Subscriptions Vs. Commissions

[Harman]

My business is scaling well at this point. I've followed @Fox's advice to start small so for our first 2-3 clients we charged next to nothing for the projects we did for them and they were thrilled with the results (and the price). We initially set out to provide our service as a subscription/monthly fee and now that we are attracting higher paying clients I'm wondering if the subscription model is better than the commission model.

Case-in-point: A client we are currently courting does large complex landscape installs. A job can net their company $100k+ easy. We've done research into their field and found that similar companies can net 3-5 new leads a month. Now we could offer our service for a monthly subscription service and target $5k/month, or up the ante a bit and charge a 5% commission for each lead->client generation we get them.

Any pros/cons to either model any of you have experienced? Just throwing this out there to get your thoughts?

 

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[BizyDad]

I've found that unless you are actually closing the deal, clients often feel 5% is high. Under certain circumstances, you'll be chasing them down to invoice the $ and tracking the amount of the deals can be an issue.

I prefer the steady predictable revenue of the flat rate fee structure.

 

[Harman]

I get what you're saying @BizyDad and thanks for the response. I have no idea what a typical commission rate would be so I threw out 5% arbitrarily. That said it seems that even though there is definitely more legwork, there is potential to make more.

But as we're not in the business of making money but in the business of helping others and providing value, a pricing model that sits almost as a 'set it and forget it' is a win-win for both sides.

I was just chewing on the idea of subs/comms during my run and wanted to see what others had to say.

 

[BizyDad]

1. Most business owners do not think of paying you for a set it and forget it strategy as a win win.
2. I think you missed my point that chasing down payments/commissions is the opposite of set it and forget it.

That said, my advice is tainted by my bias. I hate chasing down money. My model allows me to spend less time on the bookkeeping and collecting cash, and more time focused on the marketing efforts and client meetings, which are the parts I enjoy most. But there again is another bias - I don't want set it and forget it, I want to keep doing work I enjoy doing.

I also hate the doubt that comes with the thought "Is my client under-reporting revenue generated?" And I've learned that some folks balk at "showing the books", even if I am unusually good at getting people to open up about their finances. Others do a terrible job tracking results so how do you calculate commissions then?

One of the hardest things to do in sales is to convince a business owner, then his/her team to change their habits. And in this case, many of them will think you are adding/changing their workload just so you can get paid. Hard to motivate the team around that. So with the commission based model, I found too often I was swimming up that stream. If you go this route, you should endeavor to have as much control as possible, but that also leads to other issues.

Lastly, I like to hire local employees and build a team. That's another bias. I don't want to be a solo-prenuer and I don't want to outsource work to other states/countries. I like having the camaraderie of a team, so that's the life I built. To build it properly, I feel a level paying structure is best for predictable cash flow and new hire planning.

I most assuredly am leaving money on the table by pricing things the way I do. But that is a small sacrifice, imo, when compared to the stress I am avoiding not having to deal with the other issues.

Lastly, here's a couple thread which dance around the issue:

Is anyone doing a pay-for-performance model?

Has anyone in the forum ever done pay-per-lead or pay-per-performance consulting before? (I mean, obviously besides MJ with limos.com, of course) Had a client bring this up recently and was curious what people in TFF thought about it. The TL;DR version---They sell a high-ticket platform. Right...

www.thefastlaneforum.com

HOT! - MARKETING - Interested in Digital Marketing? Why not try pay per appointment/show model? Ask anything you need!

I've received lots of invaluable advice on this forum from some wonderful people over the last few years so I thought it's time to give back. If you are interested in digital marketing and have any questions on the pay per appointment/show model ask any questions here and I'll answer them with...

www.thefastlaneforum.com

Final thought.... Don't overthink it. Whatever way you go, at some point, you can change it. As your biz grows, your circumstances will lead you to pivot if necessary. Could be 2 months or 2 years from now. Just make a decision and move forward.

Hope that helps.

 

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[Harman]

Awesome response and thanks for taking the time.

I wouldn't say your advice is at all tainted by your bias, more your experience in the matter has been fleshed out by real-life experience and your modus operandi reflects what you've learned. It's hands-down my favorite thing about this forum, everyone is on this journey and found different ways that work for them and your generosity in sharing that experience is exceptional!

I feel like a dolt for saying 'set-it and forget-it', that's my inexperience bleeding through. You're absolutely right and I've got a lot to learn!

 

[Kung Fu Steve]

That's an extremely hard sell.

More power to you if you can pull it off but don't forget 100k doesn't mean 100k profit.

They'll still have to pay the sales person who closed the deal, the manager who runs the sales team, the project manager to bid the job, the crews to do the job, taxes, insurance, health care, etc. etc. etc.

You're asking for 5% they probably couldn't actually afford to pay.

Either a flat rate for leads (and have them decide if it's worth it or not), or a flat rate for your service.

Some charge a % of adspend as long as they are profitable.

 

[Fox]

My business is scaling well at this point. I've followed @Fox's advice to start small so for our first 2-3 clients we charged next to nothing for the projects we did for them and they were thrilled with the results (and the price). We initially set out to provide our service as a subscription/monthly fee and now that we are attracting higher paying clients I'm wondering if the subscription model is better than the commission model.

Case-in-point: A client we are currently courting does large complex landscape installs. A job can net their company $100k+ easy. We've done research into their field and found that similar companies can net 3-5 new leads a month. Now we could offer our service for a monthly subscription service and target $5k/month, or up the ante a bit and charge a 5% commission for each lead->client generation we get them.

Any pros/cons to either model any of you have experienced? Just throwing this out there to get your thoughts?

I would just keep it simple and focus on what is makes sense for them to pay for a one off great system that helps with their most important business goals/problems.

As the guys said above profit share is a messy game and unless it is a very close relationship it is very tough to sell and manage. Much easier and faster to just focus on the one off payments for now and keep growing quickly.

 

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