Which revenue model works best: membership fee, transaction fee or something else?
Online sites that help match consumer needs to providers that can help take a variety of approaches to charging for these services. Some charge consumers a membership fee to access or contact screened vendors. Others charge vendors a membership fee to get leads. Other sites charge a commission or transaction fee when business is conducted. Which model do you think works best for business transactions?
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Jun 26, 2013
Mary-Alice,
I think the answer is not so much one of revenue generation as revenue model. The issue boils down to what you are offering in the "link" that can be used to generate revenue.
Here are a few example.
1) Ebay links buyers and sellers and charges a listing fee and a transaction fee. Some sellers avoid the transaction fee by listing their website in the article listing and indicating that the price there is lower. Ebay has pushed back with Paypal and the guarantee against getting scammed. A transaction fee works both times as Ebay manages the listing and the transaction.
2) LinkedIn links people together and charges fees to advertisers to advertise and to users to have enhanced search and access tools. Thus, the value added is there and visible but inaccessible and the main tool is free and ad revenue supported. Linked in is now moving into other markets like job boards and therefore has additional revenue potential.
3) Kickstarter charges a fee upon completion of successful campaigns. The cost comes out of the campaign revenue. Kickstarter aggregates the revenue for simplicity of the recipient.
4) The Yellow Pages charges to highlight or enhance listings, to have larger listings, or to have plural listings.
As you can see, each of the examples sets out revenue generated from value creation. It is key to determine where the value is created in order to design a revenue model.
Here, you link service providers and their potential customers. How do you add value in the process. Are you providing "hot" leads, are you closing deals, are you vetting the service provider or the customer, are you acting as a conduit, or are you merely, like LinkedIn, providing a site where customers and service providers can interact. Once you figure out the value you offer the customers and/or the service providers, you will know where and how to charge for it.
On the page I type this is a featured expert. Though this model works, it is a form of advertising and broader advertising is also possible for your site.
I hope this non-answer is helpful.
Jun 26, 2013
Hello Mary,
I have always been a fan of membership fee's myself so long as the product I'm using is going to consistently upgrade. However transaction fee's are great for business because there are always going to be a number of people who desire to try products or services for a limited time period and those help you capitalize on sales you wouldn't get with a membership. Both are necessary to certain buyers so why not try the freemium model to capture the attention of some of the transaction based customers?
Wish you the best in future endeavors,
Chad
Jun 26, 2013
I think the question is "works best for consumer" because that would also work best for business (if done correctly).
Based on our experiences, it all depends on the industry. Some businesses and individuals are maxed out on their month-to-month bills and will hesitate to add on another monthly bill. While others have not reached at stage yet or maybe can switch with another bill.
But my quick conclusion is this: The eBay and PayPal model work out pretty well: no fees until something is done.
Jun 26, 2013
I would think both membership fee for access and high caliber of eco system then a transaction fee percentage would be fair and enable high standards.
Jun 26, 2013
Hello Mary-Alice, first it depends what country you are serving, it does make a difference. Second, it depends on your product or service. Take a look at Angie's List. She has created a revenue stream on charging consumers to see ratings and reviews of businesses. Third, it depends on the price. Are you going for volume? In the automotive industry for example, dealers pay for leads, whereby in the furniture business, they don't. Without identifying your product/service, your market, it is impossible to say for sure which of the revenue models works. Anyone suggesting one or the other without this information is miss-guiding you!
Jun 26, 2013
Use a freemium model. Something free that entices anyone to join and get value, and something for money that gives even more to the most serious members.
How you actually design the charges is more about the product and service, or the expectation of the customer. But stay with freemium as the core monetization strategy.
Jun 25, 2013
The decision can be based on the below criteria:
(1) The level you are operating - i.e. people recognize you/ your company, established brand or famous business (like a monthly paper publication)
(2) Customer segments - if they need a specific information regularly (Like shares / stock market related subscription)
(3) Mass market - value sourcing people - Normally transaction based (in combination with a subscription based approach is the best with a % revenue share to begin with and later migrate to subscription+transaction based as the usage grows
Jun 25, 2013
Mary: I think ultimately it depends on the site, the offering, and what the site owner(s) are trying to accomplish. Sites like Kudzu (a division of Cox Enterprises, Inc.) which matches contractors with consumers typically use an advertising model (a mix of generic and targeted ads). They use ad exchanges to power certain page placements and they sell localized sponsorships to contractors (i.e. "featured contractors"). Angie's List takes a different approach with the same market which is to let consumers pay a membership fee to ensure that their reviews are not "tainted". Angie hypes the fact that no one can buy a good review on Angie's List although they do sell advertising to service providers that meet certain rating criteria (and this revenue is more than the membership fees).
Angie's List generated approx. $52MM in total revenue of which $13MM was from membership fees for the calendar year ended March 31, 2013 and the remainder was from service providers (http://www.sec.gov/Archives/edgar/data/1491778/000143774913004711/angi_10q-033113.htm). Angie's List also had a net loss for the period of almost $8MM.
My personal preference is to go with a media model to support the site. I think there are a variety of interesting ways to incorporate advertising into a site without negatively impacting the end user experience. I think that membership has its place but only with very differentiated content that can't be obtained elsewhere. Also, membership almost certainly guarantees that the marketing, operating, and technology expenses will be higher and the utilization of the site will be lower due to the implementation and maintenance of the pay wall.
Jun 25, 2013
The answer may vary depending on your customers. Charging consumers only works when you have clear and repeatable value proposition like Costco. For business transactions, if your providers are big corps than a yearly fee is probably best since approvals and paperwork are usually required. If your providers are small like consultants, painters or decorators, then a monthly or per transaction fee is probably best because they like the flexibility. The fees have to be low though, because there is no shortage of ways people will cheat and contact each other directly if the fees are too high.
As a small provider I have yet to find a model I really like. I would rather pay a higher but contingent into fee per lead. Zintro is an example that is close though. They offer yearly or per transaction.
Jun 25, 2013
Hi Mary,
I would like to answer your question so if i would have been on your place i would have gone for transaction charge as everytime a transaction will happen you will get some percentage out of it and over a period of time your membership will increase which will increase number of transactions no of times.So, you should go for transaction fee as millions of transaction can happen within a short period of time but million membership I doubt that smy perspective basis on practical experience and case studies.
Regards
Shailendra
India
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