Ask HN: What payment model should I adopt for my new site? | Hacker News Reader

Ask HN: What payment model should I adopt for my new site?

29 pointssw120521 comments

Hi guys,

I am setting up a payment model for my new site.

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?

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.

Which model have you found to work better for both customer and owner?

Any advice you can give would be much appreciated.

Thanks

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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. :(

  "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.

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?

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.

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.

"... the thought of money coming out of my account each month until I cancel (which I would probably be too lazy to do)"

I think you've answered your own question here. Recurring monthly subscription models work so well precisely because we're passive by nature. You'll earn more revenue by going monthly.

The other attraction of the monthly fee is the headline figure is less off putting to the end user - "Hmm, $9 that doesn't seem so bad" compared to the equivalent yearly charge ("$108 bucks, no way man.")

>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.

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.

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.

What do you mean by "sticky" in this context?

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.

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.

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.

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.

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.

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.

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.

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.

"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.

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