You can even ask for money without having any way of receiving it. This is a good discipline to get into when doing customer development interviews.
"So we've established that this is going to save you four hours a month. OK -- it isn't ready for you yet, but it will be soon. It costs $50 a month. Can I get a $50 deposit from you to reserve your spot? We'll apply it against your first month's fee."
If you've identified a problem people actually have, they'll crawl over you to give you money. You don't even have to accept it, just watch whether they're actually willing to get out the checkbook or not.
(n.b. A lot of software is sold prior to existing at numbers substantially higher than $50. For example, you might hypothetically be building something enterprise-y and looking for your first anchor customer. If you are, the conversation goes something like "OK, will you soft-commit to being our first customer on this? We'll draw up a Letter of Intent which says that, six months from now, after we've got the technology in place, we start implementing a field trial for $YOUR_COMPANY, with successful implementation to be followed by an annual purchase in the six figure region. Does that sound good to you?")
Your points are just beautiful. Someone talking in business mode (patio11), versus someone in product mode (edv519).
I think your argument is rather about your goals. patio11 wants to make money first of all. edv519 wants to make the user happy first of all. Both views have pros and cons, and you will probably both reach your goals.
You don't understand what Patio11 is saying. He wants to know that your product can actually get people to pay up. It's the ultimate in product validation. Until people will pull out that wallet and sign on the dotted line, you don't know that your product solves a real problem.
That's what Patio11 wants. He doesn't want to get paid up front and he's not in "business mode". He's trying to validate his product in the best possible way.
That's just it. Human beings often say one thing and mean another. Users' willingness - even eagerness - to pay is the one true, OBJECTIVE measure of the value they place on your product.
When people value something, they WANT to exchange money. Why? Because they want to take possession of it.
Exchanging money for value on a deep, primal level satisfies this urge.
Not only that, often times people say they want a solution but it's not what they really want. And often times, people are clueless.
But when they exchange money for value, you have a clear indication of just that - what they value.
I would hesitate to actually get paid up front unless you really do have something coming soon, but it's quite trivial with many of the payment networks to collect the information and not charge until you're ready. If you truly have no product yet and your ability to deliver is not certain, this seems like a reasonable way to get promises to pay for something while still having a way to exit gracefully if you find you can't deliver.
Actually, with Stripe and Amazon they will just hold on to the information and not authorize/charge so you can wait much longer (like Kickstarter). The downside is that you aren't guaranteed to be able to charge the amount at the end, but I don't think that's likely to account for the majority of your customers.
Integrity is assured if you are up front with people.
This is the concept of early customers as stakeholders.
You can be upfront with people by saying, "Hey, I've looked into your needs and painful problems and I really want to serve you. I want to build this solution. But it costs money. Here's an example (show mark up) of what I have in mind. If I get x number of people to buy now, I'll build it. You can even get lifetime access (or some substantially reduced price) for taken on the risk and believing in me".
I think all those people who discount this method of serving customers are letting their fear of rejection get hold of them.
It's okay!
Fear is a natural reaction of the lizard brain; there's nothing to be afraid of.
But those of us that have tried this method and have seen how willing people are to work with you to build a solution (if your "heart" is in the right place, i.e. to serve them), know it works.
Seth Godin has a talk about "shipping on time" and just getting it out there to let the market decide (that's totally worth seeing).
The recruiting agency that launched here yesterday seemed like a good example of this. Their entire product consisted of two webforms (without even any validation) that would collect contact information. It's entirely possible there was no database behind it, and that it just emailed the founder.
The founder would then send out a mail to the addresses in Pile A saying "pay us $25k and we'll forward your details to Pile B using our Top Secret Algorithm". No computers necessary. And genius.
There are a lot of businesses that start out that way. Probably my favorite example is ZeroCater, which -- to my understanding -- was a cell phone, a Googledoc spreadsheet, and a lot of hustle.
"Hey YC companies hit me up, I'll order all the sandwiches this Thursday.
"Hello Bay Area restaurant, I want to place a $4k order this Thursday and every two weeks for the next six months. Can I talk to your owner? We have some requirements to make this work."
"Hey Valley IT company, tell me your dietary restrictions and food magically appears at your office, for the low low price of [guesstimate: $400 / employee / month]."
"Hey Valley restaurant, we're really loving the sandwiches. Here's an order for $6,000 and please pay extra special attention to the note about the vegan ones. I know it's a hassle but then again I do order $6,000 of sandwiches at a time so I expect you to deal."
In the process you'll discover things about this process which suck, and you can automate or systemize them as business needs/opportunities dictate.
I agree. I like the section in The Lean Startup on the related idea of the 'concierge MVP', whereby you're serving your initial customers very manually to really understand their needs before investing heavily in automated systems.
The example from the book that comes to mind (and I forget the name of the startup) was a grocery delivery app. They started out by manually going up to people at the grocery store and offering to give them suggestions on groceries to buy based on meal ideas. Eventually, they got someone to agree to participate and provided enough value to the person that they could - and did - get paid by the customer. This helped validate their idea to started building out the app that would do the same thing using software.
