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Help deciding one time payment or recurring monthly fees?

by Gilbert
4 replies
I am developing an application that allows tracking parts needed to produce crafts (such as fashion jewelry) an include instructions to assemble the product.

Hundreds of thousands of small business design crafts as "one-of-a-kind" (just see Etsy). For them, having them in an eStore is a challenge, because once the item is sold, they have to take it down, unless they keep track of how they created it. For small operations this is a challenge, because they buy supplies from art stores, online, at trade shows, etc, and they don't keep records of where they are getting the materials.

My wife has such an operation, so I am building a product assembly system solution for her. While doing so, I realized there is a huge market for it, and supply chain applications (SAP, Oracle, etc) are too expensive and too complex for them.

Hence, I am planing on selling the product assembly system to small business, but I need to decide what would be the best business model.

The two options I am considering are:
1. One time payment ~ $100 to $200.
2. A monthly payment ~ $10 to $20 /month.

One time payment advantages:
Simpler infrastructure. I need a website where people can pay for the product via Paypal or similar and redirect them to a download page.

One time payment disadvantages:
This kind of small business might be hesitant to pay $100 to $200 at once (not a lot of money), but they might not realized how a tool like this can make a huge difference in their operation. I can offer a 30-day free trial, and once they feed the application with some products they would like to have the tool otherwise their work is lost.

Monthly payment advantages:
Clients need to make a smaller at-front investment ($10 to $20). By getting one or two orders of products they designed a while ago, they recover the monthly investment.
I can have a more predictable sales pipeline, and recurring income.

Monthly payment disadvantages:
More complex infrastructure. I need a website with user management capabilities and I am not sure what script to use.

So what do you think is better?

Thanks,
#deciding #fees #monthly #payment #recurring #time
  • Profile picture of the author Lana Hampton
    Hi Gilbert,

    I think you may need to test your payment models. You've identified the potential advantages and disadvantages of both models, but you don't know which will be more profitable. Is it possible to survey your potential customers? Have you considered providing both options and offering a reduced price for one-time payment customers?

    Originally Posted by Gilbert View Post

    I am developing an application that allows tracking parts needed to produce crafts (such as fashion jewelry) an include instructions to assemble the product.

    Hundreds of thousands of small business design crafts as "one-of-a-kind" (just see Etsy). For them, having them in an eStore is a challenge, because once the item is sold, they have to take it down, unless they keep track of how they created it. For small operations this is a challenge, because they buy supplies from art stores, online, at trade shows, etc, and they don't keep records of where they are getting the materials.

    My wife has such an operation, so I am building a product assembly system solution for her. While doing so, I realized there is a huge market for it, and supply chain applications (SAP, Oracle, etc) are too expensive and too complex for them.

    Hence, I am planing on selling the product assembly system to small business, but I need to decide what would be the best business model.

    The two options I am considering are:
    1. One time payment ~ $100 to $200.
    2. A monthly payment ~ $10 to $20 /month.

    One time payment advantages:
    Simpler infrastructure. I need a website where people can pay for the product via Paypal or similar and redirect them to a download page.

    One time payment disadvantages:
    This kind of small business might be hesitant to pay $100 to $200 at once (not a lot of money), but they might not realized how a tool like this can make a huge difference in their operation. I can offer a 30-day free trial, and once they feed the application with some products they would like to have the tool otherwise their work is lost.

    Monthly payment advantages:
    Clients need to make a smaller at-front investment ($10 to $20). By getting one or two orders of products they designed a while ago, they recover the monthly investment.
    I can have a more predictable sales pipeline, and recurring income.

    Monthly payment disadvantages:
    More complex infrastructure. I need a website with user management capabilities and I am not sure what script to use.

    So what do you think is better?

    Thanks,
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  • Profile picture of the author Gilbert
    Hi Lana,

    Thanks for your feedback. Actually is a good idea to offer both payment methods. That way is the client who will define what is best for her/him.

    The next step is to define the price of the offering. Hummm...
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    • Profile picture of the author Lana Hampton
      Gilbert,

      You can also test your price points, but it's easier to do that with controlled traffic (like PPC). You could also use a timeframe (two weeks, 30 days, etc.) if you are generating a good amount of organic traffic.

      Originally Posted by Gilbert View Post

      Hi Lana,

      Thanks for your feedback. Actually is a good idea to offer both payment methods. That way is the client who will define what is best for her/him.

      The next step is to define the price of the offering. Hummm...
      {{ DiscussionBoard.errors[6479228].message }}
    • Profile picture of the author ClickMonkey
      Originally Posted by Gilbert View Post

      The next step is to define the price of the offering. Hummm...
      It's often (but not always) easier to price things on the lower end (however you wish to define "lower end") and move your prices higher.

      It's slightly more challenging to start high and then roll prices backwards.

      This is especially true if you're rolling prices backwards kinda quickly and your existing customers are watching the price drop like rock while their locked in at a higher rate.

      But no matter what you do, a percentage of people will really hate you and complain and all that other stuff. Others will really like you and what you're offering. So ultimately, just get the offer out there and see what sticks.
      {{ DiscussionBoard.errors[6479713].message }}

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