Pricing: Should I offer my product below cost (or free) and look for donors to cover the difference?

Under-pricing can produce cost-effective impact, but it raises the bar for you.

Offering under-priced products can produce cost-effective impact, but such opportunities are the exception. If you choose to under-price, make sure to gather evidence that your product is super impactful.

Please add your thoughts in comments; we will update this document periodically.

Contents

• Challenges of underpricing

• Advantages of underpricing

• General pricing strategy resources

Challenges of underpricing

1. It’s harder to tell if you’re creating value for the movement

If you sell dollar bills for fifty cents, you will get lots of users, but not be generating cost-effective impact. With an underpriced offering your primary performance metric should be some measure of ultimate impact, rather than growth in users or adoption.

2. Fundraising is hard

Think selling your product is hard? Fundraising from donors probably won’t be easier. Your pitches to donors will go like this: 

You: “Our product is great and users want it, but they don’t have the money to pay for it.”

Donor: “They pay for other stuff right?”

You: “Yes but they’re very underfunded, so they can’t afford our product too.”

Donor: “Why shouldn’t we just give money to the organization and let them decide what to spend it on?”

To answer that question successfully, you need a compelling reason that you know better than the organization how they should spend their marginal dollar. That’s a high bar.

3. It’s hard to monetize on the back-end

Obviously the internet is dominated by free products that monetize users’ attention (e.g. Google and Facebook). I can’t think offhand of a situation in politics where this structure generated material revenue.¹ I’m not saying this structure could never work, just not to count on it.

Advantages of underpricing

1. Proof points and learning

The best reasons to underprice are (a) to learn quickly and (b) develop proof that your product creates cost-effective impact. Underpricing can make it easier to find initial users, which is a critical step in iteratively improving your product in search of product-market fit. Actual success stories are often critical for pitching to additional users.

2. Ability vs. willingness to pay

Customers can be unable to pay even for things that are value-additive, because so much of the political world is so underfunded, and funding is so imperfectly linked to performance.² But going down this route puts a heavy burden on you to prove your product’s impact.

3. Growth

If your product needs scale to become useful (e.g. a two-sided marketplace or social network), being free for at least one side may be necessary(?). 

General pricing strategy resources

Pricing is challenging for most companies and you’ll find lots of essays on it. Here are some good ones we’ve found, but there are many others.

• [links TK]

1. I can think of one small project that claimed to be profitable by renting the email list of its users, but that’s the last thing we need more of.

2. I write more about this in The Challenge of Broken Price Signals.