Good point. As programmers, we sometimes forget that we can get the business going without the software. Most of the time, all we need is some sales hustle going to confirm viability and get initial traction.
Conceptually I agree, but having spent the last <way too long> being fed by ZeroCater, there's a lot of stuff that falls through the cracks when humans are involved - and when you are dealing with your customers every single day that tends to get noticed.
They have a feedback form that's emailed out an hour after lunch, but the actual suggestions we provide go largely ignored. Several employees have described it as them having really short-term memory.
They also seem to insist on "trying out" restaurants again that the entire company dislikes.
Further, the feedback (when taken into account) never seems to apply to the company, only to the specific restaurant. For example: we request that next time $sandwich_shop delivers to leave the bread dry and put mayo and mustard on the side. That happens the next time $sandwich_shop delivers (though frequently not the time after that), but does not happen when $other_sandwich_shop brings food.
Interesting, thanks for that. Guess the problem is the people doing it don't remember, and their systems aren't advanced enough to make the link between $sandwich_shop and $other_sandwich_shop having similar menus. A good problem to solve.
We actually started out with a fully fledged system, however we needed to drastically simplify things so we cut back quite a bit :) Had some help from some awesome folks and we got moving! If anyone has ?'s let me know, we've bootstrapped everything so far.
Oh dear - Dane Maxwell^ has a lot to answer for. First Nathan Barry (http://news.ycombinator.com/item?id=5026251), and now you. Regurgitation something you heard someone else promote as good business practice doesn't make it so. Have you actually done this? Were you successful?
This isn't at all what Garrick is promoting, but rather that when when your MVP product crosses the threshold from M to V (so-to-speak), you'll be in a position to fulfill, and know you're on the right track. "the exact moment you have anything to sell – you’re ready to make that first sale"
^[For those that didn't come across Dane Maxwell's "The Foundation" during its marketing phase towards the end of lsat year, safe to say that if you're familiar with typical "information marketing" strategies, that is what make up the bulk of this "product", rounded out with a bit of idea and product development, and some rather incongruent self-help, group-hug conference calls slapped on.
It isn't all bad, but someone who advocates skimming email addresses from web sites to send unsolicited commercial emails to, along with long-form sales pages, and pre-payment for non-existing products, has to approached with a degree of skepticism. With the exception of this info marketing product, Dane Maxwell's own track record in the methodology he promotes is limited at best.]
Similar to the Nathan Barry situation, I felt that the Execute book (touted as a book about getting a product out the door in a week, written in a week, but not available in any other format than print for two months) was equally asking way too much for the lack of information given. I wrote out this huge response to one of the designers and posted it on Dribbble, but deleted it after his response was merely "Thanks, we might do that later."
Basically it dwindled down to "Why? Who are you? What have you done? You've proven nothing to me on this one page site, which isn't even attractive in itself. We don't even execute a product together, you tell me how you do it, but that assumes too much on my capabilities. Does this book expect me to know how to program? Does it expect me to know how to design?" Information on the book was spread across three different websites, the Table of Contents screenshot was just a mockup, and none of the sections seemed to be about actually doing something so much as "how it works for me." Well, I read enough "How x works for me," posts on the internet, and they are almost always pointless and subjective.
Just really basic stuff that would have helped convince people that they were making a solid purchase. If you're asking for money up front, especially if you don't even have any idea what the final product is going to look like (i.e. the author scrapped the book with three out of the seven days he'd slotted and rewrote it), this is a minimum of what I'm expecting.
Maybe I just don't want my readership to be suckers, I want them to be people who know what they're getting before they get it, as that will only help me spread the word and make more sales in the end.
This reminds me of Amy Hoy's advice, to develop a pitch/offer that resonates with people, and only then to develop the actual product/service to meet that (verified) need.
I believe she refers to this as crafting a "Shut up and take my money!" pitch.
For what it's worth, my most profitable SaaS product launched without the capability of processing credit cards.
It launched with a price though. But also with a 30-day Free Trial.
The logic being that I could spend all pre-launch time building the actual thing. And then I had 30 days to get that payment processing stuff sorted out. Back then, you almost needed that much time. Today, you need a good hour to get Stripe up and running, so it seems even less of a priority.
So yeah, sure, you probably aught to have "makes money" baked in from day one. But if all you have is some Stripe sample code, I don't think I'd consider that a product.
You can also buy yourself some time and save money on fees by deferring all withdrawals to an end-of-month payment. That's what Apple does with iTunes, and it means they don't have to pay fees on microtransactions like $.99.
For the MVP of Buffer, I implemented PayPal (no Stripe back then), but I avoided all the IPN hassles. The IPN is the part that would auto-upgrade people once they paid. The way I did it was to upgrade people manually as soon as I got the email from PayPal that they had paid for the Pro plan.
