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Pay Site Revenue Streams: Part 1

Pay Site Revenue Streams: Part 1

January 31, 2002
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" Until you fully understand the numbers, the discount you offer may render your member unprofitable, and this makes your site a hobby, not a business. "

This morning I'm contemplating various pay site revenue models, and some of the basic numbers behind them. If you're as new to the pay site game as I am, you might want to look at some of the things that I am considering, and how they might apply to your own business plan.

Dawn Elizabeth is in the process of soft-launching her new pay site, and I'm chewing on some of the numbers in an attempt to add a little more science to the process. You see, her basic "$29.95 per month" price point was initially chosen because "it's less than a dollar a day" and heck, a buck a day for all the cool stuff that she's rolling out is worth it, IMHO.

This sort of "grab your dick and say WTF" approach to running a business is not necessarily the best way to go, however, and so I thought that I would jot down a few notes, and contemplate the results in a foamy bubble bath while it snows out on the beach. Here's a look at some details:

Membership Fees
One might naturally assume that the primary income stream for a pay site is through direct site membership sales, and I'm likewise going to assume that. But I always try to shy away from assumptions, and will look at all aspects of the revenue stream as the site evolves; seeking opportunity here, mitigating revenue loss there:

As for the direct membership sales, Dawn is currently offering credit card users a 3 Day Trial for $2.95, that will automatically recur at $29.95. Online Check users will not have a trial option, instead paying $30 flat for a recurring monthly membership fee. Web900 users who wish to bill their fee to their telephone account will receive a non-recurring $30 for 30 days membership.

This balance of trial and recurring memberships is a simple beginning that will allow for easy testing of price points, and membership options. She may expand these options with discounted 3 month and 6 month non-recurring memberships in the future, but until more is known about the financial structure of the operation, offering "long term" discounted memberships is unwise. The reason for this is really simple: until you fully understand the numbers, the discount you offer may render your member unprofitable, and this makes your site a hobby, not a business.

Offering trial memberships is important for a number of reasons: maybe the prospect really wants to see if your site delivers what it promises before making a longer term commitment, also, for a great many people, spending "less than $3" for a ton of porn is no big deal. But the truth of the matter is that many pay sites are profitable only because the member forgot to cancel his trial membership, and then maybe even put it off for another month before getting around to it. Procrastination is the friend of all sorts of subscription services:

Ok. So a member is worth either $2.95 or $32.95 (after 3 Day Trial) or $30 upfront, and likely even more down the road, depending on how long he or she remains a member. While the percentage of memberships that initially recur after the 3 Day Trial will play an enormous role in the underlying mathematics, is this all that must be considered? Of course not: ...it is not immediately available, so her margin must take that initial 10% "hit" into account.

Processing Fees and Reserve Holdbacks
Since she'll be using ibill to process credit and debit cards, online checks, and provide web900 services, Dawn will incur a 15% transaction processing fee, as well as 10% reserve holdback. The 15% processing fee, ibill's highest fee bracket for lower-volume sites, while steep compared to using her own merchant account, is a reasonable bargain given the level of service they provide. From 24/7 customer service that will handle any member's issues while kitty's out to play, to fraud control and password management, ibill allows her the freedom and flexibility she needs, while protecting her own merchant status from excessive charge backs or any membership related problems.

As far as the 10% Reserve Holdback goes, this is an amount held in escrow for 6 months to guard against fraudulent operators and excessive charge backs. While this escrowed money is returned to her six months later, providing that she runs everything above board (which is not a concern as she will definitely please her members), it is not immediately available, so her margin must take that initial 10% "hit" into account.

At this point, it might appear that we have a handle on the incoming revenue stream, but I have a feeling that we're only at the beginning. Stay tuned and see what I mean: ~ Stephen


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