
Ask HN: What payment model should I adopt for my new site? - sw1205
Hi guys,<p>I am setting up a payment model for my new site.<p>The first question is do users prefer to pay a one off fee (even though that fee could be quite large) or do they prefer to pay a set of smaller monthly fees?<p>With regard to the payment model - I was unsure as to whether to give the user the account for free for 3 months and then once out of Beta to charge a fee for that account. Or the other option - when the user signs up they are asked what account they want - a basic account, with limited benefits, with no cost to the user or a premium account with a fee with the whole range of benefits.<p>Which model have you found to work better for both customer and owner?<p>Any advice you can give would be much appreciated.<p>Thanks
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patio11
I strongly suggest either monthly billing with a thirty day trial or monthly
billing with a single free plan which is not adequate for the core user of the
app, but shows it will be adequate if they go to paid.

Single payments have much to irk you as a businessman four years from now.
Trust me. :(

~~~
tezza

      "Single payments have much to irk you as a businessman four years from now."
    

I'm sorry Patrick... I don't quite understand this. What is it about single
payments you find that are troublesome?

I'm planning to sell a desktop application and accept single payments... and
that works for other companies like TechSmith.

~~~
michael_dorfman
I imagine Patrick was lamenting the fact that one-time payments seriously
limit the "lifetime value" of a customer, once acquired.

Passive income is a wonderful thing, and subscription models lend themselves
very well to this.

If your app doesn't lend itself to a subscription model, are you able at least
to charge for an annual support contract?

~~~
sw1205
I am not sure we can to be honest. The site will run itself and will not need
much in the way of support. We imagine the user may be willing to pay a fee
for a number of benefits that they will get from the site. However, if I put
myself into the user's shoes, then I would definitely pay a one off fee for
the benefits that the site gives but I am not sure I would be willing to pay a
monthly fee.

I am the type of user who is willing to pay $10 a year and gamble on something
as I have only lost $10 - I can then forget about it if it does not work out.
However a monthly fee I found off putting - the thought of money coming out of
my account each month until I cancel (which I would probably be too lazy to
do) puts me off. That's why I think app's work so well for Apple. I pay a one
off fee and I forget about it.

~~~
michael_dorfman
_However, if I put myself into the user's shoes_

This is trickier than it sounds. Don't assume that your target users are like
you (unless that's the niche you've decided to target.)

 _That's why I think app's work so well for Apple. I pay a one off fee and I
forget about it._

Apps work great for Apple, but lousy for the app developers. Apple makes some
nice vigorish on every transaction, but it's a very small minority of apps
that actually bring in enough revenue to support a business.

Without knowing your app's "value proposition" or what kind of niche you are
targeting it is difficult to give more specific advice.

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ankeshk
>The first question is do users prefer to pay a one off fee >(even though that
fee could be quite large) or do they >prefer to pay a set of smaller monthly
fees?

Some prefer one off fee. Some prefer paying in installments. You should offer
both if you can.

Monthly payments is better for long term cash flow management of your startup.
But it comes with some admin hassle.

Single large payments are better for the short term growth of your startup.
And it has no admin hassle.

So why not offer both?

3 month trial is a long time. Only offer such long duration trials if you know
your service is very sticky but has a long learning curve. If the learning
curve is short, don't offer more than 1 month trial. If your service is not
sticky, don't offer a free trial at all. A demo will do.

~~~
sw1205
That's great thanks. You are right - I prefer to pay a one off fee but I know
of people who are happy to pay small monthly sums and so I think it is logical
to offer both.

~~~
auxbuss
Yes, I'm a one off payment person too. Different strokes, I guess.

I dislike the accumulation of small payments. I'm usually happy to pay for 12
months without a discount.

Of course, this thinking does not stretch to taxes, which must always be paid
at the last moment.

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huhtenberg
The answer - it depends. Depends on the nature of the service, your
demographics, your marketing and sales pitch and other factors. I understand
you are hoping for a _discussion_ here, but you aren't likely to get anything
useful out of it even if it happens. Generic questions lead to generic
answers.