This turned out to be good for a number of reasons:
1. I had no idea how long it'd be before the first person paid, so why optimize
that flow? Instead I worked on things which would help me get to the first
paying customer.
2. The IPN was the hardest part of PayPal implementation, so it saved me
a lot of time to avoid it. The rest of the implementation can even be done
with their button implementation and no coding experience.
3. Actually people having a slight delay, and my needing to personally email
them, was a great thing. That built a lot of loyalty through the personal contact
and those were some insightful conversations.
This is definitely something that I think has been overlooked in this thread.
If you're dealing with serious money (to the point where an individual is unlikely to be willing and able to spend that kind of money) the odds of even being able to use a credit card are slim to none. Enterprise companies do not generally use credit cards for large purchases. You're better off making sure you can handle POs and ACH (which for the life of me I couldn't tell you how to do outside of "try Dwolla").
I'll just throw in a quick plug for WePay here, as you're absolutely correct when dealing with high-dollar invoices and POs. Credit card fees get nasty at that level, and the chargeback risk gets a little hard to stomach. From the perspective of the merchant, we make it just as easy to get paid by ACH as by credit card (plus we offer free invoicing tools, and have other invoicing servies that use your WePay account over our API)
In practice it's a tiny bit more effort for the payer the first time around (there's no ACH equivalent to a credit card authorization), and after that everything is basically one-click.
Having worked with numerous ACH gateways... it's really something you're better off avoiding if you can help it. Never mind the painfully-long merchant agreements, there also tend to be weird limits on your volume, cryptic SEC codes to deal with, and... ugh, the reconciliation processes.
This is overly pessimistic. There's two tricks to enterprise sales, at least in my experience.
First, have a personal relationship with the buyer. Not the purchasing department--the buyer. By which I mean the person with the authority to tell Purchasing to pay you, not the person or people who are going to use your product.
By "personal relationship," I mean direct interactions where you've taken the time to understand what the buyer wants, why they want it, and why they think you can provide it; and where you've demonstrated trustworthiness, an ability to deliver, and interest in the buyer's success.
For an early-stage startup, by the way, this is the founders' job, not a "enterprise sales" person or staff. As a founder, you have credibility and the ability to establish that personal relationship that a salesperson cannot match.
Second, work through the red tape before you deliver your product or service. If you do this while the buyer is still eager to have what you provide, she'll be motivated to resolve the inevitable roadblocks that appear. If you wait, then she'll be less motivated, and that's where the six-month delays come from. Not from a desire to screw you, but because it's no longer urgent.
In some companies, a PO # is sufficient--think of it like a credit card number you can charge against. However, I also like to get a deposit up-front. Once a company has paid you once, the wheels are greased for them to pay you again. I've never had problems collecting on an enterprise invoice when I was paid a deposit.
This opinion is based on selling five- and six-figure gigs as a consultant over the last 12 years. I've lost money three times: once when dealing with a small-time shop (but we renegotiated and I kept the deposit and cancelled the rest of the gig); another time when a huge company refused to reimburse me the first-class airfare we had agreed upon (I gave up trying on that one); and a small recent gig for which I waived my normal deposit requirement (and now I regret it).
Product sales have differences, I'm sure, but I'm willing to bet that the fundamentals are the same. Have a personal relationship with the buyer, and get them to cut the red tape for you before you deliver.
Do this and you'll have the ability to collect far more than $15,000 per year.
I almost never use credit cards. In the Netherlands they've got iDEAL http://ideal.nl/?s=&lang=eng-GB (online payment through your own bank). Why use Cedit Cards at all?
Then again, I hate living on credit as do most of my countrymen. I am amazed people would lend to buy a new car. If you can't afford it buy a cheaper model or one that's got more miles (or years) on it.
Using a credit card does not mean you have to pay interest. Buying something with a credit card is a 0% loan for 30 to 45 days. You can pay off any or all of your credit card balance within that time and not be charged a cent in interest.
Here's the kicker: In the US, if you don't buy with a credit card that earns you "rewards", then you are subsidizing those who do use credit cards with rewards. The reason is because many credit cards give around 1%-3% back, but the prices for everything remain the same regardless of whether or not you pay with a credit card that gets you rewards. As a result, built into the cost of nearly everything, is the cost of providing the airline miles, points, or cash back rewards.
On top of this, credit cards provide you with protection because you can dispute charges, and if someone fraudulently uses it, you do not lose that money immediately. Also, some cards (like American Express) provide 1 year of extra warranty for anything you buy.
TL;DR It's better to buy with a credit card, it costs nothing (individually), and you get benefits. There is a cost to society (everything costs a few % more), but I don't see that changing anytime soon.
I agree with everything you said, but you do have to be careful with this. There are many studies that suggest we tend to spend more using credit cards than we otherwise would. Up to 18%. Spending 18% to save 3% doesn't work. Just a note of caution. If you are disciplined he is definitely right. But I've never had the answer to how did you get rich be "it was the airline miles"
Unfortunately, those same studies (you're referencing a Dun & Bradstreet study with that 18%) show that debit cards with a VISA/MasterCard logo on them increase spending just as much. It's all about the lack of transparency, i.e. it hurts less to pay with plastic.
