, the latest year for which data are available, about 285,000 titles were printed on demand or in short runs—132% more than in 2007 and for the first time more than in the conventional way. Amazon, the world’s biggest online bookseller, uses POD machines, although it does not reveal how often.

They also report print-on-demand has been a boon for niche publishers like Cambridge University Press. About 10% of the publisher's sales now come from POD books, up from 3% five years. Books that were taken out of print because demand was too low can now continue to be sold.

The industry's scorecard:

All this makes it difficult to predict POD’s impact on publishing’s supply chain, which is already in upheaval, mainly because of the internet. Readers should benefit from the greater variety. More authors will get published, for instance, but there will also be more competition. Publishers may save money, but they may also lose their role as gatekeepers. The losers are easier to determine: used-book sellers, logistics firms and, of course, the makers of offset-printing equipment.

This article doesn't provide any costs, but one copy of a 200-page, 6"x9" paperback costs $8.50 at Lulu. Using offset printing, the same book would cost $1.50 but the production run would need to be a couple thousand units. POD costs are going to continue to drop making it more attractive for larger quantities, allowing publishers to reduce waste and better match supply to demand.

Idea Arena Podcast – The 1% Windfall with Rafi Mohammed

http://player.soundcloud.com/player.swf?url=http%3A%2F%2Fsoundcloud.com%2Ftoddsattersten%2Fidea-arena-podcast-one-percent-windfall-interview-with-rafi-mohammed Idea Arena Podcast – The 1% Windfall Interview with Rafi Mohammed by toddsattersten

In this interview, I talk with Rafi Mohammed about his new book The 1% Windfall: How Successful Companies Use Price to Profit and Grow.

"The strategy of pricing involves acknowledging that customers have different pricing needs and then making efforts to profit from these differences. Customer different in three primary ways"

  1. Desire a different pricing plan -> Pick-a Plan

     

  2. Have unique product needs -> Versioning

     

  3. Value a product differently -> Differential Pricing"

-The 1% Windfall, p28-29

The bulk of the interview is around those three pricing strategies and how business can expanded their views about how to use pricing to improve profits.

The 1% Windfall is one of the books I recommend in the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download the ebook here.

Learning Curves

“So certain is the plummet of prices that economists have mapped the curve of their fall. The cost of making something–whether it is steel, light bulbs, airplanes, flower pots, insurance policies, or bread–will drop over time as a function of the cumulative number of units produced. The more an industry makes, the better it learns how to make them, the more the cost drops. The downward price curve, propelled by organizational learning, is sometimes called the learning curve. Although it varies slightly in each industry, generally doubling the total output of something will reduce the unit cost on average by 20%.

Smart companies will anticipate this learning curve. Very smart companies will accelerate it by increasing volumes, one way or another. Since increasing returns can exponentially expand the demand of items–doubling their totals in months–network effects speed the steep fall of prices.”

-In Follow The Free from Kevin Kelly’s New Rules for the New Economy (available for free at kk.org)

“Costs Go Down” is the first section of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.

Fixed To Flexible in Paperback

Fixed To Flexible is now available as a short paperback book.

I got multiple requests to make it available as a p-book (physical book) and with little trouble, I would able to make that happen.

You can now purchase Fixed to Flexible at Lulu.com for $9.99.

Nothing else has changed.

You can still read the whole ebook for free at Scribd or check out a preview of the entire book at Lulu.

P.S. You can get a 10% discount on Fixed to Flexible through February 28th when you use the code WINTERBOOK during checkout.

Pay-What-You-Want at Smashwords

We have been talking about pay-what-you-want as one of the options that gives creates more commercial flexibility. Content producers are understandably nervous about the possibility that customer could choose to pay nothing.

Smashwords, a company based in SiliconValley, creates and distributes ebooks for self-published authors and small publishers. With only a Microsoft Word file, their publishing engine can convert the document into nine different ebook formats and in recent months, they have built distribution relationships with more retail outlets including Barnes and Noble.

Smashwords CEO Mark Coker published some interesting data last week. When an author publishes work on the site, they have the option of choosing a fixed price or pay-what-you-want. Coker pulled a sample of 353 purchases made with pay-what-you-want pricing and here is what he found:

  1. 85% of customers choose to download their purchase for free. That is not a huge surprise. The comScore data from Radiohead’s In Rainbows experiment put free downloads at 62% of the total. This data is spread out across multiple titles and authors with, I think safe to say, weaker brands.
  2. I summarized the paid data in the chart below:

    The sample set of 54 points is on the smallish size to draw conclusions, but we can say customers favored a price point under $4 with that accounting for two-thirds of the purchases. The sub-$4 price point account for 44% of In Rainbows paid purchases.

  3. The total revenue for 353 purchases was $173. This again shows business models involving free require a high volume of prospects and customers to generate meaningful revenue.
  4. I wonder if the pay-what-you-want model needs an anchor. The In Rainbows experiment was able to generate higher chosen price pointsin response to past Radiohead purchases and the established pricing from the iTunes music store. The publishing industry is still in the process of establishing their ebook pricing and that could have a positive effect on these pricing schemes over the long run.

You’ll find more detail about Radiohead’s In Rainbows pricing experiment on page 18 of the ebook Free to Flexible: Four Simple Lessons About Cost, Price, Margin and The Options Available to The 21st Century Business. You can download it here.