I was shocked when I filled up my car at the gas station today. It was $57. And I’m in Texas; if you are reading this in California, you’re probably jealous.

Since COVID-19, we’ve seen buyers slowly but surely returning to pre-pandemic spending. But of late, with the stratospheric rise of gas prices, those trends have been reversing.

I was head of marketing for a number of arts organizations for over a decade before launching Vatic, and I keenly remember that uh-oh feeling you would get in the pit of your stomach when you started to see the potential for an economic downturn. I like to call it the “Oh-s*&#-what-am-I-going-to-do-now” feeling.

The most common response is to A) start slashing prices, or B) double down on discounts, or C) all of the above. And while this can provide some measure of relief, lower prices are just one of many tools at your disposal. What folks don’t often consider during an economic downturn is dynamic pricing.

For many, that seems like the LAST thing you would want to do.

And there’s a good reason for that. Mainly because of how dynamic pricing has been taught and executed in the performing arts for the past 15 years or so. I like to call it OG dynamic pricing. The number one method of OG dynamic pricing, to this day, is capacity targets. When you get to 70/80/90% of capacity, you raise prices by five bucks. It’s easy to remember and act on, and while time-consuming, it is a legitimate way of dipping your toe into the sometimes murky waters of dynamic pricing.

And one of the oft-stated rules of capacity targets is that prices only go up. But there’s just one problem. What if you go too far?

I learned about this firsthand when I was a product manager for Starbucks Corporation and, as is their want, they instituted another round of across-the-board price increases. Not huge increases, just five cents on average. The only problem was that, now suddenly, the average order had gone above $4. And Starbucks saw an immediate response from consumers. Frequency started to become, well, less frequent. That five-cent increase was costing them millions.

So when I counsel arts organizations, the first thing I tell them is, it’s all well and good to explore increased prices, but beware if you start to see the average number of single tickets shrink. This is a concept most folks don’t really think about, but if you give it a moment, it will make perfect sense. If you are so focused on increasing your average ticket price that it starts to hurt the number of tickets sold, you’re not making the kind of trade-off most of us would consider success. No arts organization wants to sell fewer tickets.

And the data backs this up. When we start working with an organization here at Vatic, the first thing we do is pull three years of their historical data. We analyze the data so that we have a kind of road map of how their patrons buy. But the other thing we can see is, if they’ve been using a self-managed form of dynamic pricing, how did that go for them? And what we see over and over again is that these organizations did in fact increase average ticket, typically by 15%. But then, when we look at true revenue growth year-over-year, we see that revenue has only grown by 2%.

Now for anyone who has actually done the work of self-managed dynamic pricing, you know how labor intensive it is. And it’s not like you don’t have other things you could be doing with your time at a non-profit arts organization. To go to all of that work and only get 2% true revenue growth YOY, well, that just seems like a bad deal.

So, what has happened at these orgs? Well, to put it plainly, we are all human. And as humans, we make decisions based on feelings, or our gut, just as often as we do on intellect. And it’s a natural human response to want to push those prices just a bit higher, without realizing you went just a little too far. And thus, the number of tickets sold starts to shrink because you’ve exceeded patrons’ expectations of what the value of that performance is worth to them. Just like that five-cent increase at Starbucks.

Here, though, is where we come to something interesting. What if dynamic pricing isn’t just about moving prices higher? What if dynamic pricing was actually about finding the right price? The price that ensures you get as much as possible for each ticket AND sell as many tickets as possible? This is how Vatic works, but it’s also perfectly possible for folks who are self-managing their pricing.

When you free yourself from the shackles of “prices can only go up” and instead focus on “what do our patrons think an evening at our venue is worth,” a whole universe of possibilities opens up. Because now you aren’t following conventional industry wisdom that says tickets must cost this much, and instead you’re listening to the one group of people whose opinion on prices matters most, your patrons.

I know, revolutionary. But seriously, the performing arts are here to serve their communities, not the artists who are on the stage. Not to take anything away from those amazing professionals (side note: I have two degrees in theatre and so I know intimately just what it takes to forge a career as a performer), but they are quite literally not the consumers. The consumers are the consumers. And consumers are, in fact, setting the price for what your live events are worth. But they’re not going to just tell you. You’ve got to find a way to get  that information.