That is unfortunate, but I never said you should use debit instead. Though if I remember correctly the study suggest that debit spends more than cash, but less than credit.
FWIW I use a debit card most of the time because it is much more convenient than cash with the knowledge that I am spending more than I otherwise would.
In Europe I don't think this holds true. In several countries there are many shops which will not take credit cards, but only bank cards which have a lower cost to them. The whole Dutch rail system for example excludes the purchase of tickets with credit cards.
But more importantly may be that this 1-3% that you "gain" is all lost by getting used to the idea of credit and spending too much and getting in to very costly debt.
In the US the average is US$ 7,194.[1]
Significantly higher than in the UK, US5,082 (£3,175). [2]
Which is higher than the average for the EU US$ 2,495 (£1,558) (somewhat old EU/UK data, but the general point I think holds.)
TL;DR It's better to buy with a credit card, it costs nothing (individually), and you get benefits. There is a cost to society (everything costs a few % more), but I don't see that changing anytime soon.
No, no ... no. The cost is not to "society", the cost is to merchants. They just earn less profit. (Think about it, if the cost wasn't to the merchants, they wouldn't care about credit card fees).
What cards are giving over 1% back? I noticed some other commenters talking about 2%. I just get 1% + the occasional special 3% promotion.
# Chase Sapphire
* 2x travel
* 2x dining
* travel bonus booked via ultimate rewards
* no intl fees
# Discover (open road - apparently no longer offered?)
* 2x gas
* 2x restaurant
# Citi Forward
* 5x restaurants
* 5x entertainment
* 1 point ~ $0.008
# Virgin
* 3x virginamerica.com
* 1 point ~ $0.024 towards flights
I also have an AmEx (blue) which has utterly crap rewards. I use it only for Costco and some electronics to get the extended warranty they provide. Other AmEx cards have much better payout.
So basically I use the Citi Forward any time I go out to eat, bars, bookstores, etc. While the points are worth only about 80% of most points, the multiplier more than makes up for it. Incidentally because Amazon is classified as a bookstore, it actually has a better return than the Chase Amazon.com card. If I'm buying anything that doesn't have an actual multiplier (which is fairly rare; most of my purchases are restaurants and Amazon) I put it on the virgin card since the points are worth over 2x what other points are worth - typical of most airline cards.
The cost to the merchants is then passed on to the customers through higher prices (which they can stand because they're earning so many rewards!). Sure, the merchants would like to get rid of fees, but that would only provide them a short-term gain. Over the long term, their prices would come down to compensate for their lower cost of goods sold.
Nope. Doesn't work that way. Don't get me wrong, I think merchant processing fees are outrageously high, and that merchants should be allowed to add a few percent for payment with credit cards, in order to encourage cash/debit card payment.
Australia limited interchange fees around 2003 (cut them in half), and as would be expected, merchants did not lower prices.
"Interchange fees are paid by the merchant, and there have been studies
done in Australia that said that consumers have not saved a penny by lowering interchange rates — that the merchants have not reduced prices at all."
Somehow every story that somehow, however remotely, mentions credit cards, seems to lure out this sort of smug comments, with people saying a permutation of '<country I live in X> doesn't use credit cards, I'm so much smarter than those Americans'.
"Why use Cedit Cards at all?"
Maybe because, uh, iDEAL only works for Dutch shops?
"I am amazed people would lend to buy a new car."
Yeah well apparently you fail at math, because (depending on circumstances) borrowing money to buy a car can be cheaper than paying in cash, because of promotional rates and opportunity cost. Might want to re-think your ideological hangups.
(plot twist: I live in the Netherlands and paid cash for all cars I've owned up until now.)
roel_v, you have attributed a few statements to digitalengineer's post that were not in fact there.
" permutation of '<country I live in X> doesn't use credit cards, I'm so much smarter than those Americans'."
He just said that he hardly ever uses credit cards, and didn't make any sweeping statements about either the Netherlands or the US.
"Yeah well apparently you fail at math, because"
I'm not sure if you are aware (perhaps it was unintentional) but your reply is agressive. This sort of baseless personal agression is not welcome at HN - it might be worth familiarizing yourself with the kind of behavior that is accepted and expected here. It seems a bit strange to react so aggressively and personally to what was a benign comment.
It seems even stranger when you consider the OP didn't even mention some of the points you are berating him with - in fact, your post reminds me of Clint Eastwood addressing an empty chair at the Republican conference last year.
Back on topic - I can't wait until there is some kind of global iDEAL system, it is so much more convenient than credit cards. I know Germany and Poland both have similar systems - hopefully the UK/US will introduce something similar too.
I'm a British expat in NL, perhaps this has been introduced in the UK since I left.
