By Jim McCarthy Oct 11, 2010 3 comments

Emancipate Yourself from Mental Slavery (on Pricing)

Whenever people start talking about pricing, I tend to see some folks who are in thrall to what I believe is a damaging and unproductive paradigm about pricing.  It’s a worldview of win-lose, where the seller either martyrs itself for ‘the cause’ or whores itself out for an unholy buck.  My assertion is that neither these two extremes nor the continuum they describe exists at all, except voluntarily in the minds of those who are its prisoner.

Instead, all that exists is what an organization chooses to do in the face of a world of scarcity.  Everyone and everything has to content with scarcity in various forms, from a giant corporation like Microsoft to a newly-hatched bluebird in a nest.  Both are constrained by the resources available to them and both have to make decisions about what to do given those constraints.  And not all constraints are money.  For example, Microsoft’s got plenty of money, but its future is seriously threatened by its reputation for innovation compared to competitors like Google.

So instead of making a “sucker’s choice” between “noble” poverty and “soulless” prosperity, reject that whole line of thinking and reverse the process.  Here’s how it’s done:

-First,  determine as an organization what you want to provide into the marketplace.  That could be gigantic glitzy $150 per seat musicals starring Hulk Hogan and Pamela Anderson or it could be free black box plays in the most arts starved neighborhood in your city.  That’s a choice of mission, and each organization is different, with an infinite variety of options on how to go.

-Now that you’ve determined what you want to provide into the marketplace, the next step is to figure out how this is going to earn you the resources you need to deliver this.  It might not be ticket sales and donations.  That’s fine.  Back in 1994, Netscape had this crazy idea it could give away software and make it up somewhere else, and it worked out just fine.  The only thing I’d suggest you avoid is putting yourself in thrall to a single large donor, which is akin to wearing a pair of golden handcuffs.

-Whatever it is, you need to determine (guess, really, at first) what you’re going to be able to earn as you deliver the thing you decided you want to deliver.  That, minus 5 to 10%, is your budget

-Now your job is to deliver the thing you decided to deliver with that budget and that’s the creative part.  That’s the part where you fight scarcity not with cutting costs (necessarily) but by creating new resources. If you think like a ‘resource beggar’ though, this is never going to happen.  You have to be creatively committed to finding sources of value.  This is how great organizations of whatever type or size are built.

You just keep working that until the amount coming in is a little more than the amount you need to deliver the thing you want to see happen.  Run like that for a while and you’ll be amazed at the kinds of possibilities that open up, and you’ll notice that pricing becomes a pretty easy result of having done this well.  Your pricing questions, under the above circumstances, will be minor and the choices will be pretty obvious.

Now, getting to this point is much more difficult if you’re assuming that the vast majority of a current budget is untouchable.  Use a technique called Baseline Zero budgeting instead, where you assume everything–everything–out and then argue them back in on the grounds that they help achieve the goal.

This model works, you’ll notice, whether you are as greedy as Gordon Gecko or as selfless as Mother Theresa, and that’s because it has nothing to do with being a non-profit, or being a commercial enterprise or being a money-grubbing weasel or a bleeding heart saint.  It has simply to do with living on the blue-green planet under the yellow sun, in the slightly unfashionable outskirts of the Milky Way galaxy.

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