Read around instead. There is a ton and a half of information on the subject
including lots of personal and very specific accounts. Search HN to find them.
Then see which applies to your case and go from there.

~~~
sw1205
Thanks for this. Yeah I have been doing a lot of reading around and have found
there to be no magic formula - you are right there a lot of factors that will
influence my decision.

I would show the site to get a proper discussion going but it is still a few
weeks away from being ready. The site is a bookmarking site and follows the
pinboard model but I have over the past few months submitted some bookmarking
discussion questions to try and find what people want from a bookmarking site
and what currently is missing.

I appreciate that a lot of people will not pay for bookmarking but Pinboard
seem to have captured a market and I believe there is still more customers to
gain providing you can get the site, and the pricing model, right.

------
mgk
When we launched our commercial SaaS, we initially offered an annual payment
only, but ended up adding monthly options in response to user requests.
Students, in particular, wanted a monthly option, so you might want to keep in
mind the age demographic of your users.

The monthly was priced so the annual provided a 17% discount. At first, the
split was 1/3 annual and 2/3 monthly, but this migrated over the past year to
the current 50-50 (we expect this to revert back to the 1/3-2/3 split once the
schools fire back up).

In the meantime, we added two other offerings, one of which was a set of
virtual goods that could be bought separately or as a bundle, and the other
were add-ons that augment the basic desktop app. These are one time purchases.

The combination of offering both subscription based services and one off
purchases has worked well, with each model generating 1/3 of our revenue (the
other 1/3 comes from a mobile app).

We often see users tip their toes in to the water by buying one of the lower
cost "one off" items, and then come back later to buy more and sign up for the
subscription service. Having a low cost item for sale seems to provide a
mechanism for the buyer to check out the process before committing to a larger
and/or repeating purchase.

------
willheim
Totally depends on: a) what kind of product/service you are offering. b) who
your target market is.

Some things I like to pay one-off for. Others I go monthly. I find the monthly
services tend to update and add features more often than the one-offs. I also
tend to see that the monthly subscription services provide ever increasing
value to me. Maybe that is because they are "works in progress" in constant
competition and know that should they fail they will start bleeding customers
to the competition. Also, with one-offs I often find that the cost is high
enough to make me seriously consider a purchase and I spend more time seeking
out the competition.

Some examples: Microsoft Office vs OpenOffice or Google Docs. Outlook vs
Thunderbird. Vimeo vs Youtube.

Oops... those examples all point towards free alternatives. Hope your product
has some killer advantage that can overcome any existing competition that goes
freemium. Else you better try the freemium model yourself. We live in an age
where everyone wants everything for free.

------
vaksel
go with monthly.

it's harder to convert, but whoever you do is going to stay a customer for a
while. So you'll actually scale your business...instead of having to make a
new sale every single day.

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SteveC
I offer both a monthly and yearly for a $9.99 p/m subscription. 24% of my
customers pay yearly. The yearly comes with two months free to encourage
customers in that direction.

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tommizzle
Obviously it depends on what you're offering, but for a generic model i'd
suggest a monthly freemium model - Max traction on launch with regular passive
income in the future.

~~~
sw1205
Yes that sounds the way to go - see above for the type of site I am offering.
You are right - freemium seems the buzz at the moment. I was even thinking of
a novel payment model like Radiohead (the music band) have done in England
whereby they have said the customer can pay what they like for the album. I
thought of doing something similar for my site - pay what you want for an
account, it's risky but it is quite niche and could gain me some attention.

~~~
michael_dorfman
"Pay what you like" is a _terrible_ business model for most applications.

Remember that Radio had an established fan-base who was already sold on the
quality of the product. If a previously unknown band had tried that, nobody
would contribute before hearing the music-- and then, after hearing the music,
I imagine only a very small percentage would remember to go back to
contribute.

As for freemium, there are significant drawback to that, too, that you need to
keep in mind.

First of all, you need to make sure that your "paid" version has enough added
benefit that it will get users to actually convert. If not, you end up (in the
best case) with traction but no revenue. In the worst case, you end up with a
lot of very demanding users, placing a support burden on you, with no
realistic hope of conversion. If you're not sure if support on your app
scales, be careful offering a free version.

In short: figure out what your product is worth to your customers, and charge
for it. Don't be afraid to price it high, if it actually provides sufficient
value.

As Patrick already pointed out, recurring revenue is a god-send, so a
subscription model is brilliant, if your product lends itself to that kind of
purchase.

Remember: the goal is to maximize LTV, and minimize CAC.

