Payment Models

When you set out to build your startup, coming up with a business model is one of the qualifiers, and hand-in-hand with that decision is what payment model to use. If making money solely using ads is your revenue model, you may skip this article. Today I'll touch on how customers will pay you.

I use three methods:

Pay by the Month

This is an example of a SaaS payment model. Customers may use your product daily, but they pay on a monthly basis. Customers may get unlimited use of your service, or it could be metered in some way (5 faxes per day, for instance).

This model is lucrative when businesses are your customers, since they tend to review products they pay monthly subscriptions for on a quarterly or yearly basis. Many times your business customers won't be using the product at all, but will still be paying about $15 to $100 a month (or more). Conversely, individuals are more likely to use what they are paying for more often and you'll get a lot more turnover, especially when your subscription fee is less than $10. Individual customers tend to be fickle.

Pay per Use

Your service may not warrant a pay-by-the-month charge. Perhaps you offer a one-time on-demand service or something that will be used irregularly. Charging a fee is a good way to go. In many cases you don't even need to have the user create an account.

It may be the case that your service is process intensive or uses an API that you have limited use of. Offering this as an unlimited service on a monthly payment basis could put you out of business.

Hybrid

Some customers may not need your service every day even every month, and just need to use your product briefly. You may choose to offer both methods, offering a limited use for a slightly premium price.

Conclusion

However you decide to go, I recommend running some numbers beforehand before committing, because the switching cost could be painful.

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