January 30, 2011

What’s It Worth To You? Pricing for Nonprofits, Dotcoms and Dreamers

by Freddy J. Nager, Founder of Atomic Tango LLC

Sheep haggling

"Dude, I don't care if the sheep's free - haggling is half the fun!" (photo by pmorgan via Wikimedia Commons)

What do charity organizations and most Web 2.0 companies have in common? None of them make a profit. (Apparently, someone convinced dotcoms that “free” was a viable business model.) But they all still have prices – just not in the traditional sense of numbers on a tag…

For instance, I once tried to convince a dotcom exec to create a strong brand for his company, complete with a distinctive personality, original look, and a little niche appeal. The exec asked me what value a strong brand offers, and I noted that it could command better prices. The exec’s response: “Our site is free, so that’s irrelevant.”

Not so fast, boss.

True, the company (a YouTube copycat) allowed consumers to view its videos freely, but this company had to pay much more to video producers than YouTube did. At the same time, the company was trying to sell advertising to sponsors. Above all, the company was looking to eventually sell itself to the highest bidder – the ultimate price for any venture.

And that’s just scratching the surface.

Here are a few prices that organizations and even individuals might have to contend with down the road. Perhaps you can think of a few more…

  1. Price of Sponsorship. Media companies try to sell ads. Nonprofits try to sell sponsorships of special events or ads in commemorative programs. The stronger the brand, the more the organization can charge for those sponsorships. Some Web 2.0 companies enjoy tens of millions of visitors per month – more than most magazines or TV shows – yet struggle to attract significant ad dollars. Meanwhile, some highly regarded nonprofits (like certain universities) consistently attract high-paying donors (“how much to have that campus building named after me?”).
  2. Price of Talent. Every organization competes for the best employees on the market. What you have to pay them is influenced by how much they want to work for you. In professional basketball, the Lakers and the Clippers would have to offer very different salaries to attract the same player. In the world of nonprofits, people will volunteer freely for a cause they love, with the best causes attracting the best volunteers.
  3. Price of Investment: How much do you have to give investors for their money? If you’re a top brand, you give up a much smaller percentage of your company for each dollar they invest. (For publicly-traded companies, this is obviously represented by stock price.) If you’re a nonprofit or a candidate for public office, the amount you receive in contributions and what you have to promise in return are both influenced by the strength of your brand.
  4. Price of Publicity: For top brands like Apple, scoring news coverage is effortless. Steve Jobs speaks, the media writes. Weaker brands need to spend much more on public relations, and might still never get covered by the major news outlets. This particularly applies to politicians and entertainers: the limelight goes to those the media deems most worthy.
  5. Price of Customers: Even if you give your product away for free, it doesn’t mean customers will come. A strong brand generates additional traffic effortlessly. Case in point: most video websites are free, but while YouTube’s traffic has continued to grow, the YouTube wannabes are mostly flat or declining. Your brand also determines the type of customers you get — easy or high-maintenance, profitable or penny pinching.

So even if you think you’ve got the best product in the world or are serving the greatest cause of all, you still have to consider the price of everything. Including yourself. I know, the saying goes, “A cynic knows the price of everything, the value of nothing.” But entrepreneurs, philanthropists, careerists and social climbers should know all the above, and while they might not charge for their services, they should never sell themselves short.

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

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