I just wrote a long, pompous post in reply to another comment in this thread, but luckily I managed to restrain myself from clicking 'reply' so I'm going to try to be shorter this time (no promises on whether I'll succeed):
"and didn't make any sweeping statements about either the Netherlands or the US"
Well I disagree, there was definitely an assuming undertone in the post. I guess we can go 'did so/did not' on this one, but instead let's agree to disagree.
"but your reply is agressive"
Oh yeah, that was intentional, because I felt angry at the post, and in a way that I feel vindicates an aggressive attempt to restrain posts like the one we're talking about. Whether or not making aggressive posts on the internet serves that purpose is another question, although I guess the answer is "no, plus it makes you look like a douche" ('you', in this case, being me, just to make sure I'm being clear ;) )
"it might be worth familiarizing yourself with the kind of behavior that is accepted and expected here."
Sorry to pull that card on you, but I've been posting here quite a bit longer than you have, and lurking long time before that - and I long for the days where the type of comment like we're talking about now wouldn't have been posted at all, or the days just after those, where that type of comment would have (rightfully) been down voted into near-unintelligible grey right with the 'LOL', 'me too' and 'ur a faggot' posts. Sadly, those days seem to be long gone, and irrational ideologies seem to have become an accepted basis for posts.
"It seems even stranger when you consider the OP didn't even mention some of the points you are berating him with"
Not sure what you mean specifically - although to be fair, I did cover my ass by not berating him directly, and instead cowering behind a generalization of unspecified 'other' posts, only indicating that his 'falls in that general class'. Still I stand behind my point that my understanding of implied statements is completely in line with the content of my reply.
"Back on topic - I can't wait until there is some kind of global iDEAL system, it is so much more convenient than credit cards."
How so? Look, I use iDEAL myself (I used it 3 times just yesterday, even), and like it in the cases where it works, but two months ago I rented a car in a New Zealand airport terminal from a guy who had his whole office in his backpack (you know, the old-fashioned stencil paper credit card processing machine). How would that work with a direct debit system? I paid with credit cards in remote villages in Peru and I can pay or make reservations across the world with credit cards on the phone by just passing them my CC number. Furthermore, I have never paid a cent in interest charges on a credit card, payments are done in full, automatically, from my bank account. I'm not sure what the aversion against credit cards is, it's incredibly useful in many situations. I'd be perfectly happy traveling the world with just a Visa card (provided I can withdraw some cash locally in some places...), I have yet to see anything remotely as convenient as that. I paid more for withdrawing cash with my Maestro card in Spain last summer as I would have had I just paid for everything with my credit card FFS!
Here, let me throw in some more ranting against my country: you know why merchants don't accept credit cards in the Netherlands? Because it costs money, and the merchant mentality here is not 'the customer is always right and his convenience is something I need to think of', but 'I need to make sure I get paid, and as much as possible'. Merchants (not only online, I'd even say 'less so online') think of themselves much more as superiors to customers than those in more customer-oriented markets. There is a reason that 'boter bij de vis' doesn't have a direct similar construct in other languages such as English and Frech (that I know of) (it means: pay directly when items are received, no credit allowed). It probably also stems from the Protestant ethic: credit is a sin. Which I think is an even more daft reason to be adverse of credit.
(so it looks like I didn't manage to restrain myself after all - so be it)
> so I'm going to try to be shorter this time (no promises on whether I'll succeed):
I'm guessing not ;-)
Thanks for taking the time to write a reply. I don't usually make posts complaining about people's posts for the same reason - as you said, it makes one look like a bit of a dick - but yesterday I read a number of consecutive posts that didn't really do much but add to the general level of negativity. I appreciate the same accusation applies to my post too ;-)
I completely agree re credit cards being more useful globally than iDEAL. Although I live in hope that, one day, something slightly more secure will be the norm instead.
"I'm so much smarter than those Americans'" Your words, not mine, I did not say that. I did ask "Why use Cedit Cards at all?" because it made no sense to me. Thankfully there are some of your countrymen who can tell me why without talking about "ideological hangups" or my math skills.
I can only guess by your comments, but it would seem you're not very happy in the Netherlands? I'm probably one of the few Dutch people who bothered (visiting the US and) studying Amercian psychology, history and policy.
On the other hand I like to fully own my stuff right away. I care not for the 'discount' I might receive if I lend it. Cash also brings it own benefits (and being Dutch I like to haggle and hate lending).
"it might be worth familiarizing yourself with the kind of behavior that is accepted and expected here."
True, you didn't explicitly say it, but your words did imply it. While we're being pedantic, I didn't say you said so either, I just said you said a permutation of it, which you did.
"I can only guess by your comments, but it would seem you're not very happy in the Netherlands?"
Oh I'm mostly happy right now, and the Netherlands is one of the best countries for me to live in right now. But just because I'm fairly content with something doesn't mean that I can't identify any faults with it - actually, I could name a whole list of things I dislike about the Netherlands and Dutch culture in general, yet I still choose to stay here (I guess relevant: while Belgian by nationality, I have a Dutch wife, was born from a Dutch mother and Belgian father and have lived in the Netherlands for 10+ years. I basically asymptotically approach being 'real' Dutch, so to speak, and I could list just as many things I dislike about Belgium as I could about the Netherlands - more, actually, hence me living where I do).
