How do you pick the right Pricing Model between monthly fee and transaction fee?
Hey i have this product idea and i dont know how i should charge the customers. The goal is to have a pricing model that is affordable for the customers but that almost maximize the revenue.
The way i think of transaction fees is, it helps the customers adopt the product much easily. They know they wont be charged if they dont make any sales. It's also great cause the more money your customers make, the more revenue you make. But my product is not a platform, so i can not influence the rentability of the customers like Amazon or Etsy do by running Ads. My product is B2B and my customers will use it to run their business. So what if there are less transactions than expected.
Charging a monthly fee creates recurring revenue, which is great. But its more difficult to the convince customers to sign up for this (unless you give free trials or do freemium). With the monthly fee the revenue is recurring but i will need to get more and more customers to increase it significally. Also if the customers end up doing a lot of transactions this pricing model might be less profitable.
Let me know what you think about this. How would you pick your pricing model ?
Can i do both ? 🤔
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The exact prompt that creates a clear, convincing sales deck
Back in the day, I started a business based solely on transaction fees. What a disaster. It was an easy sell, "you pay nothing unless it works" but the reality is we had costs to cover and we had customers but with no usage and we had no idea of what was working. Also, if we couldn't convince a prospect to pay even $500/mo there was something wrong.
I wish we had done both a base monthly fee (minimum) and then past a certain point the model moved to transactional. This would have incentivized the customers to make changes and make things better on their end and then it would also show some form of revenue growth to our investors.
If we couldn't sell our product with a monthly minimum, then there was something wrong with the product/demographic/marketing and we had at least a direction to focus our attention to fix.
I hope this helps.
~Phil
Really liked your reply. So next time you'd rather make it tougher to go through the initial stage by charging monthly, but have a clear picture of your customers, right?
For sure, in the early stages at least for me it was a question of “is there a market for this?”
Anyone is happy to get something for free but someone who’s willing to give you some money in exchange for what you are selling is a whole different feeling and level of confidence in the direction you are going. If you pitch 10 people on the product @$500/mo and get turned down 10 times ask them why?
They will usually tell you. Sometimes it is timing, budget, value or something else. Hell you could be talking to the wrong people in the company who simply has no idea what you are talking about.
Anywho good luck. 🙌
Thank you @Philj . You mentioned a good point. Having people that are willing to pay is also a sort of validation of the product.
I think you should start with free access, this will allow users to test your product and then write a review about it. When you get your first loyal base, you can start including subscriptions.
Yeah i can only agree with you. The plan is to start with free access and then move on to one of the pricing models mentioned above.
I think that the monthly fee model is the best option for businesses whose primary goal is to make money from their product. This model allows the user to pay a small amount every month and continue using your product without having to worry about additional fees or transaction costs.
For example, if you were selling a subscription-based service like Netflix or Spotify, you would want to use this model because it allows users to only pay once per month and continue using your product as long as they want without having to worry about additional charges or transaction costs.