As commerce continues to get more and more digital and more and more social, companies of all shapes and sizes are trying to bring their businesses online quickly, easily, and at low cost. And therefore, many of them are opting for more streamlined, agile, cloud-based platforms.
But even then, there are so many options to choose from. One seemingly attractive offer some platform providers are pitching is revenue-sharing pricing models, which promise sellers low cost-of-entry, as you don’t pay a cent until your company starts earning revenue.
Seems like a risk-free offer, but take a closer look and you’ll see you may not be getting the ‘free lunch’ you were promised.
When evaluating these platforms that offer revenue-sharing pricing models, it’s important to ask yourself the following questions to make sure you’re really getting the most bang for your buck.
1.) Does the solution meet your company’s needs?
It’s so tempting sometimes to go with the more economical e-commerce solution, we forget to ask the most basic question when choosing a commerce platform: does the software meet the needs of your business? This is going to be the base of your entire commerce operation, your company’s future, so it’s important to stay focused on the things that are most important to your company. Ask, is the platform capable of meeting your business’s objectives? Does it support the nuances of your industry? If no, consider the opportunity cost of choosing this over a platform that may have upfront capabilities that will work for you more long-term.
2.) How flexible is the platform?
One way platform providers are able to cut costs is by delivering a more standardized, templated solution to all their clients. This saves implementation time and money, but limits your ability to customize your experience to differentiate in the market. Think about how you want your site to look and function, and ask yourself if the platform is able deliver, or if you will be sacrificing differentiation to save money.
And along those lines…
3.) How do you implement features that aren’t provided by the standard platform?
For those features that you’re not willing to sacrifice, but that aren’t available in the standard version of the cloud platform, how will you bring those to life? Most often, you’ll need to rely on third-party partners to build and implement those features and functionality, and those providers will likely not be included under the revenue-sharing pricing model. They’re additional costs that may not have been accounted for until you’ve already started down that path.
4.) What happens when your revenue grows?
Revenue-sharing solutions are the most enticing for smaller organizations with tighter budgets, because they’re not on the hook to pay anything until they’re make money. But most businesses don’t aim to stay small for long. Be clear about what revenue growth will mean for the TCO of your platform. When revenue-sharing models charge a percentage of your revenue, you pay more the more revenue you generate. At a certain point, it stops being cost-effective. Be realistic about your targets and projections for both the short- and long-term, and factor those into the total cost of ownership of the solution.
It’s also important to remember that revenue ≠ profit. You can drive a lot of revenue, but if your margins are low that’s a higher percentage of your profits that will be going to pay for your platform.
There are certainly scenarios in which revenue-sharing pricing models make sense. But whenever someone offers you a deal that seems too good to be true, it’s important to dig deeper to make sure you fully understand what the offer entails, and risks involved. Remember that as you design and manage your business strategy, it’s less about cost and more about driving value. Choosing a cheaper solution may save you money upfront, but at what cost? Find a solution that adds value to your business and you’ll end up saving and winning in the long-term. And isn’t that why you got in the business to start with?
