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Summary:

Today’s Question of the Day comes from early Found|READ contributor, Sanchit Bhatnagar, cofounder of a New Delhi-based webshop called Toufee, where consumers can make Flash-based movies. (Obviously, San’s been burning the candle!) Here is San’s MySpace profile, too. San wants advice on what kind of membership […]


Today’s Question of the Day comes from early Found|READ contributor, Sanchit Bhatnagar, cofounder of a New Delhi-based webshop called Toufee, where consumers can make Flash-based movies. (Obviously, San’s been burning the candle!) Here is San’s MySpace profile, too.

San wants advice on what kind of membership model works best for monetization and customer growth purposes on consumer sites like his. Can you help?

Hi,

… I have two membership models in mind.

The first plan is your “gold standard”: In this model, pricing is determined by the features in the the package. A good example is found at CrazyEgg. What I like about this models is that its time-tested and easy for users to understand. It is also good for lump sum income.


The second is a “pay-per-use” or credits-based plan.
In this model, a user purchases a number of credits (one-time or recurring) which are used up as s/he performs certain functions on the website. A good example of this is at Dreamstime. (The credits model could also be applied to CrazyEgg, say, where 100 credits were given for every 10,000 visits, just to give you an example).

I personally prefer the second, pay-per-use plan, as it gives the user the option to buy small packages and then upgrade to bigger ones as his/her needs arise.

But then I also feel it can be a little confusing to new users.

So I was just wondering, what do you guys think of these two models?

Pros/Cons?

Any experience you have with either plan would definitely add to my learning.

Thanks.

Regards,
San.


What are your experiences with such membership models on your site? Please share any tips you have on these two, or still other, models you’ve tried…

  1. I believe both models have their pluses and minuses. Personally, I like the token/credit model because it allows for a user to keep making payments so that over the long haul you make more money.

    My one concern is that a credit system may become a very complicated accounting wise. Similar to brick-mortar stores selling gift cards.

    Anyone else care to chime in?

    Does anyone have some real numbers or experience in implementing one of these two models?

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  2. IT depends on the service, what you really need to think about is for your service how do customers define their needs. For instance pay per use would not work well with large enterprise customers as the budget decisions are big and tracking the need and upgrading as needed will not work. However for individual cellphone plans this works.

    I love apple mac advt. about how VIsta comes in 6 flavors where one can pay too much and not have stuff they want or pay too little and not have what they need. The core idea is to understand customer’s needs and drive a plan around that… in apple’s case they understand that real decision about computers is around speed, portability etc..

    So list down various attributes important to your customers:
    - Number of licenses
    - Storage
    - Bandwidth usage
    - Features etc..
    and see what is the area where user would want to scale and be flexible on.

    The second thing you need to consider is time dimension of purchase decisions.

    Generally I always recommend NOT cutting down on features, more features to users let them grow in terms of their needs and as their needs grow other requirements like storage etc would grow and that’ll bring business growth for you.

    Hope this helps
    - AJ

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  3. hi,
    many thanks carleen for posting my question here! and thanks to all for replying..

    After much thought we’ve decided to give the credit system a try.. what’s scary is that only 1 out of 10 websites seems to go after this(?), but regardless I personally feel that it may just work for our website.. And I think Aj makes a very valid point about at least giving the user to try all the features (better implemented on a credit based membership) because otherwise they will never know what the software is actually capable for and thus miss out on upgrading too..

    anyway, so the decision is made and many thanks for sharing the ideas.. if anyone has some personal experience with this, that is most valuable and welcome of course.

    Cheers,
    San!

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  4. Since the point system you prefer is the more difficult to implement, why not offer both and let your customers decide? Make sure there’s an easy way for them to cash in their points and start on the monthly plan (and vise versa).

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  5. I don’t know the answer to your question, but what I do know is that the “credit” system has worked extremely well for other companies. American Express sells travelers checks. These are checks people pay for in advance and put in a drawer for later. They often forget or never use them. Good for you :)

    Making someone pay up front for a service they’re expecting later is a tested business model. I believe this term is called “float”.

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