Micro Payments, Micro Profit?

The only way to make significant revenue with micro payments is to get an awful lot of them.

Any questions? 🙂

OK, I’ll say a bit more about my rationale for that position.

I work with a lot of membership organizations and the idea of micro payments is often very appealing to their leaders. They provide a very low price point on some products which they can point to when members complain about overall prices of products. It’s also quite trendy, with high profile examples like Kiva.com leading the way with that business model for micro-lending.

Let’s take a look at the math for a hypothetical association. Let’s say they are a scientific society with 20,000 members who pay $399 a year to join. We’ll use them as our pre-qualified base of prospects for a micro-payment product.

Evernote, the very popular note taking application that works on almost anything with a chip and a screen, recently shared some stats. Shortly after they started up, about 1% of their free users converted to paying customers.

If we take a mirco-priced product at $1.00 and 1% of our hypothetical base makes the purchase, then you end up with this:

(20,000 * 1%) * $1.00 = $200.00

Compare that revenue to what they get in membership dues:

20,000 * $399.00 = $7,980,000.00

The organization will literally waste more in jammed paper in their printers than they would make on this single micro-priced product. This is before taking into account the costs of producing the product and implementing micro payments, online access, etc.

Hell, having a single staff meeting to discuss this product already puts it in the hole!

This association would need a base market of about 2,000,000 people to make the revenue even slightly interesting with these assumptions. They still need a lot more people in that market even if you bump up the price and the conversion rate.

Other issues with micro payments include:

  • They must be frictionless to complete (think texting to donate to the Red Cross for Haiti, for example).
  • Products with micro prices are often perceived as low value by your prospective buyers.
  • You’ll often need a wide array of micro-priced products rather than just one to have the level of sales you need to create significant revenue.
  • Repackaging content from other sources into micro-priced chunks often requires selling it to an entirely different, and larger, market.

The only exceptions I might make for developing micro payments if you don’t have a large enough market include:

  • It serves a political or policy need that provides enough value beyond cash revenue;
  • People who purchase the micro-priced product are great candidates for macro priced products that you then sell to them (classic loss leader transactions).

I’m sure someone somewhere in the association world has done a successful micro payment model. (Let me know about it in the comments if you have!) But every leader and product manager must go into the decision making process with a realistic understanding of the numbers involved before committing resources to implement this model.

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R is for Open Source Statistical Analysis Programming Language

I read in the New York Times today about an open source programming language and environment for conducting statistical analysis. R, the Software, Finds Fans in Data Analysts:

R is also the name of a popular programming language used by a growing number of data analysts inside corporations and academia. It is becoming their lingua franca partly because data mining has entered a golden age, whether being used to set ad prices, find new drugs more quickly or fine-tune financial models. Companies as diverse as Google, Pfizer, Merck, Bank of America, the InterContinental Hotels Group and Shell use it.

But R has also quickly found a following because statisticians, engineers and scientists without computer programming skills find it easy to use.

This is pretty interesting stuff on a couple of levels. One, it is a programming language created by and for statisticians and data analysts rather than programmers. The story indicates it is easier to use by non-programmers who want to do custom analysis. Two, it is an open source project begun over ten years ago that is now starting to challenge the dominance of SAS, the dominant stats package. It is a classic example of an established firm being disrupted by an upstart, innovative, technology.

The R Project web site. This might of interest to your in-house statisticians, if you have them.

Quoted in Article on Effective Web Site Measurement

I was quoted in an article published by Microsoft Office Oline titled Deciphering your Web site traffic reports: 5 tips. I was interviewed by Christopher Elliott for the article, who does quite a bit of writing on travel and business issues.

Here is the section with my input, discussing how too much data can often be a bad thing:

Focus on the numbers that really matter. It’s easy to get overwhelmed with data, much of which doesn’t apply to your company. “Identify the top two or three statistics that actually allow you to make decisions about your site,” says C. David Gammel, an online media consultant and president of High Context Consulting in Salisbury, Md. “Ignore all the other data.”

Why disregard this wealth of information? Because poring over all the data will create what Gammel calls “analysis paralysis.” And that can detract you from your goal. His advice is to focus only on the metrics that are relevant to your business. For example, rather than obsessing over page views, look at the clicks to your online store and compare them with sales.

You are far more likely to make progress if you measure completion of specific, value producing goals, than simply trying to increase your overall page views and unique visitors.

