Choose Your Price – For Charity

Two concepts we’ve talked about in this space over the past couple of years have been the choose-your-own-price business model and non-traditional non-profit business models. For those joining us late, the choose-you-own model is exactly what it sounds like: instead of setting a price for the product or service, customers are encouraged to pay whatever they feel the product or service is worth. In most of the published cases to date this has resulted in a higher-than-expected revenue stream, indicating that while some people will take advantage of such setups, enough other people will pay more than retail price to make up the difference. By the same token, non-profit organizations have a hard time soliciting donations during an economic downturn, and have thus turned to a number of non-traditional fund-raising methods, including entrepreneurial businesses where all profits go to support the agency’s mission. It seemed obvious that sooner or later someone would combine these two ideas…

You can pick up the story from the local television news station here if you want to, but for the past year one of the Panera Bread locations in St. Louis has been operating on a name-your-price basis, with all of the profits going to charity. The company officials quoted in the story admit that there have been a few problems with people taking advantage of the program to scam free food off of the place, but there have also been cases of people leaving $500 for a $15 meal, which makes up for a lot of freeloaders. In general, the store only makes about 80% of the retail equivalent, but that’s still enough to generate a significant amount of profit – while feeding a significant number of people who actually can’t afford any food. I don’t know what Panera’s overall margin is like, but apparently there’s enough overall to absorb the difference between name-your-price and regular operations, while still offering opportunities to feed the hungry and train people without job skills. The company is now planning to open a new one of these every few months around the country…

Now, we should probably note that not all such operations are charity-related; nor do all of them work quite this way. In the famous Radiohead example, the band was selling an album for whatever visitors to their web site cared to pay, which did include nothing, and despite the fact that an estimated third of the visitors selected a price of zero, the average sale price was around $4. This is significantly cheaper than the $12 to $19 a CD copy would have cost in a record store, but was also much more than the $1.10 the band would have received from their record company per copy sold through conventional channels. It’s also worth noting that most entrepreneurial operations started by non-profits function on conventional business lines, and do not allow people to select their own prices. Still, you have to wonder how well either of these concepts would translate into other types of business…

The great thing about non-profit entrepreneurship is that it doesn’t rely upon the generosity of strangers; it generates money by earning it in exchange for goods or services, and can often be used for the purpose of providing jobs and job training to people who need those things. Over the years we have seen enough evidence to conclude that name-your-price operations can make even more money than the conventional approach, assuming they’re done right. And while it would be naïve to expect either type of operation to replace the more traditional types of business on a wide scale any time soon, they do serve as excellent reminders that the common way of doing things isn’t necessarily the best way…