"I care not for the 'discount' I might receive if I lend it."
OK well if you prefer to be irrational wrt your finances, more power to you, but proclaiming some sort of moral superiority because of it is out of line.
Which is actually an absurd thing for the rental companies to do, since they a) don't know the credit limit on the card and b) would immediately get a chargeback if they tried to recover anything beyond the actual rental rate. They would fight and have a not totally unreasonable chance of winning the chargeback, but the reality is they'd be far better off chasing you down with collections agencies.
Not sure how credit cards work in Europe, but in the US, I use credit cards exclusively for the rewards they give out. I get 2% on all of my purchases plus an interest-free 30 day loan until my payment's due. I've never missed a payment and never carried a balance, so at the age of 24 I've made something like $3,000 net off of credit card companies.
I'm not sure about the rest of Europe, but the UK works pretty much like this. Lots of cashback, store vouchers or airline miles.
I guess the card companies win either way - in interest on people who rack up debts (enticed by the benefits) and also on transaction fees charged to merchants when the card is used.
I think with "I've never missed a payment and never carried a balance" you're not the tipical joe. I've read some banks can charce excessive rates when people forget (or can't) to pay.
"Credit card" doesn't mean "buying on credit" even in countries where it's the normal way to pay for online purchases. When you open a checking account at virtually any bank, you're issued a Visa or MasterCard debit card that deducts from your account when used. Websites don't really know or care whether the card you present is a credit or debit card -- if it's got the Visa/MC logo, it can be charged as if it was a credit card either way.
There are two very different types of cards and transactions (in the US) that both go by the name of "debit".
1. As you describe, a card branded with Visa/MC, where the transaction goes through Visa/MC processing. The money is deducted from a checking account, although that fact is immaterial to the merchant.
2. A transaction that goes directly to the bank without Visa/MC. This is the EFTPOS network. This type of transaction is secured by a PIN and the physical card must be swiped (not an online charge). This system was originally for ATM cash withdrawals. But then retail merchants like supermarkets and department stores entered this space for payments, because it's much cheaper for them not to give up the 3% slice to Visa/MC. Wal-Mart in particular was a leader in doing this, and that's why the terminal always prompts for a PIN (it's cheaper for them) rendering it non-obvious how to do a Visa/MC-based transaction instead (unintuitively hit Cancel at the PIN prompt.)
Nowadays, virtually all cards and underlying accounts support both types of transactions. And most customers just know it as a "debit" card, oblivious to the difference between PIN and signature verification. But there are significant differences in the back end.
At least in the UK, a CC attracts the processing fee of ~=2.5%. The Debit card, does not, or charges a fixed processing fee. Many web retailers/vendors pass on this processing fee. The bigger you are, the lower processing fee you can get (fraud, chargeback rates and other factors all being equal).
In Portugal my bank has a system which works very similarly to iDEAL from what I saw in the site. It's very rarely used. The system that most people use is a different one on which you create a virtual credit card for some given amount and use those credentials when paying. It's much cleaner, it ties with your personal bank account, and you don't need to actually own a credit card or pay fees. As soon as the payment is processed the card gets invalidated and no further charges can be made. Pretty sweet.
In addition to the money back that was mentioned, in the US credit cards provide consumer protection. If you pay $500 for something and it's never deliver you can get a charge back from the cc company. Good chance you'll get your money back with minimal hassle. If you use a debit card or equivalent there is a lot less protection and it's a lot harder to get your money back. These are asfaik legally mandated things so it's not a question of CC being nicer as much as them being legally forced to be nicer than debit cards.
If you're able to actually control your spending a CC is very much superior to anything else in the US.
In the UK, consumer credit law means that credit card companies are jointly liable for the products/service purchased on the card. If the company you're buying from goes bankrupt before delivering your goods, or if they won't honour a warranty claim, you can easily claim from your cc company - so it makes much more sense to buy higher value items on a credit card.
A little Ask HN that is relevant to this thread: what are peoples' favorite avenues for processing cards these days? Especially for small increments (e.g. a few bucks a month)?
For non-recurring tiny payments I use PayPal for Digital Goods* for one of my side projects. It works about as well as paypal in general - but it is oddly hosted on even slower servers. It’s 5.5% + $0.05, so you don’t want to use it on anything costing more than say 5$.
If your customers are likely to be repeat customers, Amazons FPS Aggregated Payments* make some sense.
Especially for small increments (e.g. a few bucks a month)?
Kill the problem altogether by charging more. Alternatively, charge annual rates. Whatever you do though, don't try and make a living from services that charge two or three bucks a month.