When Data Crunches You

My most recent post on the We Have Always Done It That Way blog appears to have made a direct hit on the pitfalls of being too data-oriented: When Data Crunches You. Several comments so far and counting.

My co-authors and I are working on a new edition of the book, which was originally developed via collaboration on the blog. The current edition is available from both Lulu and Amazon if you haven’t read it yet.

Effective Ecommerce with a Login

The screencast I created of the effortless ecommerce process for Coda prompted several questions about how to best incorporate a login to the online sales process. I’m going to address that issue via a normal blog post rather than a video.

Every additional step in an online process usually costs you people who don’t want to go through that extra bit of effort. Depending upon the situation, the abandonment rate can be quite high for each step. Exceptions are when the goal of the process has a very high perceived value by the customer.

The Coda example does not use a login. They have no need for it. All they care about is selling an individual product to you. However, some organizations offer discounts to certain classes of customers (members, rewards program, etc.) and they need some way to identify them in the process. They may also wish to capture data about the individual purchasing a product for later analysis.

Here is the deal: you can incorporate a login to the ecommerce process if it provides sufficient apparent value to the customer to go through the extra steps required. Here are some potential reasons a customer would perceive value in logging in:

  • Repeat customers can save time not having to re-enter their data and billing information.
  • Certain classes of customer receive a significant discount or savings if they identify themselves to you by logging in.
  • They want the product enough to jump through the login hoop. (This is obviously not a good reason for a login, however.)

Look at your process for selling online. Is there any value to your customers to login for each sale? If not, you are going to hurt yourself by placing a login between your customer’s money and your bank account.

What should you do if you have both customers who can benefit from a login and those who won’t? Provide the option to login but do not require it. A number of sites offer this where you can login to retrieve shipping and billing data or go to a simple form for entering it. Providing the option allows your customers to self-select the process that is most appropriate for them.

Your database administrators may be pushing you to implement a login to reduce the occurrence of duplicate records in the database. You must analyze this requirement for the actual value to your organization. Is forcing data maintenance onto your customers the most profitable tactic to take? It very rarely is from a online sales perspective.

Social Network Fundraising ROI Calculator

Here is a nifty tool: Is It Worth It? An ROI Calculator for Social Network Campaigns:

You can use this tool to calculate an estimate of cost and return on investment for the recruitment and fundraising efforts of your staff in social networking sites like Facebook or MySpace. It works sort of like an online mortgage calculator. Just enter the starting assumptions in the yellow boxes below and the tool calculates results automatically.

This web-based spreadsheet (you edit the variable values right on the page and then click the ‘Update’ button to recalculate) might help you to understand the cost of investing time and effort into social networking compared to what you might realize from it. This tool is designed specifically for fundraising but you could probably use it for membership recruitment as well.

Web Analytics Definitions or A Page View by Any Other Name Is Not Allowed!

The Web Analytics Associations has released an expanded set of 26 standard definitions for measuring web traffic and usage (PDF). This is a useful document for providing consensus definitions of common terms used in the web industry.

However, I find it rather ironic that they released this document only as a PDF. Come on folks! You should know better, being an association of web professionals.

(Via Shawn Zehnder Lea.)

Update: What would I recommend in addition to a PDF? A sub-site on the WAA site for the definitions, providing an index and a separate web page for each definition. Having a page for each definition would allow people to link to them directly as references. This would improve the usability of the content and enhance search engine results for those definitions (ahem).

Podcast: Interview with Jeremiah Owyang on Measuring Social Media

I am working on an article for Associations Now about how to measure social media success. The questions I am exploring: How can you measure success with these tools? How do you know you are creating value with a blog, podcast, wiki, RSS, etc.? What’s beyond the page view?

I interviewed Jeremiah Owyang, about this issue last week. Jeremiah is with PodTech, an online video network. Jeremiah has been writing about social media, and metrics in particular, quite a bit this year. He even started a Facebook group on social media measurement.

In the recording attached to this post we discuss the idea of measuring engagement, subjective vs. objective measures and what the near term future might look like. Jeremiah shares several tips on getting started with measuring social media (follow the link for a write-up of these). Thanks Jeremiah!

Drop me a line if you are using social media at your association and would like to share your experience for the article. You don’t have to have solved the problem (if you have you can write the article!) but I am very interested in talking about the value you think your efforts are providing and issues related to measuring that value.

Update: Jeremiah has posted a few additional comments and links related to what we discussed in the interview.