“Pay What You Can” Equation

What if your business model was based simply on what people were willing to pay for your service?

What if your arts organization, where profit margins are usually slim, left financial choices up to the consumer — admission charge or price per seat was whatever cash someone had on hand?

“Pay-what-you-can performances” and “suggested donations” are nothing new.  Used both in the for-profit and non-profit business models, entrance price is not set, but rather is left up to the consumer to pay what they feel the performance or entrance is worth.  Employed by museums, dance companies, and theatre organizations, pay-what-you-can performances are often used as a promotional tactic to stir buzz, drum up ticket sales, or draw in the elusive “youth demographic.”

From a college student’s perspective, nothing beats the the pay-what-you-can method.  On a few specified, mid-week performances, theatres allow students to pay whatever they’re willing to (or can afford) to catch a show during the first few weeks of its run.  While Boston’s arts scene is more affordable than New York, it’s still not “budget friendly.”  The Museum of Fine Arts, located on Huntington Avenue, charges $22 for regular admission, but only offers a $2 discount to college students, less than a 10% discount.  Many theatre companies also only offer these types of student discounts day-of-show in a standing room section or via a limited, competitive student rush system.

Pricing strategy  is one of the most vastly variable equations in arts admin.  In the for-profit arena, it’s analyzed to n-th degree, crunching numbers with complex formulas and spreadsheets.  However, in the non-profit sector, things couldn’t be more different.  These pricing strategies come up last minute as a response to ticket sales in the moment.  Often times they come through suggestion from interns, or even from audience member feedback.

Studying in London this past fall, I was able to see the suggested donations approach implemented wide scale in the city’s museums.  Now, I understand Arts Council England‘s subsidy of these organizations, but work with me here for a minute.  Most museums in London had no posted entry fee, but were instead free for all to enjoy.  Take the National Gallery in Trafalgar Square, for example, one of the most impressive fine art museums I’ve had the experience of wandering through — totally gratis. This made it easy to pop in for a for an hour or two whenever I was in the area.  I was never overwhelmed or exhausted by the art, but was able to comprehend and compact it in smaller sittings, something I would not be able to do in the States without a costly patron membership.  By every entrance or exit they’d have a large glass container accepting suggested donations in any currency (approx. $5 USD). Often filled, I would always toss any loose change I had (dangerous with British pounds!) any time I wandered in.

Subsidy or not, this suggested donation approach is easier for museums to employ than theatres.  With a finite number of seats, theatres need to mathematically make a certain dollar figure for each to turn a profit, or break even. Museums see this problem less often, as generally their facilities seldom reach the point when they are at capacity and forced to turn patrons away. Also, with the cost of acquiring art pieces and costly curation, museum admissions make up an infantismal piece of their revenues, often times ranging from 1-3%. Claire Rudd, of Glasstire, believes museums hesitate to increase prices to alter this ratio as the focus is on philanthropic giving which makes up a larger percentage of their contributions.  A spike in admission costs could alienate this audience and negatively downturn these numbers, significantly outweighing the benefit.

Even with this pay-what-you-can approach, arts administrators still need to provide a baseline to their customers on what is an appropriate and acceptable donation. Whether this is done through mind games or clever copy in pamphlets and signage, it’s important to convey this number to their customers.  While museum admittance may not effect a their bottom line and break-even point, the source of income cannot be entirely thrown away. As theatres have a specific and finite number of seats in the house, often times they’ll enforce minimum for a pay-what-you-can-performance (regionals: $14 with a $1 restoration levy). This, essentially, creates a $15 pricepoint that all pay; a blanket discounted rate for every seat in the theatre.  Does it help make payments and generate buzz during a production’s critical period? Maybe. Is it sustainable? No.

But would theatres continue to push this strategy if it wasn’t in their long term interest? Beside providing a full house for actors to feed off (a convoluted side argument I won’t bring in at this point), does a heavily discounted house provide anything to theatres? One could argue coat checks, concession sales, and increased impressions on paid programme adverts, but I believe in most cases the cost of additional house staff would counterbalance that. The only positive I could see comes from a Development Dept and grant perspective; a non-profit with a lower average ticket price can apply for more and larger grants, the opposite step in becoming more self-sufficient, even for a non-profit. It only sets up a false reality for consumers on the actual and sustaining cost of fine arts.

In 2007, British rock band Radiohead tried a similar model for release of their record In Rainbows, releasing it a) separate from their record label (EMI) and b) without a price. The album was available only via digital download on Radiohead’s website and after that everything was up to the consumer:

Drop In Rainbows’ 15 songs into the online checkout basket and a question mark pops up where the price would normally be. Click it, and the prompt “It’s Up To You” appears. Click again and it refreshes with the words “It’s Really Up To You” — and really, it is. It’s the first major album whose price is determined by what individual consumers want to pay for it. And it’s perfectly acceptable to pay nothing at all.  (via Time)

I think, unless the performance is total garbage and you feel the company has a nerve charging anything for such incompetent dreck, a fair “pay-what-you-can” payment is half the usual ticket price. Once the theater-goer has paid that, he or she should consider a tax-deductible contribution to make up the difference, or even exceed it. This might allow the company to keep its ticket prices out of the stratosphere, so live theater doesn’t join ballet, opera and polo as pastimes only the wealthy can afford. – EthicsAlarms