Essentially every game which does microtransactions does it by implementing a dual currency system, with one free currency abundantly available if you have infinite time to play the game, and one currency which is only available through purchase (or very carefully monitored promotions). You sell the dear currency in odd-numbered lots (to exploit people's inability to do fourth grade math -- sad but broadly true of the industry), for example, 7 dragons eggs for $10, 15 dragons eggs (one free dragon egg!) for $20, etc. Even though this essentially enables you to price your Sword of Pwnage +1 at $1.42 (one dragon egg -- available ingame for one-click with no need to grab a credit card), you'll never actually send a $1.42 transaction to the processor.
> You sell the dear currency in odd-numbered lots (to exploit
> people's inability to do fourth grade math -- sad but broadly
> true of the industry), for example, 7 dragons eggs for $10, 15
> dragons eggs (one free dragon egg!) for $20, etc.
At the risk of embarassing myself through terrible fourth-grade math skills, can you explain how selling in odd-numbered lots is exploitive? Or do you just mean that at the $20 level it's not precisely one free?
I believe he's referring to their inability to divide 10/7 to calculate how much they're actually paying for each dragon egg, implying that he believes that if players knew each egg was almost a dollar and a half then they wouldn't purchase the eggs.
It is (explicitly, as a planned-and-tested-for-outcome) to cause players to not automatically attach "$3.50" to an in-game purchase which costs "3 dragon egs", thus not activating as much resistance to purchasing as it would if the prices were trivially calculable. (For instance, if you sold 10 dragon eggs for $10.)
You want to make it very obvious to people what they're paying for eggs, but very, very, very easy to spend eggs once they have them, both because a) it's in your best interest that they run out of eggs and re-buy them and b) because you will not be able to recognize revenues for eggs which are bought but not converted into in-game assets. (Revenue recognition for this is a deep and weird topic. Ask me some other time.)
There may also be a "hot dogs in packages of 8, buns in packages of 6" dimension to choosing the odd-sized in-game prices/currency-bundles. A user who has a little in-game change left may feel they have to add more, to get full value on their previous purchases.
I believe he's referring more to the fact that the real world price per unit of game currency is not a round number. If dragon eggs were worth exactly $1 each, people would be slightly more careful about the value/cost of in-game purchases.
A merchant account, a gateway, and SpreedlyCore on top of it for gateway-agnostic card vaulting. For cheap subscriptions I offer discounts for quarterly/yearly payments.
I was working on my niche web app, http://www.pageblox.com for many months and was at times (when feeling overly optimistic) extremely delusional about how much I would make when I turned on payments. The truth is, you have _no idea_ what your conversion rates will be until you actually turn on payment processing. I thought it would be around 2% but in fact was less than .1%
Even though I only made $95 my first month (a lot less then what I had hoped) I now have a clear idea of where I stand and what needs to be improved and tweaked. It'll be a slow and at times painful process (SEO, A/B testing, blog posts, re-design, features) to make the profitability worth all the hours put in so far...
I hear people keep recommending Stripe, but almost everyone I talk to here in Raleigh, NC says that it is way too expensive. Any thoughts? What is the best alternative that happens to be cheaper?
Most of Stripe's fees go straight to credit card issuers. We wish the underlying costs were lower, and would happily cut our rates if so.
Compared to other companies that help you accept credit cards, though, I think that Stripe's prices are very good.
The main difference between Stripe and other companies is that 2.9% + 30c is pretty much our only fee. There are no international card surcharges, monthly fees, American Express rates, etc. By design, those details aren't always obvious with other providers.
Braintree seems to offer a good combination of lower prices and a modern API, since you can negotiate the processing rates directly with the banks. But here's the catch: their merchant underwriting process isn't as nice as Stripe's.
I have no desire to hand $30K to anyone on $1M for counting money electronically. Currently, we just employ someone to take care of the checks and it is only a fraction of her time.
Around $10K it becomes an interesting proposition.
You can't get that on credit cards, period. The issuing banks charge more than that; anyone offering that is losing money on every payment - way beyond what you could make up for with volume. Even by becoming an acquiring bank and eliminating every single middle-man possible you can't get CC rates that good.
We (WePay) offer 1%+50c for ACH, and we can probably knock it down if you have reasonable volume. Ping me if you want more info, or just check out the website.
Thanks for the pointer; That is a completely valid instance of being a shill. :)
We'll take a look when appropriate. Naturally, it will only make sense if we can either forbid CC's, or explicitly charge higher for the CC payments. (Basically, the customers have to be willing to choose their payment method, and be charged for their chosen method.)
You can require ACH payments and block CCs both with our invoicing tools and over our API. You can also have the customer pay the service fee, rather than eat it yourself. The only thing you can't do is split the cost depending on the payment method (i.e. I'll eat the 1% ACH fee but if you want to pay by CC you're going to pay the extra 1.9%), though we've had some of our API customers ask for that kind of thing and are considering it.
A pretty popular venture-backed SaaS company didn't have automated payment processing until very recently. If you ask me, if you're dealing with other businesses and your product solves their business need, it really doesn't matter if you don't have a payment system as your MVP.
