An early challenge political technology entrepreneurs face is how they should price their product in order to drive adoption. This is especially challenging when you’re introducing a new category of technology. If you price your product incorrectly, not only do you risk missing out on revenue, but you also lose valuable feedback from users.
Sequoia Capital offers helpful advice for startup pricing generally in their guide here. A few insights are especially relevant to campaign tech entrepreneurs, including limiting choice to avoid analysis paralysis and providing pricing transparency.
In this article, we highlight entrepreneurs’ key considerations for determining a pricing model that works for specifically for political customers.
Know the Existing Models
Successful political professionals make decisions quickly based on pattern recognition. In order to sell to them, it’s essential that you familiarize yourself with the pricing patterns they already know. Generally speaking, political products are priced in three ways:
- Product at cost plus a percentage (example: TV or digital ads with a placement commission)
- Product priced based on volume with discounts for higher volume (example: P2P texting)
- Product subscription based on size of campaign (example: email marketing software)
Pricing your product in a way that is different than these existing models creates additional friction for adoption by your customers.
New Products Take Budget Away from Proven Tactics
From 2010 to 2018, spending on congressional elections grew by $2 billion. But the pie has not grown proportionally. In 2010, spending on media for advertising represented 33% of federal expenditures. By 2018, that share grew to 48%.
Campaign tech entrepreneurs must contend with the fact that, although spending is growing, advertising costs are accelerating. Each dollar spent on your new software is a dollar that can’t be spent on a proven – at least in the customer’s mind – campaign tactic.
Entrepreneurs must have a clear idea of which part of the campaign budget their product will take away from. For example, does the price of your product represent the cost of a single direct mail piece to the entire district? This framing can help your customer envision how they’ll pay for it. If their perceived benefit from using your software exceeds the marginal utility of their 11th mail piece, you’ll have a better chance of making the sale.
If your product has a demonstrated track record of raising money, creating savings, or increasing efficiencies, you’ll be an even safer bet for new customers.
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Ramp Up Spending With the Campaign
In 2018, the average cost of a winning Republican congressional campaign was $1.9 million. But that doesn’t translate nicely into a steady, predictable cash flow. Campaign fundraising comes in fits and starts. Often, it is impacted by events external to the campaign’s control
The chart below includes actual monthly data from an incumbent lawmaker’s campaign that spent $2 million during the 2018 cycle. This is an illustrative example of the uneven cash flow of a campaign.
The average monthly spend for this campaign was $89,201, but the actual amount swung wildly from $37,329 in August 2017 to $240,001 in October 2018. If you price your product in a way that doesn’t follow the campaign’s actual spending pattern, you can make it inaccessible even if it solves a clear need.
Scaling up and down with the campaign based on their spending is the best way to price your product.
Understand Cash on Hand
Once a quarter, federal campaigns file reports to the Federal Elections Commission (FEC) about how much money they’ve raised, who it came from, and what they spent it on. These reports also include a cash on hand (COH) number for the final day of the quarter.
Historically, this COH has been an important measure of a campaign’s relative strength because amassing a “warchest” meant the candidate would be able to muster a significant ad blitz in the final weeks before an election. Sometimes, a high COH would scare opponents out of a race, keep opposing outside groups away, and encourage additional donors.
This conventional wisdom no longer applies, but many campaign decision makers still adhere to it religiously, even withholding critical expenses until after the COH snapshot occurs to artificially inflate numbers.
If your product isn’t a necessity and doesn’t increase fundraising or offset some costs, a campaign decision maker may push off closing your deal until after the end of quarter. Acknowledge the phenomenon and provide flexibility if you can.
Campaign management is less about grand strategy and more about precisely budgeting your organization to a $0 bank balance on Election Day. Predictably pricing your product aides campaign decision makers in performing this complex calculation.
Even if you adopt a pricing model that scales based on volume, providing clear visibility into expected costs enables better planning. A surprise bill a few days before Election Day disrupts a campaign manager’s careful planning and will cause lasting damage to your reputation.
Pricing your product appropriately for the political market is a unique challenge for campaign tech entrepreneurs. Following existing patterns is the best way to reduce friction, especially when introducing a new product to the market.