Fabian is a second-year MBA at Yale's School of Management and is working this summer with Welcoming America.

Fabian is a second-year MBA at Yale's School of Management and is working this summer with Welcoming America.

Pricing is not rocket science. After working with the world’s leading pricing consultancy for more than four years, I was particularly excited to apply my skills and insights to a social sector that sees more professionalization in a bid to be more effective, organized and impactful. My work with Inspiring Capital has given me access to such diverse challenges as managing earned income, defining pricing strategies, and introducing social impact metrics.

There sure are differences between the worlds: Impact is hard to measure and evaluate. The role of earned income can range from self-sustaining to cross-subsidizing. Reputational risks of charging as a nonprofit have to be addressed. Customers’ willingness is often widely different from their ability to pay. And – as the name says – nonprofits do not exist to maximize profit for shareholders but rather to maximize positive impact for stakeholders.

Navigating within these new boundaries has been challenging and insightful. Yet, to my surprise, many of the key improvements in nonprofit pricing can be quite simple. So if you face the challenge of finding a good price for an earned income stream, here are six tactical tips that can help guide you in the process.

1.     Understand your portfolio: Collect economic basics behind your key services – figure out important information like your cost breakdown and break-even price per service, and understand market prices based on competitors and your own experiences.
Tip: Create a simple internal list with descriptions, average costs, time requirements, ask prices, margins, uptake and average discounts for each of your services.

2.     Understand your customer’s full needs: Building a proposal, try to first learn what your audience wants and needs that you could provide while advancing your mission. Do this before any budget and resource discussions to be less restricted in your offer creation.
Tip: In a service inquiry, ask for key goals from using your services. 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 ideally asking for.

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3.     Communicate the full price: Internally, calculate the full price for your offer to understand the gap to actual budgets. In your proposal, communicate this price and the value received – even if you are giving the service away for less! Anchoring the service helps your customer in understanding the total offer value and does not dilute future market prices.
Tip: You calculate an ideal package at $5,000 given the services in your proposal, but you know the budget is $3,000. Once you decide that this is what you want to sell, communicate it with all the value and the full price of $5,000, together with a potential discount.

4.     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 an existing benefit like network membership or small asks like participating in a future webinar.
Tip: Explain that the above offer is at a 20% discount as the customer guarantees full uptake. Offer an extra 13% discount to $3,000 if they connect you to two entities in their network that don’t know about your services yet.

5.     Give alternatives: Do not settle with one ask in your proposal – create 2-3 packages that highlight a range of prices and values. This will help your customer in optimizing needs while learning about your services, and in providing arguments to explain budgets allocated now or in the future. It will also help you, in granting fewer discounts by varying the amount of services provided instead.
Tip: Create a ‘maximum value package’ for $8,000 as an anchor, and a $3,000 ‘minimum package’ with half of the services. Give a discount for both, but don’t offer the full discount for either package so as to make the middle offer more appealing.

6.     Document the information: Collect all relevant data along the way in one place for future analysis and insights. Learn from your past offers to improve your margins, provide more targeted proposals, or identify customers that do not need steep discounts.
Tip: Set up a deal pipeline with ask 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. Compare new offers to this database to look for similarities.

While there is a lot of content on pricing strategy, tactics and implementation behind each of these tips, they serve as a good checklist to a more professionalized offer that educates your audience on earned income. Some organizations may already have a good grasp on many of these and should focus on developing one point in more detail, while others will find it more helpful to set up basics for each of these.

Pricing your services should not be about creating the right offer overnight to overwhelm the market. It is about gradually supporting your mission with a source of sustainable revenue. Think of organic growth, and not rocket science.

 

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