Processing money should be something you consider at some point, but what I am missing is a mention that this is coupled to your target market.
In Germany many businesses (assuming you are working on some SaaS / B2B / ...) would look at you like you just talked Klingon if you tell them you only accept credit cards. Sad truths is that most smaller companies do not even think about having credit cards. There is slowly some change, form what I have experienced, mostly due to older CEOs and business owners being replaced by a younger generation but overall credit cards are not as common here as in America.
On the other hand I currently looked at some providers for credit card processoring (currently working on a project where it could become necessary). Most of the services seem to require your company to be in America or England, most won't work in Germany. So maybe I skip credit cards for the beginning and chose to go with something else (just hypothetical) - does this mean I do not have a product? Because I only support 5 out of 6 possible payment options?
Then there is still the option of in app purchases. For most apps which are "just an app" I believe they will work way better. No need for another service, no separate website or member area, nothing to care about but integrate an existing system which is designed to move money from a customer as fast and easy as possible to you (and a middle man).
The author is right that you should think about payment processing while working on a product - but processing credit cards is not the holy grail.
Good article, but the last paragraph had me scratching my head. $250 for a YouTube channel subscription that notifies you with an email? If I'd paid $250 for that I'd be pissed off.
That's sort of like saying "I'll never pay $250 for a meal." Statistically speaking, you probably will, you're just not currently thinking of a circumstance under which it sounds reasonable, but given the circumstance it will sound very reasonable indeed. (Example: Your wedding dinner. Granted, once you have that context, it isn't just a meal, but once you have the context of this purchase, it presumably isn't "just" a video on Youtube. It's an expectation of direct value, a relationship with the producer, a statement about one's priorities, etc etc.)
More broadly: going from "I wouldn't buy that" to "That's commercially nonviable" is one of the classic hacker mistakes. Clearly people buy it, right? You can fail to sell to billions of people and still have a great business.
May not be directly relevant, but - I certainly would spend $250 on a meal. Indeed, the first meal I ever spent that much on - at the Fat Duck in the UK - was one of the best and most memorable single events of my life.
Which, I guess, points out another class of "actually reasonable" circumstance - the "no, really, it actually is that good" circumstance. I've heard similar things from people who bought top-end couture - you go in thinking "I can't imagine spending that much" and come out thinking "holy shit, I'm so glad I decided to spend that comparatively small sum of money".
Good article, but the last paragraph had me scratching my head. $250 for a YouTube channel subscription that notifies you with an email? If I'd paid $250 for that I'd be pissed off.
Even then, what's the issue? Just because something is available free if you search hard enough for it doesn't mean the creator can't or shouldn't charge for it.
Because $250 to see some content that is of value to you is reasonable. $250 to get an email telling you that the latest instalment of a series that is available on a public channel is not.
No, but paying - and thinking of it as paying, rather than donating - that much for a service that youtube gives you already for free (at least, I'm amazed if there isn't an option for "email me whenever this channel uploads a new video") would seem... odd.
The idea here is right on. It's like if you build a free app on the app store and you don't have ads or in app purchase. That isn't a MVP, it's a hobby. Things change when you start charging money for what you're doing.
A business is likely not a business if they aren't charging someone for something. Instead it might just be an organization that builds things, but for better or worse a business is something that is created to make money. If you don't like that idea, you shouldn't be "in business".
This post pushed me to try some of the new processing tools out there. I setup Amazon simple pay with an IPN handler in about 20min. I didn't have an idea for a site so it's just a novelty site :) http://valuedchange.com/ I chose amazon over stripe since the micropayment cost is less on amazon (5% + 5c vs 2.9%+30c )
That's a problem I have. I always have ideas for this weekend projects that could bring some extra-money but I always get discouraged because, living in México, there's no easy way to process credit card payments. PayPal IPN is everything we have and it kinda sucks.
I'm sorry, but this post completely lost me. Are we complaining about credit card processing? Are we talking about when to ask for payment for creative work? What are we talking about?
> Though, the primary benefit of being able to take money isn’t really about being able to take money.
> It’s about seeing your product through your potential customers’ eyes. Who they are? Which aspects of what you’re building are most valuable to them? ...Build that atop your payment processing system.
"So we've established that this is going to save you four hours a month. OK -- it isn't ready for you yet, but it will be soon. It costs $50 a month. Can I get a $50 deposit from you to reserve your spot? We'll apply it against your first month's fee."
If you've identified a problem people actually have, they'll crawl over you to give you money. You don't even have to accept it, just watch whether they're actually willing to get out the checkbook or not.
(n.b. A lot of software is sold prior to existing at numbers substantially higher than $50. For example, you might hypothetically be building something enterprise-y and looking for your first anchor customer. If you are, the conversation goes something like "OK, will you soft-commit to being our first customer on this? We'll draw up a Letter of Intent which says that, six months from now, after we've got the technology in place, we start implementing a field trial for $YOUR_COMPANY, with successful implementation to be followed by an annual purchase in the six figure region. Does that sound good to you?")