Would a voluntary fee work?


5

"How am I going to make money?" This is the question that's been bouncing around in my head for the last few months as I've been developing my site. Allow me to beat around the bush here, in order to protect my idea.

Let's say you're just starting out eBay or Craigslist, you have very small pool of early adopters and friends using your site. Keeping it free is certainly going to help it grow, but eventually, the VC's are going to want to know how you are going to bring in revenue. Unlike eBay or Craigslist, my site doesn't deal with the sale of products, so I will go ahead and say that directly charging the "listers" or the "visitors" is not an option.

Let's say the listers used the site FREQUENTLY and found it to be highly beneficial in their lives. Would it be realistic to go to the VC's and say, "We're going to make our money by giving the listers the OPTION to pay a $2 listing fee. It's completely optional, meaning if they don't feel like paying the fee they can skip it altogether and they still get listed".

I've been thinking about this a lot and this seems like the best option. It doesn't inhibit the site from growing and it projects a good image to the site for willingly giving its services away to those who can't afford to pay. What do you all think? Would I be throwing away potential revenue?

Funding Venture Capital Business Model

asked Mar 30 '11 at 04:46
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Edit This
88 points
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  • Just a little thinking-outside-the-box: if you are able to generate income from your site, why bother with VC? – Adam Crossland 8 years ago
  • There's a few reasons I could benefit from investment capital. The most important being that we are up against the chicken-or-egg problem. Without listers, the visitors never give it a chance. Without visitors, the listers fight over a handful of listings. So there's a bit of a marketing concern there, though, I'm confident that after the first 6 months of operation the viral effect will really kick in. Basically, I need marketing dollars and a team of no more than 12. – Edit This 8 years ago

5 Answers


2

I wouldn't even recommend an amount. I know of a few companies that have done a "how much would you pay for this week" and the results were surprisingly positive.

Also, look at services like flattr, it's well suitable to easy micropayments.

answered Mar 30 '11 at 04:52
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David Benson
2,166 points
  • I like the idea of not asking for an amount. I am heavily considering it. On one hand, not setting an amount allows truly satisfied users to send possibly way more than I ever expected. On the other hand, it takes away from the, "Wow, I can't believe I didn't have to pay the $2 listing fee, this site is great!" factor. At that point, it feels too much like a donation - which many people are completely blind to. But that's good stuff to think about, thanks for bringing up that perspective. I think it's going to have to come down to testing and analysis to see which one works better. – Edit This 8 years ago

2

If, as you say, charging directly isn't an option. I'd look at an open, voluntary donation. I've seen a few sites that have combined a "buy me a coffee" type donation button with adsense or similar ads, and they seem to be doing ok on it. I'd say so long as restraint is shown on quantity and placement of ad blocks it needn't detract from the experience. Even ebay and amazon have advertising on now.

You've also got the option of charging for a premium listing or similar - though I'd not be surprised if that ended up hurting the amount of voluntary donations.

I've also seen one service (I forget who) that is free to individuals, but voluntary subscription is about $5 monthly. You can then adjust down the sub you're willing to pay with a neat little slider in 50c steps all the way down to 0, along with a :) that steps down to :( So they're adding a little pressure to hint at the preferred rate, but gently.

answered Mar 30 '11 at 05:16
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Matt
2,552 points

2

I would love to be part of the pitch team to a VC for this business model! When, of course, it was proven with your business. (see note below)

First set it up. Then make it happen. Collect the following information:

  1. What percentage of user voluntarily pay
  2. What is the average voluntary payment?
  3. What is the demographics of the user that voluntarily pays?
  4. What is the cost of acquisition of a user?
  5. What is the lifetime "value' of a user that voluntarily pays?

These are (some of) the statistics you will need to justify any type of external investment.

Note: Hey doubters -- this model works of course -- in the nonprofit sector all of the time. The best example would be public radio and public television. People voluntarily paying for a service that they get free even if they don't pay.

I hope you try it and let us all know how it works!

answered Mar 30 '11 at 05:58
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Joseph Barisonzi
12,141 points
  • Thanks Joseph. At the moment, the plan is to basically hold testing periods in certain cities, one of which being my own. If I need to ask for money, I want to make sure that the model works in the context of my site and I don't think I could get a high enough valuation without solid proof that it works. Looking forward to the test phase, I will let you all know how it goes for sure. – Edit This 8 years ago

2

Ok, I'm going to go a bit on a rant, but I'll also provide some suggestions.

First of all, why is going to VCs your first option for making money? That's not going to solve the problem of your business making money. I would avoid that for a multitude of reasons, first of which would be: you want to be focused on making money starting now. You want to sweat about it, have nightmares about it. Tweak things, test things, figure out what works that will make it profitable to run. The only problem that you solve by taking outside money, is that making money is no longer a priority for the business. You have a lot of runway and a lot of time to figure out how to make money later. That's not really ideal. And what good does it do the users if it has to close down because it can't make any money?

Now for some suggestions.

You say charging the listers is not an option and the site is used frequently. That means you've got power users, that would probably benefit from some premium features. Charge money. Find things that are not essential for regular users of the service, that some listers would benefit from. Don't underestimate people's willingness to pay for useful things. And don't be afraid of charging money. The thing with people paying for stuff is that they complain when it sucks. They give you feedback. If it's free it's just an inconvenience and they probably can't be bothered to send feedback.

It seems to me like you already decided that charging is not an option. Don't dismiss it just yet. You can still keep the majority of features free, and just charge on corner cases. View it as barter for value.

Regarding the donation, what works best is not having a fixed amount. If I'm really happy that I've bought from your site the one thing I've searched for in desperation and couldn't find anywhere else, I might go on a limb and donate according to my feeling of the contribution you've made.

There are countless paths you can take to figuring out how to make it profitable. My main point is though, that you won't have to think about it if you take outside money. Because it won't hurt. Not for the next x months/years. But the problem doesn't go away. You're just postponing it. And it's actually harder to mess with pricing later on. Because you'se set out some expectations. Users react badly when free things go away. If they pay for things from the beginning, it's a different mindset.

answered Mar 30 '11 at 06:44
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Mircea Grelus
782 points
  • Hey Mircea, my apologies for being vague in my original question. I'll try to clarify. For 90% of the development I can complete by myself. However, I expect to need help from 1 or 2 additional developers for polishing the product and adding some extra features (eventually). – Edit This 8 years ago
  • The next reason is, the site is going to be released pretty much in one wave. It has to or the site will die before it ever really gets started. We're going to need fairly substantial marketing dollars to ensure the product catches on in specific areas. The site is built to go viral, we just need that initial population so that you don't get on and say, "There's nobody on this site where I live, this is dumb". I like your ideas, I don't think I've heard that perspective justified quite so well thus far. – Edit This 8 years ago

2

I think that the voluntary fee would work better if the listers perceived to have the same goal as you: Growing the site and getting more viewers for their listings. Make them feel like a part of your business and also see that without your business, theirs would not run as well.

answered Mar 30 '11 at 08:26
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David
1,567 points

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