Which is why if you are following a path where dynamic pricing can only go up, you are trying to plot the course rather than letting the patrons do that work. It takes nuance to understand the real value of your offerings. And, no, surveys asking patrons what they think the performance is worth won’t provide that clarity. Why? Because those types of surveys are based on sentiment. Who among us, if we were asked by Apple, would say that, yes, we like paying $1,000 for our phone? Not a chance.

Why does this matter so much anyway? Well, we are currently in some very tough economic times. And the biggest mistake you can make during a downturn is to borrow a term from Jane Austen, to retrench. This is a natural response to filling your tank with gas and it costing nearly double than what it did just a few months ago, and if you are managing prices for your arts organization, retrenching might look like dramatically lowering prices, or pursuing a pay-what-you-will scheme.

The challenge is that economic downturns do not affect all of your patrons equally. If you’d like a bit of an eye opener, go ask some of your colleagues who work in the development department about the data they have related to household income. You might be shocked by just how much true wealth you have walking through your doors. These are the folks buying premium tickets, by the way. They are not impacted by the cost of gas the same way you are. That difference between a tank of gas today vs a couple of months ago may not even register. So lower ticket prices aren’t selling more premium seats. In fact, you might just sell the same number of seats but for less money.

And not to put too fine a point on it, but those same economic forces that are impacting your patrons are also impacting your org. Higher gas prices raise the price of everything. The performing arts are expensive. Your org needs more money, you have bills to pay, salaries and healthcare. These are all critical to your success.

So, what are you to do? Well, I’m proposing you take a slightly different approach to your price management. One that absolutely looks for ways to incentivize buyers who might be feeling the pain at the pump, but also looks for opportunities to make some extra money when you are seeing strong demand.

Here’s the good news: it doesn’t mean pay-what-you-will or endless flash sales. It means following the data. Remember earlier when we were talking about the number of single tickets sold, and how folks who are self-managing their pricing can end up over-focusing on average ticket price to the expense of also focusing on how many tickets are being sold? Well, this is the metric I want you to add to your analysis.

Because right now, when the economy is circling the drain, dynamic pricing is your superpower.

Not the OG version of dynamic pricing, where you raise prices when you hit a certain capacity target. But a more nuanced version that thinks about the pace of sales. Not just how many tickets have sold, but are we on track?

We have goals, goals that are spoken and unspoken. A ticket revenue goal is spoken (whether the board has provided you with a reasonable goal is the topic for an entirely different editorial), it’s been documented, and so you can plot a course for where you should be today to be able to hit that goal by the time of the performance. But capacity goals are much more secretive. We all know that capacity for most of the arts hovers around 75% on average. But that’s just an average, which means that half the performances are above, and half are below.

But we act like the goal is always 100%. Certainly, the OG version of dynamic pricing uses this as a basis for those price increases. As you get closer to sold out, you are raising prices to try to keep pace with demand. But if you’re averaging 75% capacity, is it reasonable to be using sold out as the finish line? And truthfully, you can’t even use 75% as a target because that’s just an average. So, shouldn’t we also be setting realistic capacity targets for each performance? You have the data; you know what it looks like on Saturday vs what the house looks like on Wednesday. You know how patrons buy when you have a hit vs. an unknown title.

If you do this, you can then look at these two critical pieces of information and ask yourself the same question each time. Am I on track to get to my revenue goal? Am I on track to get to my ticket sales goal? And then your pricing decisions are taking into account the most important thing, what patrons think.

The question stops being “Can I raise prices?” and instead becomes “What do patrons think this is worth?” And you now have an incredibly powerful tool that tracks how patrons are feeling. So, regardless of whether gas prices continue to increase, or if there is a recession, or there is a huge, unexpected rebound, you’re looking at the data in a way that ensures you are in lock step with what your patrons think the right price is. Inflation stops being something that drives emotional decisions and instead becomes a critical data stream that helps you make the right next step in your pricing strategy.

This article was sponsored by Vatic.