Forums/Getting Started/Frequently Asked Questions
What constitutes a paying customer?
Michael O Klett
posted this on May 10, 2011 08:41 pm
Our tiered pricing model is based on how many Customers you manage through Chargify:
- Someone who paid you for the current month is a Customer. For instance, if you charge someone $25/month, then we're going to count him as your customer each month. And if you charge him once for a whole year of service (a product that has a 12-month billing cycle), then we're going to count him each month, because he paid you for all 12 months.
- Someone who owes you for the current month is a Customer. For instance, if we're trying to collect payment from someone in June and July before giving up and cancelling them, they will be counted as Customers in June and July. You can change your Retry & Dunning settings to shorten the time we spend trying to collect, if that makes more sense for your business.
- Someone subscribed to your free product is not a Customer. A free product is one that is completely free (it has a $0 recurring charge, $0 setup fee, $0 trial fee).
- About Free Trials on Paid Products: Users DURING the free trial period of a paid product do not count, but when the free trial ends, they DO count. When someone uses up his free trial on your product, we start trying to collect payment from them because they have entered the paid portion of your product. When we start trying to collect, they become your Customer. TIP: if your business has a lot of free trial users who probably won't convert to paid customers, then you should set up two separate products: one that's completely free (like 30 or 60 days free with no paid portion at all) and another that's your paid product (with no trial period built in). For the people who want to upgrade to your paid product, use our upgrade function to move them from your free trial product to the paid product. This will result in us only counting those people who end up on the paid product.
Comments
A very good explanation.
Michael, I really like Chargify but this is a CRAZY business model. You are killing Chargify because your competition is NOT charging for users who do not renew in the current month -- they charge per transaction.
As an example, for any business with a low-cost yearly (or infrequent) recurrence, Chargify is not a viable option price-wise. Let's say I want to charge a customer once a year at $5-$20 per year and I want to have lots of customers (who doesn't!), then I have to pay for all of my customers every month even though Chargify is doing no charging and I, the seller, am not collecting any revenue.
Just so you understand the magnitude of the issue. Most businesses working with you will have tiered models. Many will want to have a tier that acts as a funnel (a free level) and then graduated levels from there. A second tier might be as low as $5/year. And let's say I want to cast a wide net and want to have 10,000 people at this level (which means my yearly revenue will be 10,000 x $5 = $50,000). On your competitor sites I will get charged based on the 10,000 transactions per year, which would amount to approx $300/month (or $3,600/year = 7% of my total revenue. However on Chargify I will be charged at the $1000/month tier or $12,000 per year-- or nearly 25% of my business would go to Chargify.
Ok I hope this is clear. I want Chargify to be successful, but you are killing yourselves with this pricing model and I will have to look elsewhere.
Thanks,
Todd
Todd,
We'll definitely continue to hear feedback and adjust accordingly. We've known since we started that our pricing does not work for sites that have large numbers of low-price customers. We may make changes to make ourselves more appealing, but so far, we're staying pretty busy. Our merchants charge their customers along a wide range, from about $5/mo (min) to $5,000/mo (max), with the average being much closer to the low end (around $25/mo).
Thanks.
--- Lance
Michael,
If I read your explanation correctly, it means that if we have a customer who signs up for e.g. a $10/month subscription plan with a coupon code for a $10/month discount for, say, 6 months, then that customer does *not* count as a paying customer for the first 6 months. The customer would only count as a paying customer after the 6-month discount period ends.
Is that correct?
Thanks.
This is a serious issue, and I have to agree with Todd.
We have already implemented Chargify, which took some time. And now when we are about to add yearly recurring customers ($10-20/year for a domain name) we understand that Chargify will eat our whole margin.
You are about to get a very dissatisfied customer. I can always blame myself for not doing my homework but I really thought that I had. You write on your pricing page: "Our simple pricing model is designed to help your business grow." You should add: "But Chargify is not suitable for low cost products"
Have you heard the word "pivot"? It often refers to changing business model...
We are now actively looking at other services but being a bootstrapped start-up, the time and money the switch will cause us is going to hurt.
Is there any hope that you will adjust the pricing in the next three months?
I knew I wasn't the only one with this issue. It's quite confusing up-front.
Keep in mind that businesses typically operate on one of two models.... 1) high volume, low cost and 2) low volume, high cost. I'd venture to say that there are more businesses on the web going after the first business model due to advertising revenue (eyeballs=money). Your model automatically eliminates the vast majority of those businesses as potential Chargify customers. And if that's what you've decided to stick with as the model for Chargify, I suggest you explain it VERY clearly upfront!
Hi Benoit and Todd,
I have just asked our web designer to make it clear right on the pricing/signup page. I don't want merchants to feel misled or anything.
But, yeah, we know our pricing model does not work for low-cost items. Our merchants charge anywhere from $5-5,000 per month. The average is somewhere around $25 per month (or effectively so, as in charging $200/year).
Most of our merchants have businesses where they consider "success" to be when they have 500 or 1,000 paying customers. Some are up in the range of 10,000 or 20,000, but still collecting a pretty good monthly fee (at least, say, $7-8/mo or $99/year).
Todd is right in saying that there are probably more business trying high volume, low cost... but that's not where we fit well. Again, anything under a monthly effective of about $5 (min) does not work well with us until the quantities get really high (where our per-customer cost gets down to 7 cents or even 4 cents at the very high tiers).
So, we will definitely improve our pricing page to make that clearer.
Benoit, I think you can do a little trick to save money (I think this will work): set up a free product for those 1-year domain sales and execute a one-time charge against that subscription right when you start it. Free products don't count in Chargify fees. Set the product to expire after 1 year. Your system will get a reminder (webhook) when the product ends. When you get that, repeat the process. That customer will only be counted by Chargify in the first month (when the one-time charge occurs). This transfers a little bit of work to you, but you save money.
--- Lance
Thanks Lance for a good and transparent answer. Your tip on how to deal with this issue looks promising.
We have a handful of "paying customers" in our test account, which push us into a new pricing bracket. Is this the intent behind the pricing, or a bug of some kind? It seems philosophically misaligned with the idea that we pay only for customers who actually give us money.
Urgh - retract. My mistake.
Lance,
If there was a "Like" button, I'd have used it for your Dec-08 2011 01:59 pm. response. Very we thought-out, explained, and helpful.