While the private sector has already made great strides in becoming more strategic in pricing, the social sector has a long way to go. Still, many organizations are seeking stronger professionalization in a bid to be more organized and effective in their missions. Here are six tactical tips that nonprofits can learn from other industries when it comes to pricing and selling tailored services.
Can nonprofit organizations learn from for-profits, or are they worlds apart? There are definitely strong differences between the two sectors: as the name states, nonprofits do not exist to maximize profit for shareholders. Instead, their aim is to deliver a positive impact for stakeholders, and the role of earned income can range from self-sustaining to cross-subsidizing. However, as organizations seek to professionalize their processes, strategic areas like pricing can no longer be left ignored.
What makes pricing in the social sector particularly challenging is that a customer’s willingness to pay is often very different from their ability to pay, and terms like “fee” and “charges” come with high reputational risks. Meanwhile, organizations are under increasing pressure to measure and evaluate their impact, which is often easier said than done.
Navigating within these new boundaries has so far been both challenging and insightful for nonprofits. But pricing doesn’t have to be rocket science, and improvements in social sector pricing can actually be quite straightforward. Here are six tactical tips for organizations seeking a “good” price for an earned income stream:
- Understand your portfolio: Include basic economics in your key services – figure out important information such as your cost breakdown and break-even price per service, and understand market prices based on competitors as well as your own experiences.
Tip: Create a simple internal list with descriptions, average costs, time requirements, asking prices, margins, uptake, and average discounts for each of your services.
- Understand your customers’ full needs: When building a proposal from your services, try to first learn what your audience wants and needs. What could you provide to your customers while continuing to advance your mission? Do this before any budget or resource discussions so that you are less restricted in creating your offer.
Tip: When customers enquire about your services, ask about their key goals. Create a first “ideal offer” based on that information. Only think about how to fit it to a given budget once you have understood how much work and impact the client is asking for.
- Communicate the full price: Internally, calculate the full price of your offer to understand the gap to your customers’ actual budgets. In your proposal, communicate this price and the value offered for it – even if you are prepared to give the service away for less! Anchoring the service helps your customer to understand the total offer value and avoids diluting future market prices.
Tip: Calculate an ideal package at e.g. $3,000 based on the services in your proposal, even if you know the customer’s budget is $2,000. Once you decide that this is what you want to sell, communicate it along with all of its value: Ask for the full price of $3,000, and then offer a discount.
- Offer and explain discounts: Your strategic audience will often not have the budget to pay the full price – this is perfectly fine! Offer discounts to your mission-relevant customers while breaking down the reasons and always asking for something in return – either reduce the service level you provide, or base discounts on a reciprocated benefit, e.g. participation in a future webinar.
Tip: Explain that the above offer is at a 25% discount as the customer guarantees full uptake. Offer an extra 8% discount to $2,000 if they introduce you to two entities in their network who don’t know about your services yet.
- Give alternatives: Do not settle for just one offer in your proposal – create two to three packages that highlight a range of prices and values. This will help your customer to refine their needs while learning about your services, and enables you to explain budgets allocated now or in the future. It also means you can grant fewer discounts by varying the amount of services provided instead.
Tip: Create an additional maximum value package for e.g. $5,000 as an anchor, and a $2,000 minimum package with half of the services. Offer a discount for both, but not as high as for your middle offer of $3,000, which will then look more appealing.
- Document the information: Collect all relevant data along the way and store it in one place for future analysis and insights. Learn from your past offers to improve your margins, provide more targeted proposals, and identify customers who do not need steep discounts.
Tip: Set up a deal pipeline with asking prices, discounts offered, bid win/loss information, final prices, and value in return. Track offer-related expenses such as employee preparation time or transportation costs, and compare new offers to this database to identify similarities.
Supporting the mission through pricing
These six points serve as a useful starting point for a more professionalized offer that educates your audience on your offer and pricing. Some organizations may already have a good grasp on these basics of pricing, and therefore should focus on strengthening one of the above points in more detail. Others, however, need to start by setting up the basics for each of these areas.
Pricing your services should not be about creating the right offer overnight in order to overwhelm the market. It is about gradually supporting your mission with a source of sustainable revenue. Think organic growth, not rocket science.