Ask HN: Which business model - monthly recurring billing vs. pay-per-sale? • Hacker News Board

Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#1

Post by fezzl » Tue, May 17, 2011, 11:11 AM UTC

Hi. We sell a hosted daily deal solution for online retailers, and we manage everything from marketing to the actual sales transactions of the deals. I was wondering which business model would make more sense for both our customers (the retailers) and ourselves.

We currently use a recurring billing model (with 30-day free trial), but we haven't been seeing good sales with that model. Should we switch? Make the monthly fee cheaper, or shorter/longer trial period? Or should we move to a pay-per-sale a.k.a. commission model? Or a combination of both, i.e. monthly billing + small cut for each sale?

No doubt, we can analyse which business model would be more profitable if we had a lot of data, but we don't. I was wondering if you guys have a preference based on gut feel, experience, or some reasoning.

Pay-per-sale seems to align our interests with those of our customers, thus making it a softer sell, but if we don't make much sales for our customers, our revenue will be pretty much stuck. Monthly recurring billing ensures predictability of revenue (allowing for churn), but would seem to leave a lot of money on the table if our customers get a substantial amount of sales out of our tool.

What do you think?

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#2

Post by davidw » Tue, May 17, 2011, 11:18 AM UTC

Interesting question that I'm wondering about myself, for LiberWriter ( http://www.liberwriter.com ). It seems pretty natural to just sell it once, but it'd be nice to get money that kept rolling in somehow.

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#3

Post by mgkimsal » Tue, May 17, 2011, 11:36 AM UTC

I hate to say "a/b test" but... "a/b test"? Or perhaps just test CTA pages to see which ones people click more? Or survey existing users to ask for their input?

I've wondered this on some projects, and the "a/b test" answer usually didn't feel right because in the beginning you're dealing with an insanely small amount of traffic (hard to gather meaningful results on tests from If you have some existing customers, send them a questionnaire and get answers directly from them, perhaps with a 'free ipod' drawing to sweeten the deal.

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#4

Post by fezzl » Tue, May 17, 2011, 11:43 AM UTC

mgkimsal wrote: post #3

I hate to say "a/b test" but... "a/b test"? Or perhaps just test CTA pages to see which ones people click more? Or survey existing users to ask for their input? I've wondered this on some projects, and the "a/b test" answer usually didn't feel right because in the beginning you're dealing with an insanely small amount of traffic (hard to gather meaningful results on tests from If you have some existing customers, sen…

Thanks for your suggestion. We have sent out surveys, but still there is little discussion about this on the internet AFAIK. About the free iPod: lie or really give one out?

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#5

Post by petervandijck » Tue, May 17, 2011, 12:09 PM UTC

1. Actually talk to your customers.

2. a/b test

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#6

Post by luis_ca » Tue, May 17, 2011, 12:11 PM UTC

fezzl wrote: post #4

mgkimsal wrote: post #3

I hate to say "a/b test" but... "a/b test"? Or perhaps just test CTA pages to see which ones people click more? Or survey existing users to ask for their input? I've wondered this on some projects, and the "a/b test" answer usually didn't feel right because in the beginning you're dealing with an insanely small amount of traffic (hard to gather meaningful results on tests from If you have some existing customers, sen…

Thanks for your suggestion. We have sent out surveys, but still there is little discussion about this on the internet AFAIK. About the free iPod: lie or really give one out?

I hope you are not seriously considering lying about giving out the iPod.

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#7

Post by fezzl » Tue, May 17, 2011, 12:19 PM UTC

luis_ca wrote: post #6

fezzl wrote: post #4

Earlier quoted context omitted.

Thanks for your suggestion. We have sent out surveys, but still there is little discussion about this on the internet AFAIK. About the free iPod: lie or really give one out?

I hope you are not seriously considering lying about giving out the iPod.

No. But the original comment said iPod "drawing"...

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#8

Post by ActVen » Tue, May 17, 2011, 12:22 PM UTC

In addition to discussing this with customers and a/b testing, I think you should consider the capital your firm has available. If you have sufficient capital to use a commission model, that lines up all of the incentives correctly. However, you should also pay attention to the cost to onboard the new customers. If this cost and/or time commitment is significant, you may have additional pressure on your bottom line during a time of high growth. You should also think about how many customers only conduct one of these deals and then drop off the map. If your cost to onboard is high then these customers will pose problems with your commission model. You might consider adding a commitment to a minimum number of events(deals) or price points if they want the commission model. That should help address the possibility of one time users becoming a liability.

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#9

Post by pitdesi » Tue, May 17, 2011, 12:25 PM UTC

I'm assuming this is a high-touch sale. In that case, you are talking to your customers all the time and should be able to see why they opt out of your service. If indeed it's the recurring model, you should offer them the commission model and see how they bite. It also might have something to do with how it's presented - what is the site?

The other thing to consider is how much money you have to burn... commission model typically takes longer to make serious bucks.

Re: Ask HN: Which business model - monthly recurring billing vs. pay-per-sale?

#10

Post by fezzl » Tue, May 17, 2011, 12:36 PM UTC

pitdesi wrote: post #9

I'm assuming this is a high-touch sale. In that case, you are talking to your customers all the time and should be able to see why they opt out of your service. If indeed it's the recurring model, you should offer them the commission model and see how they bite. It also might have something to do with how it's presented - what is the site? The other thing to consider is how much money you have to burn... commission m…

Actually, we're talking about low-touch sales -- as low-touch as low-touch can be. We charge USD9.95/mth, and we're at http://www.fezzl.com (redirects).